<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PACIFIC TELESIS GROUP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
NEVADA 4811 94-2919931
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
130 KEARNY STREET
SAN FRANCISCO, CA 94108
TELEPHONE: (415) 394-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
WILLIAM E. DOWNING
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
PACIFIC TELESIS GROUP
130 KEARNY STREET
SAN FRANCISCO, CA 94108
TELEPHONE: (415) 394-3000
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
<TABLE>
COPIES TO:
<S> <C> <C> <C>
Elizabeth K. Roemer, Esq. Therese A. Mrozek, Esq. J. Gordon Hansen, Esq. James C. Kitch, Esq.
Pacific Telesis Group Tamara L. Thompson, Esq. Scott R. Carpenter, Esq. Cooley Godward Castro
Legal Department Michelle Ramirez, Esq. Parsons Behle & Latimer Huddleson & Tatum
130 Kearny Street Brobeck, Phleger & Harrison LLP One Utah Center One Maritime Plaza
San Francisco, CA 94108 Two Embarcadero Place 201 South Main Street 20th Floor
(415) 394-3533 2200 Geng Road Salt Lake City, UT 84111 San Francisco, CA 94111
Palo Alto, CA 94303 (801) 532-1234 (415) 693-2000
(415) 812-2583
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after this Registration Statement becomes effective and the
conditions to closing, as described in the Stock Purchase Agreement dated as
of November 9, 1995 between the Registrant and the other parties thereto,
attached as Appendix A to the Prospectus/Proxy Statement forming a part of
this Registration Statement, are satisfied.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(2)(3)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(4)........ 3,250,000 $.003 $9,750 $0
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Represents the maximum amount of Pacific Telesis Group Common Stock
estimated to be issued upon consummation of the Stock Purchase Agreement
dated as of November 9, 1995 between the Registrant and the other parties
thereto attached as Appendix A to the Prospectus/Proxy Statement forming a
part of this Registration Statement.
(2) Pursuant to Rule 457(f)(2), and solely for the purpose of calculating the
registration fee, the proposed maximum offering price is one-third of the
par value of the securities being acquired.
(3) Pursuant to Rule 457(b), the registration fee has been reduced by the
$10,400 paid on October 15, 1996, upon the filing under the Securities
Exchange Act of 1934 of preliminary copies of Transworld
Telecommunications, Inc.'s proxy materials included herein.
(4) Preferred Stock Purchase Rights are attached to and trade with the Pacific
Telesis Group Common Stock. The value attributable to such Rights, if any,
is reflected in the market price of the Pacific Telesis Group Common
Stock.
---------------
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>
[TTI LOGO]
, 1996
Dear Shareholder:
You are cordially invited to attend an important Special Meeting of the
Shareholders of Transworld Telecommunications, Inc. ("TTI") to be held at the
Hilton Hotel located at 150 West 500 South, Salt Lake City, Utah 84101 on ,
at 9:00 a.m. local time (the "Special Meeting"). At the Special Meeting you
will be asked to consider and vote on a proposal to approve a Stock Purchase
Agreement (the "Acquisition Agreement") which provides, among other things,
for the acquisition (the "Acquisition") by a wholly owned subsidiary of
Pacific Telesis Group ("Pacific Telesis") of all of TTI's ownership interest
in Wireless Holdings, Inc. ("WHI") and Videotron (Bay Area) Inc. ("VBAI"), in
exchange for shares of Pacific Telesis Common Stock. TTI's ownership interest
in WHI and VBAI represents substantially all of TTI's assets. As a part of the
approval of the Acquisition Agreement, the shareholders of TTI will also be
asked to approve the liquidation and dissolution (the "Liquidation") of TTI,
in accordance with the terms and conditions of a Plan of Complete Liquidation
(the "Liquidation Plan"). The Acquisition and Liquidation are collectively
referred to in this letter as the "TTI Transaction". Details of the proposed
TTI Transaction and other important information concerning TTI and Pacific
Telesis, including certain financial information, appear in the accompanying
Prospectus/Proxy Statement. A copy of the Acquisition Agreement is attached as
Appendix A thereto and a copy of the Liquidation Plan is attached as Appendix
B thereto. Please give this material your careful attention.
Wasserstein, Perella & Co., Inc., an investment banking firm retained by
TTI's Board of Directors to act as TTI's financial advisor in connection with
the Acquisition, has rendered its opinion that, subject to the satisfaction of
the conditions set forth therein, the consideration to be received by TTI in
the Acquisition is fair from a financial point of view to TTI. The analysis,
support and limitations of this opinion are discussed in the accompanying
Prospectus/Proxy Statement, with the opinion itself attached as Appendix C
thereto.
Parsons Behle & Latimer, TTI's legal counsel, has rendered its opinion that
the TTI Transaction will qualify as a reorganization under Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended, in which case
neither TTI nor TTI's shareholders will recognize any gain or loss on the TTI
Transaction. The analysis, support and limitations of this tax opinion are
also discussed in the accompanying Prospectus/Proxy Statement, with the
opinion itself attached as Appendix D thereto.
The TTI Board of Directors unanimously approved the TTI Transaction and the
transactions related thereto on November 9, 1995.
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. YOUR PROMPT COOPERATION WILL BE
GREATLY APPRECIATED.
Thank you for your continued support of TTI.
Very truly yours,
Lance V. D'Ambrosio,
Chief Executive Officer
<PAGE>
[TTI LOGO]
102 WEST 500 SOUTH, SUITE 320
SALT LAKE CITY, UTAH 84101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders (the "Special Meeting") of Transworld
Telecommunications, Inc. ("TTI") will be held on , 1996, at the Hilton
Hotel located at 150 West 500 South, Salt Lake City, Utah 84101 at 9:00 a.m.,
local time, for the following purposes:
(1) To approve and adopt the Stock Purchase Agreement dated as of
November 9, 1995 by and among TTI, Pacific Telesis Group ("Pacific
Telesis") and certain other parties, providing, among other things, for the
acquisition by a wholly owned subsidiary of Pacific Telesis of all of TTI's
ownership interest in Wireless Holdings, Inc. and Videotron (Bay Area)
Inc., in exchange for shares of Pacific Telesis Common Stock, and to
approve the liquidation and dissolution of TTI in accordance with the terms
and conditions of a Plan of Complete Liquidation, pursuant to which TTI's
assets (including the shares of Pacific Telesis Common Stock received by
TTI under the terms of the Stock Purchase Agreement), net of liabilities,
will be distributed to TTI's shareholders, all as described further in the
accompanying Prospectus/Proxy Statement; and
(2) To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
The Board of Directors of TTI has fixed the close of business on , 1996
as the record date for the determination of the shareholders entitled to
notice of and to vote at the Special Meeting and any adjournment or
postponement thereof. Accordingly, only holders of record of TTI Common Stock
at the close of business on such date shall be entitled to vote at the Special
Meeting and any adjournment or postponement thereof. Approval of the matters
described in paragraph (1) above requires the affirmative vote of the holders
of a majority of the outstanding shares of TTI Common Stock entitled to vote
at the Special Meeting.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy card and return it promptly in the enclosed
prepaid envelope. If you attend the Special Meeting, you may vote in person if
you wish, even if you have previously returned your proxy card.
By Order of the Board of Directors
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE COMPLETED, SIGNED AND DATED
AND RETURNED IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU INTEND TO ATTEND THE
SPECIAL MEETING. THE PROXY CARD SHOULD BE RETURNED TO TTI NO LATER THAN ,
1996.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1996
PACIFIC TELESIS GROUP
PROSPECTUS
-----------
TRANSWORLD TELECOMMUNICATIONS, INC.
PROXY STATEMENT
-----------
This Prospectus/Proxy Statement and the accompanying appendices and other
materials are being furnished to the shareholders of Transworld
Telecommunications, Inc., a Pennsylvania corporation ("TTI"), in connection
with the solicitation of proxies by the Board of Directors of TTI from holders
of outstanding shares of the Common Stock of TTI, par value $.001 per share
(the "TTI Common Stock"), for use at the Special Meeting of Shareholders of TTI
scheduled to be held at the Hilton Hotel located at 150 West 500 South, Salt
Lake City, Utah 84101, on , 1996, at 9:00 a.m., local time, and at any
adjournment or postponements thereof (the "Special Meeting").
Pacific Telesis Group, a Nevada corporation ("Pacific Telesis"), has filed a
Registration Statement on Form S-4 (including exhibits and amendments thereto,
the "Registration Statement") with the Securities and Exchange Commission (the
"SEC") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), covering shares of its Common Stock, $0.10 par value (the "Pacific
Telesis Common Stock"), to be issued in connection with the proposed
acquisition (the "Acquisition") of Wireless Holdings, Inc., a Delaware
corporation ("WHI"), Videotron (Bay Area) Inc., a Florida corporation ("VBAI"),
Videotron USA, Inc., a Delaware corporation ("Videotron USA"), and, indirectly,
their respective subsidiaries (collectively, the "Acquired Companies" and
individually, an "Acquired Company").
This Prospectus/Proxy Statement constitutes (a) the Proxy Statement of TTI
relating to the solicitation of proxies on behalf of the Board of Directors of
TTI from holders of the outstanding TTI Common Stock in connection with the
Special Meeting of TTI and (b) the Prospectus of Pacific Telesis filed as part
of the Registration Statement. All information herein with respect to TTI, the
TTI Special Meeting and the liquidation or dissolution of TTI (the "TTI
Liquidation") in accordance with its Plan of Complete Liquidation (the
"Liquidation Plan") has been furnished by TTI, all information herein with
respect to an Acquired Company has been furnished by the respective Acquired
Company, and all information herein with respect to Pacific Telesis has been
furnished by Pacific Telesis.
This Prospectus/Proxy Statement and the accompanying appendices and form of
proxy are first being mailed to shareholders of TTI on or about , 1996.
THE SHARES OF PACIFIC TELESIS COMMON STOCK TO BE ISSUED PURSUANT TO THIS
PROSPECTUS/PROXY STATEMENT HAVE NOT BEEN APPROVED OR DISAPPROVEDBY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OFTHIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS , 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION...................................................... 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... 1
SUMMARY.................................................................... 3
General.................................................................. 3
The Companies............................................................ 5
Special Meeting of Shareholders of TTI................................... 8
The Acquisition.......................................................... 10
The Liquidation of TTI................................................... 12
Arbitration Proceeding................................................... 13
Market and Dividend Information.......................................... 13
Comparative Per Share Data............................................... 14
THE TTI SHAREHOLDERS' MEETING.............................................. 16
Date, Time, Place and Purpose............................................ 16
Record Date and Outstanding Shares....................................... 16
Voting of Proxies........................................................ 16
Vote Required............................................................ 16
Expenses; Solicitation of Proxies........................................ 17
Dissenters' Rights....................................................... 17
Other Matters To Be Considered........................................... 17
Stockholder Proposals.................................................... 17
Accountants.............................................................. 17
Section 16(a) Disclosure................................................. 17
THE ACQUISITION AND RELATED TRANSACTIONS................................... 19
Background of the Acquisition............................................ 19
Reasons for the Acquisition; Approval of the TTI Board of Directors...... 21
Financial Advisors....................................................... 22
Certain Federal Income Tax Considerations................................ 25
Accounting Treatment..................................................... 27
Interests of Certain Persons in the Transactions......................... 27
The Spin-Off............................................................. 28
The TTI Liquidation...................................................... 28
Regulatory Matters....................................................... 29
NYSE Listing of Pacific Telesis Common Stock............................. 31
Statutory Dissenters' Rights............................................. 31
Procedural Matters....................................................... 31
Resales of Pacific Telesis Common Stock; Affiliate Agreements............ 31
Minority Buyback of BAC Shares........................................... 31
THE ACQUISITION AGREEMENT.................................................. 32
General.................................................................. 32
Consideration............................................................ 32
Escrow................................................................... 32
The Spin-Off............................................................. 32
Representations and Warranties........................................... 33
Conduct of the Business of the Acquired Companies Pending the
Acquisition............................................................. 33
Conditions to the Acquisition............................................ 34
Post-Closing Matters..................................................... 35
Post-Closing Adjustments................................................. 36
Indemnification.......................................................... 36
Termination; Amendment and Waiver........................................ 38
Fees and Expenses........................................................ 38
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
THE REGULATORY ENVIRONMENT AND WIRELESS CABLE INDUSTRY..................... 39
The Communications Act................................................... 39
The Cable Act............................................................ 39
Other Regulations........................................................ 39
Availability of Programming.............................................. 39
Copyright................................................................ 40
Retransmission Consent................................................... 40
CERTAIN LEGAL PROCEEDINGS.................................................. 41
Videotron USA and TTI Litigation......................................... 41
Other Litigation......................................................... 41
Arbitration Proceeding................................................... 41
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION............................ 43
INFORMATION CONCERNING PACIFIC TELESIS..................................... 44
Pacific Telesis--Business................................................ 44
Pacific Telesis--Proposed Merger with SBC................................ 45
Pacific Telesis--Selected Financial Information.......................... 47
Pacific Telesis--Market and Dividend Information......................... 48
INFORMATION CONCERNING TTI................................................. 49
Introduction............................................................. 49
Description of TTI's Business; Competition............................... 49
General Development of TTI's Business; Competition....................... 50
TTI--Description of Properties........................................... 53
TTI--Dividends, Distributions and Redemptions............................ 53
TTI--Legal Proceedings................................................... 53
TTI--Selected Financial Information...................................... 53
TTI--Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations..................................................... 53
TTI--Changes in and Disagreements with Accountants....................... 56
TTI--Market Prices of Common Stock; Dividends............................ 56
TTI--Officers, Directors and Key Personnel............................... 57
TTI--Principal Shareholders.............................................. 59
TTI--Executive Compensation and Other Matters............................ 61
TTI--Related Party Transactions.......................................... 62
TTI--Compliance with Section 16(a) of the Exchange Act................... 63
INFORMATION CONCERNING WHI................................................. 64
WHI--Business............................................................ 64
WHI--Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations..................................................... 65
WHI--Legal Proceedings................................................... 67
WHI--Properties.......................................................... 67
INFORMATION CONCERNING VBAI................................................ 68
VBAI--Business........................................................... 68
VBAI--Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations..................................................... 68
VBAI--Legal Proceedings.................................................. 69
VBAI--Properties......................................................... 69
INFORMATION CONCERNING VIDEOTRON USA....................................... 71
Videotron USA--Business.................................................. 71
Videotron USA--Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................... 71
Videotron USA--Legal Proceedings......................................... 73
Videotron USA--Properties................................................ 73
SELECTED FINANCIAL DATA OF WIRELESS HOLDINGS, INC., VIDEOTRON USA, INC. AND
VIDEOTRON (BAY AREA) INC.................................................. 74
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF PACIFIC TELESIS CAPITAL STOCK................................ 76
Rights of Pacific Telesis Common Stock.................................... 76
Articles of Incorporation and Bylaws...................................... 76
Preferred Stock Purchase Rights........................................... 77
Nevada Business Combination Act........................................... 80
Certain Anti-takeover Effects............................................. 80
Transfer Agent and Registrar.............................................. 80
COMPARATIVE RIGHTS OF STOCKHOLDERS.......................................... 81
Authorized Capital Stock.................................................. 81
Number of Directors....................................................... 81
Election of Directors..................................................... 82
Removal of Directors...................................................... 82
Vacancies in Board of Directors........................................... 83
Limitation on Liability of Directors and Officers......................... 83
Indemnification........................................................... 84
Stockholder Action by Written Consent..................................... 86
Special Meeting of Stockholders........................................... 87
Stockholders' Approval of Extraordinary Transactions...................... 87
Dissenters' Rights........................................................ 88
Charter and Bylaw Amendments.............................................. 89
Payment of Dividends...................................................... 90
Inspection of Books and Records........................................... 90
State Antitakeover Statutes............................................... 91
INDEPENDENT PUBLIC ACCOUNTANTS.............................................. 92
LEGAL MATTERS............................................................... 93
INDEX TO FINANCIAL STATEMENTS............................................... F-1
INDEX TO APPENDICES......................................................... I
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE
MATTERS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY PACIFIC TELESIS, ANY OF THE ACQUIRED
COMPANIES OR TTI. NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF PACIFIC TELESIS, ANY OF THE ACQUIRED COMPANIES OR TTI SINCE SUCH
DATE. THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY THIS
PROSPECTUS/PROXY STATEMENT, OR A SOLICITATION OF A PROXY, IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
iii
<PAGE>
AVAILABLE INFORMATION
Pacific Telesis and TTI are each subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith each files reports, proxy statements and
other information with the SEC. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at 7 World
Trade Center, 13th Floor, New York, New York 10019 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material may be obtained by mail from the Public Reference Section of
the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding entities, including Pacific Telesis and TTI that
file electronically with the SEC. In addition, reports, proxy statements and
other information concerning Pacific Telesis may be inspected at the offices
of the following stock exchanges on which the Pacific Telesis Common Stock is
traded: the New York Stock Exchange, 20 Broad Street, New York, New York
10005; the Chicago Stock Exchange, One Financial Place, 440 La Salle Street,
Chicago, Illinois 50504; and the Pacific Stock Exchange, 301 Pine Street, San
Francisco, California 94104. In addition, certain reports, proxy statements
and other information concerning TTI may be inspected at the offices of The
Boston Stock Exchange, located at One Boston Place, Boston, Massachusetts
02108, on which exchange the TTI Common Stock was traded between October 31,
1994 and April 11, 1996. Pacific Telesis does not assume any responsibility
for the accuracy or completeness of the information concerning TTI contained
in such documents or for any failure by TTI to disclose events which may have
occurred or may affect the significance or accuracy of any such information,
and TTI does not assume any responsibility for the accuracy or completeness of
the information concerning Pacific Telesis contained in such documents or for
any failure by Pacific Telesis to disclose events which may have occurred or
may affect the significance or accuracy of any such information.
Pacific Telesis has filed with the SEC the Registration Statement under the
Securities Act, with respect to the shares of Pacific Telesis Common Stock to
be issued in the Acquisition. This Prospectus/Proxy Statement does not contain
all of the information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations of the SEC.
Reference is made to such Registration Statement for further information with
respect to Pacific Telesis and the Pacific Telesis Common Stock. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the SEC or
incorporated by reference herein are not necessarily complete, and, in each
instance, reference is made to the copy of such document so filed or
incorporated by reference for a more complete description of the matter
involved. Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by Pacific Telesis (File No. 1-8609) with the
SEC pursuant to the Exchange Act are hereby incorporated herein by reference
and made a part hereof: (a) Pacific Telesis' Annual Report on Form 10-K for
the year ended December 31, 1995 including certain information in Pacific
Telesis' Proxy Statement dated March 15, 1996 for use at Pacific Telesis' 1996
Annual Meeting of Shareowners and incorporated by reference in the Form 10-K;
(b) Pacific Telesis' Quarterly Report on Form 10-Q for the quarters ended
March 31 and June 30, 1996; (c) the description of Pacific Telesis Common
Stock included in Pacific Telesis' registration statement on Form 10 dated
November 15, 1983, including any amendment filed for the purpose of updating
such description; (d) the description of the Preferred Stock Purchase Rights
contained in Pacific Telesis' Form 8-A filed September 25, 1989, including any
amendments filed for the purpose of updating such description; (e) Pacific
Telesis' Current Reports on Form 8-K dated June 10, 1996, April 1, 1996 and
January 4, 1996 and; (f) Pacific Telesis' Proxy Statement dated June 3, 1996,
for use at the Pacific Telesis Special Meeting of Shareowners held on July 31,
1996.
1
<PAGE>
All documents filed by Pacific Telesis pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Pacific Telesis Common Stock pursuant
hereto shall be deemed to be incorporated by reference in this
Prospectus/Proxy Statement and to be a part hereof from the date of filing of
such documents. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for the purpose of this Prospectus/Proxy Statement to
the extent that a statement contained herein or therein or in any subsequently
filed document which also is or is deemed to be incorporated by reference
herein or therein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this
Prospectus/Proxy Statement, except as so modified or superseded.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS THAT ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. UPON WRITTEN OR ORAL REQUEST,
PACIFIC TELESIS WILL PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS
PROSPECTUS/PROXY STATEMENT IS DELIVERED, INCLUDING ANY BENEFICIAL HOLDER OF
TTI COMMON STOCK, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED
HEREIN BY REFERENCE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT
SPECIFICALLY INCORPORATED HEREIN BY REFERENCE). REQUESTS FOR SUCH DOCUMENTS
SHOULD BE DIRECTED TO PACIFIC TELESIS' INVESTOR SERVICES OFFICE, 130 KEARNY
STREET, SUITE 2926, SAN FRANCISCO, CALIFORNIA 94108 (TELEPHONE NUMBER (415)
394-3078). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS
SHOULD BE MADE AT LEAST TEN BUSINESS DAYS PRIOR TO THE DATE OF THE SPECIAL
MEETING.
2
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Prospectus/Proxy Statement. This summary is not intended to be complete
and is qualified in its entirety by the more detailed information appearing
elsewhere in this Prospectus/Proxy Statement, the Appendices attached hereto
and the information and documents incorporated by reference herein, all of
which should be carefully reviewed. The information contained herein with
respect to Pacific Telesis, TTI, WHI, VBAI and Videotron USA has been supplied
by each such respective entity. In addition, the information contained herein
with respect to the Acquisition is qualified by reference to the Acquisition
Agreement, the Liquidation Plan, the fairness opinion of Wasserstein Perella &
Co., Inc. (the "Fairness Opinion") and the tax opinion of TTI's legal counsel,
Parsons Behle & Latimer (the "Tax Opinion") attached hereto as Appendix A, B, C
and D, respectively, and incorporated by reference herein. Capitalized terms
used herein and not otherwise defined shall have the meanings set forth in the
Acquisition Agreement attached hereto as Appendix A, and incorporated by
reference herein. Any forward looking statements contained in this
Prospectus/Proxy Statement involve risks and uncertainties which may cause
actual results to differ materially from those discussed. A wide range of
factors could contribute to those differences, including those discussed herein
or in the documents filed by Pacific Telesis and TTI with the SEC. Reference is
made to such factors.
GENERAL
This Prospectus/Proxy Statement relates to the proposed Acquisition by
subsidiaries of Pacific Telesis of the outstanding capital stock of WHI, VBAI
and Videotron USA pursuant to the terms of the Stock Purchase Agreement dated
as of November 9, 1995 by and among Pacific Telesis, Pacific Telesis
Acquisitions, a wholly-owned subsidiary of Pacific Telesis, Pacific Telesis
Purchasing, an indirect wholly-owned subsidiary of Pacific Telesis, TTI,
Videotron USA (an indirect wholly-owned subsidiary of Videotron Canada),
Videoway Technologies, Ltd., a Barbados corporation ("Videoway"), Le Groupe
Videotron Ltee, a Quebec corporation ("Videotron Canada"), WHI, VBAI, F.
Lorenzo Crutchfield, Jr. and Lance V. D'Ambrosio (the "Acquisition Agreement"),
a copy of which is attached hereto as Appendix A. TTI and Videotron USA
currently own all of the issued and outstanding stock of WHI and VBAI. Each of
TTI and Videotron USA owns 50% of WHI, and TTI owns 20% and Videotron USA owns
80% of VBAI. Under the terms of the Acquisition Agreement, Pacific Telesis
Acquisitions will acquire all of the capital stock of WHI and VBAI held by TTI,
and Pacific Telesis Purchasing will acquire all of the outstanding capital
stock of Videotron USA. WHI is a Delaware joint venture corporation in the
business of acquiring, developing and operating wireless cable television and
SMATV systems in the United States. WHI, through subsidiaries, currently owns
an operating wireless cable television system located in Spokane, Washington
and holds wireless cable channel rights in San Francisco, San Jose, Santa Rosa,
Gilroy, San Diego and Victorville, California; Greenville, South Carolina; and
Seattle, Washington. VBAI owns an operating wireless cable television system
located in Tampa Bay, Florida. The Acquisition Agreement requires WHI and VBAI
to dispose of certain assets (the "Spin-Off Assets") and their related
liabilities (the "Spin-Off Liabilities") prior to the closing of the
Acquisition (such disposition being hereinafter referred to as the "Spin-Off").
Upon the consummation of the Acquisition, Pacific Telesis Acquisitions and
Pacific Telesis Purchasing will transfer to TTI and Videoway, respectively,
that number of newly issued shares of Pacific Telesis Common Stock having a
value (the "Exchange Value") of (A) the sum of $170,000,000, plus 75% of the
Subscriber Adjustment, plus any Assumed Interest on Shareholder Debt, plus any
Approved Expenditures, minus (B) the sum of the Distribution Adjustment, plus
all Outstanding Indebtedness as of the Closing Date, plus all Outstanding
Liabilities as of the Closing Date, plus the Videotron Cash Amount, plus the
FCC Adjustment. The number of shares of Pacific Telesis Common Stock to be
issued for the Exchange Value will be calculated based upon the average closing
sales price on the New York Stock Exchange Composite Tape (as reported in the
Wall Street Journal) for a share of Pacific Telesis Common Stock for a period
of twenty business days prior to the date the Acquisition is consummated (the
"PTG Common Stock Price"). The number of shares of Pacific Telesis Common Stock
issued to TTI and Videoway will be increased or decreased, as appropriate, by
certain post-closing adjustments. Additionally, separate allocations of Pacific
Telesis Common Stock will be made in the amounts of $5,000,000 to TTI, and, if
the FCC Adjustment is less than $14,000,000, $1,120,000 to Videoway (the
"Separate Allocations").
3
<PAGE>
Because the exact number of shares of Pacific Telesis Common Stock ultimately
issued in the Acquisition depends upon the variables set forth above, certain
of which are outside of the control of Pacific Telesis and the other parties
and certain of which may not occur until after the date of the TTI Special
Meeting, the number of shares of Pacific Telesis Common Stock issuable in
connection with the Acquisition will not be determined until immediately prior
to the consummation thereof. However, based upon current information prepared
by TTI and Videotron Canada, the parties believe that as of , 1996, the
Subscriber Adjustment was $ ; Assumed Interest on Shareholder Debt was $ ;
Approved Expenditures were $ ; the Distribution Adjustment was $ ;
Outstanding Indebtedness was $ ; Outstanding Liabilities were $ ; the
Videotron Cash Amount was $ ; the FCC Adjustment was $ ; and the Separate
Allocations were $ to TTI and $ to Videoway. These assumed amounts (the
"Assumed Values") are subject to audit by Pacific Telesis after the Closing and
to certain other post-closing adjustments. See "The Acquisition Agreement--
Post-Closing Adjustments". Additionally, certain of the amounts are subject to
change prior to the consummation of the Acquisition to reflect events occurring
between the date hereof and the Closing, such as additional accruals of
interest and further advances to WHI and VBAI through Videotron USA. No
assurance can be given that the Assumed Values will be the actual values on the
Closing Date. Based upon these Assumed Values and a PTG Common Stock Price of
$ as of , 1996, the Exchange Value would have been $ and
shares of Pacific Telesis Common Stock would have been issued had the Closing
occurred as of , 1996.
Under an agreement dated as of November 9, 1995 (the "Supplemental
Agreement"), TTI and Videoway have agreed to allocate the cash and the number
of shares of Pacific Telesis Common Stock received in the Acquisition, valued
at the PTG Common Stock Price, as follows:
First, cash will be allocated to TTI and to affiliates of Videotron Canada
to pay the balances, determined as of the Closing Date, of any indebtedness
owed to them by WHI or VBAI. As of , 1996, the total of the balances
owing to TTI was $ , and the total of the balances owing to affiliates of
Videotron Canada (including the indebtedness owed to Videotron USA, net of
its indebtedness to other affiliates of Videotron Canada) was $ . These
balances are subject to change prior to the consummation of the Acquisition
to reflect additional accruals of interest and further advances to WHI and
VBAI through Videotron USA.
Second, Pacific Telesis Common Stock will be allocated to TTI in an amount
(the "Priority Amount") that will result in total allocations to TTI
(including the payment of indebtedness) of $47,000,000. Based on the
Assumed Values, the Priority Amount would have been $ had the Closing
occurred on , 1996.
Third, Pacific Telesis Common Stock will be allocated to Videoway in an
amount equal to (i) the quotient obtained by dividing the Priority Amount
by .44, multiplied by (ii) .56, less (iii) $5,750,000. Based on the Assumed
Values, Videoway would have received $ under this paragraph had the
Closing occurred on , 1996.
Fourth, the balance of Pacific Telesis Common Stock (exclusive of the
"Separate Allocations" referred to below) will be allocated between
Videoway and TTI in the ratio of 44% to TTI and 56% to Videoway. Based on
the Assumed Values, TTI would have received $ and Videoway would have
received $ had the Closing occurred on , 1996.
Fifth, as also provided in the Acquisition Agreement, the Separate
Allocations based on the Assumed Values to TTI would have been $ and to
Videoway would have been $ had the Closing occurred on 1996.
Based upon these allocations, the Assumed Values and a PTG Common Stock Price
of $ as of , 1996, if the Closing had occurred on , 1996, TTI would
have received $ in cash as payment for Outstanding Indebtedness owed by the
Acquired Companies to TTI and would have received shares of the Pacific
Telesis Common Stock.
4
<PAGE>
Because the exact number of shares of Pacific Telesis Common Stock ultimately
issued in the Acquisition will depend upon a number of variables, certain of
which are outside of the control of Pacific Telesis and the other parties and
certain of which may not occur until after the date of the TTI Special Meeting,
the cash and number of shares of Pacific Telesis Common Stock issuable in
connection with the Acquisition will not be determined until immediately prior
to the consummation thereof. Because of the complicated exchange formula and
the number of variables contained in such formula, it is difficult to quantify
with any certainty the maximum or minimum number of shares of Pacific Telesis
Common Stock which will be exchanged in the Acquisition. However, based on the
Assumed Values described above, if the Acquisition were to have closed on
, 1996, approximately shares of Pacific Telesis Common Stock, or % of the
total number of shares of Pacific Telesis Common Stock then outstanding, would
have been issued in connection with the Acquisition, of which TTI would have
received shares (approximately shares of Pacific Telesis Common Stock
for each share of TTI Common Stock).
At the consummation of the Acquisition, Videoway is obligated to deliver
shares of Pacific Telesis Common Stock having a value of $11,000,000 into an
escrow for a period of three years (of which, stock having a value of
$5,000,000 will be released at the end of the second year), and TTI is
obligated to deliver shares of Pacific Telesis Common Stock having a value of
$6,000,000 into the escrow for a period ending on the later of five days after
the dissolution of TTI or eleven months after the closing of the Acquisition.
The escrowed shares provide security for any liability to Pacific Telesis
arising under or pursuant to the indemnification and post-closing adjustment
provisions of the Acquisition Agreement.
The number of shares of Pacific Telesis Common Stock issued at the closing of
the Acquisition will be adjusted after the closing (either upward or downward)
in the aggregate by a number equal to the quotient of the Post-Closing
Adjustment divided by the PTG Common Stock Price.
THE COMPANIES
Pacific Telesis. Pacific Telesis was incorporated in 1983 under the laws of
the State of Nevada and has its principal executive offices at 130 Kearny
Street, San Francisco, California 94108 (telephone number (415) 394-3000).
Pacific Telesis is one of seven regional holding companies formed in connection
with the 1984 divestiture by AT&T Corp. of its 22 wholly owned operating
telephone companies ("BOCs") pursuant to a consent decree settling antitrust
litigation approved by the United States District Court for the District of
Columbia. Pacific Telesis includes a holding company, Pacific Telesis; two
BOCs, Pacific Bell and Nevada Bell; and certain diversified subsidiaries. The
holding company provides financial, strategic planning, legal and general
administrative functions on its own behalf and on behalf of its subsidiaries.
SBC Communications Inc., a Delaware corporation ("SBC"), and Pacific Telesis
have entered into a definitive merger agreement (the "Merger Agreement")
pursuant to which Pacific Telesis would become a wholly owned subsidiary of
SBC. Under the terms of the Merger Agreement, each share of Pacific Telesis
Common Stock will be converted into 0.733 shares of common stock, par value
$1.00 per share, of SBC (the "SBC Common Stock"), subject to adjustment, as
described in the Merger Agreement. Under the Merger Agreement, Pacific Telesis
may not pay a dividend in excess of 73.3% of SBC's dividend. The transaction,
which has been approved by the board of directors of each company, will be
accounted for as a pooling of interests and be a tax-free reorganization. The
Merger Agreement, which has been approved by each company's stockholders, is
subject to certain regulatory approvals. If the Merger Agreement is
consummated, shares of Pacific Telesis Common Stock issued in the Acquisition
will be converted into shares of SBC Common Stock, as set forth in the Merger
Agreement. If the Merger Agreement is consummated prior to the Acquisition, SBC
shares will be issued in the Acquisition. No assurances can be given that the
Merger Agreement will be consummated. Additional information concerning the
Merger Agreement is set forth in Pacific Telesis' Proxy Statement dated June 3,
1996, for use at the Pacific Telesis Special Meeting of Shareowners held on
July 31, 1996, a copy of which is incorporated by reference herein. See also
"Information Concerning Pacific Telesis--Proposed Merger with SBC."
5
<PAGE>
Purchasers. Pacific Telesis Acquisitions, a California corporation, and
Pacific Telesis Purchasing, a California corporation, each a direct or indirect
wholly owned subsidiary of Pacific Telesis, were formed by Pacific Telesis
solely for the purpose of effecting the Acquisition. The mailing address of
their principal executive offices is 130 Kearny Street, San Francisco,
California 94108 (telephone number (415) 394-3000). Pacific Telesis
Acquisitions will acquire TTI's interest in WHI and VBAI, while Pacific Telesis
Purchasing will acquire Videoway's interest in Videotron USA. Videotron USA
holds the outstanding capital stock of WHI and VBAI not held by TTI.
Transworld Telecommunications, Inc. TTI is a Pennsylvania corporation that
was formed in 1987 and is engaged in the telecommunications business. TTI has
its principal executive offices at 102 West 500 South, Suite 320, Salt Lake
City, Utah 84101 (telephone number (801) 328-5618). The Board of Directors of
TTI has adopted the Liquidation Plan, subject to the approval of the TTI
shareholders at the Special Meeting.
TTI currently has indirect interests in two existing wireless cable
television systems and indirect interests in lease rights in several markets.
TTI is a 20% owner of VBAI, which owns FCC licenses or lease rights to 30
channels and an operating wireless cable system located in Tampa Bay, Florida.
In addition, TTI owns 50% of WHI, a Delaware corporation operated as a joint
venture. The other 80% of VBAI and the other 50% of WHI is owned by Videotron
USA. WHI owns wireless cable rights and an operating satellite master antenna
television ("SMATV") system in San Francisco and San Jose, California, and
lease rights to 32 and 26 channels, respectively, through its 94% owned
subsidiary, Bay Area Cablevision, Inc. ("BAC"), and an operating wireless cable
system in Spokane, Washington, through its wholly-owned subsidiary, Transworld
Wireless TV--Spokane, Inc. ("TWTV Spokane"). WHI also owns (through wholly-
owned subsidiaries) lease rights to 25 channels in Greenville, South Carolina;
20 channels in Victorville, California; 16 channels in Seattle, Washington; 10
channels in San Diego, California; 8 channels in Gilroy, California and 4
channels and additional agreements with applicants for new channels in Santa
Rosa, California. FCC and other approvals are needed to integrate all of these
channels into a wireless cable system. There is no certainty that all of these
approvals will be obtained. Some channel capacity must be dedicated for
educational programming. As of June 30, 1996, VBAI, BAC and TWTV Spokane had in
excess of 35,900 subscribers (including approximately 18,000 subscribers served
by assets that were later disposed of as part of the Spin-Off) in their
operating systems on an equivalent billing unit basis.
Prior to July 1, 1996, TTI also engaged in telephone pay-per-call services in
the entertainment and information markets. This business was conducted by
Carolina Communications, Inc. ("Carolina"), a wholly-owned subsidiary of TTI.
Effective July 1, 1996, these operations were transferred to F. Lorenzo
Crutchfield, Jr., TTI's largest shareholder ("Mr. Crutchfield"), in exchange
for 2,000,000 shares of TTI's Common Stock (the "Carolina Transfer"). See
"Information Concerning TTI--Introduction" below.
Wireless Holdings, Inc. WHI is a Delaware joint venture corporation that was
formed in November 1993 for the purpose of acquiring, developing and operating
wireless cable television and SMATV systems in individual local markets within
the United States. WHI is owned 50% by TTI and 50% by Videotron USA. WHI has
its principal executive offices at 45 East Plumeria Drive, San Jose, CA
(telephone number (408) 894-9977).
WHI's operations include the following systems and channel right groupings:
(i) TWTV Spokane Operations. In February 1994, WHI's wholly-owned
subsidiary, TWTV Spokane, acquired an operating wireless cable television
system (the "Spokane system") from Skyline Entertainment Network (Spokane)
Limited Partnership.
As of June 30, 1996, the Spokane system had approximately 8,800
subscribers (including approximately 950 subscribers served by a franchised
cable system and SMATV related assets which were later disposed of as part
of the Spin-Off) and offered 31 channels which are leased by the system.
There are no competitive wireless cable systems in the market area,
although five traditional hard-wire cable operators operate in the area, of
which Cox Cable is the largest. The Spokane system's subscribers included
single households, multiple-dwelling units and commercial buildings.
6
<PAGE>
(ii) BAC Operations. In February 1994, BAC acquired an operating SMATV
system and wireless cable channel rights in the San Francisco Bay Area from
Gulf American Cable Group II, a Louisiana general partnership. BAC was
formed solely for the purpose of acquiring the San Francisco assets and is
currently owned 94% by WHI. Other than using some channels to support SMATV
operations, BAC is not currently marketing the Bay Area wireless cable
systems to subscribers. At the closing of the Acquisition, WHI will be
required to deliver stock certificates representing 100% of the outstanding
shares of BAC.
Pursuant to the Acquisition Agreement, BAC disposed its SMATV operations
as part of the Spin-Off.
The remaining assets of BAC consist primarily of two sets of wireless
cable channel rights in the San Francisco Bay Area. Subscribers residing in
the San Francisco, Oakland, Berkeley and northern peninsula area cities can
be targeted for programming from one set of these channels, while
subscribers residing in San Jose, Fremont, Hayward and the western
peninsula communities can be targeted for programming from the other set of
channel rights. Currently, BAC leases 32 channels in the San Francisco Bay
Area and 26 channels in the San Jose area and has exercised options to
acquire some of these channel licenses. The acquisition of these channels
is subject to obtaining prior FCC approval. See "Regulatory and
Governmental Approvals". FCC and other approvals are needed to integrate
all of these channels into a wireless cable system. There can be no
assurance that any or all of these approvals will be obtained. BAC also has
some channel leases in Santa Rosa and Gilroy, California.
(iii) Victorville and Greenville Channel Agreements. In June 1994, WHI,
through its wholly owned subsidiary, TTI Acquisition Corp. ("TTI
Acquisition"), acquired lease rights for 20 channels in Victorville,
California and 25 channels in Greenville, South Carolina. Neither WHI nor
TTI Acquisition are currently utilizing excess airtime on these channels
nor are they currently marketing the Victorville and Greenville systems to
subscribers. FCC and other approvals are needed to integrate all of these
channels into a wireless cable system. There can be no assurance that any
or all of these approvals will be obtained.
(iv) San Diego Channel Agreements. Pursuant to a May 1994 agreement, WHI,
through its wholly owned subsidiary, WHI San Diego, Inc., acquired rights
to total of 10 wireless cable channels in the San Diego market. Neither WHI
nor WHI San Diego, Inc. is currently utilizing excess airtime on these
channels, nor are they currently marketing the San Diego system to
subscribers. The partnership which leases four of the channels to WHI San
Diego, Inc. pursuant to a channel lease/put option agreement is presently
controlled by a receiver, who will decide how to proceed under the channel
lease/put option agreement. WHI San Diego, Inc. has demanded that the
receiver perform the partnership's obligations under the channel lease/put
option agreement. The receiver has not yet issued any report to the court
concerning the channels. FCC and other approvals are needed to integrate
all of these channels into a wireless cable system. There can be no
assurance that any or all of these approvals will be obtained.
(v) Seattle, Washington Channel Agreements. Pursuant to a July 1995
agreement, WHI acquired lease rights to 12 channels in the Seattle,
Washington market and in September 1995, acquired lease rights to four
additional channels. WHI is not currently utilizing excess airtime on these
channels and is not currently marketing the Seattle system to subscribers.
FCC and other approvals are needed to integrate all of these channels into
a wireless cable system. There can be no assurance that any or all of these
approvals will be obtained. Some channel capacity must be dedicated for
educational programming.
7
<PAGE>
Videotron (Bay Area) Inc. VBAI owns a wireless cable system located in the
Tampa Bay, Florida area. As of June 30, 1996, it had approximately 10,700
subscribers and owned or held lease rights to a total of 30 channels in the
Tampa Bay area. VBAI's potential subscribers include single households,
multiple-dwelling units and commercial establishments such as restaurants and
office buildings. VBAI has its principal executive offices at 18940 U.S.
Highway 19 North, Clearwater, FL 34624 (telephone number (813) 530-1812). FCC
and other approvals are needed in order to upgrade the wireless cable system.
There can be no assurance that any or all these approvals will be obtained.
Prior to July 31, 1996, VBAI managed or owned a small franchised cable system
in Hernando County and certain SMATV-related assets which served approximately
1,200 subscribers and which were later disposed of as part of the Spin-Off.
Videotron USA. Videotron USA is a Delaware corporation organized in September
1993. Videotron USA maintains its principal executive offices at 1114 Avenue of
the Americas, New York, New York 10036 (telephone number (212) 479-6120). It is
wholly owned by Videoway, which is a wholly owned subsidiary of Videotron
Canada, a Quebec corporation which is engaged through its subsidiaries in cable
television, television broadcasting, television telephone services, and
interactive multimedia services in Canada, the United Kingdom and the United
States. Videotron Canada's subordinate voting shares are listed on the Montreal
and Toronto stock exchanges.
Since its inception, Videotron USA has functioned as a holding company whose
only material activities have been to (i) acquire, develop and operate wireless
cable television systems in the United States, (ii) organize WHI as a joint
venture with TTI in November 1993, and obtain ownership of 50% and 80%,
respectively, of the voting securities of WHI and VBAI, and (iii) provide
financing to WHI and VBAI out of funds provided to Videotron USA as loans or
equity investments by other affiliates of Videotron Canada. In connection with
these activities, Videotron USA and TTI, as the sole shareholders of WHI and
VBAI, have periodically negotiated with each other, entered into various
agreements, and engaged in disputes, including litigation which led to their
joint determination to dispose of their interests in WHI and VBAI. See "Certain
Legal Proceedings."
Videotron USA currently owns 50% of the outstanding shares of capital stock
of WHI and 80% of the outstanding shares of capital stock of VBAI. The other
50% of WHI and the other 20% of VBAI are owned by TTI. Videotron USA has no
material assets other than its ownership interests in and loans receivable from
WHI and VBAI and has no material liabilities other than loans payable to other
affiliates of Videotron.
SPECIAL MEETING OF SHAREHOLDERS OF TTI
Time, Date, Place and Purpose. A Special Meeting of Shareholders of TTI will
be held at the Hilton Hotel, 50 West 500 South, Salt Lake City, Utah 84101 on
, at 9:00 a.m. local time (the "Special Meeting"). The purpose of the
Special Meeting is to consider and vote upon a proposal to approve and adopt
the Acquisition Agreement and the transactions contemplated thereby (including
the Acquisition). As part of the approval of the Acquisition Agreement, the TTI
shareholders will be asked to approve the TTI Liquidation, in accordance with
the terms and conditions of the Liquidation Plan attached as Appendix B to this
Prospectus/Proxy Statement. Each element of the Acquisition and Liquidation is
a requirement of the Acquisition Agreement and is an integral part of the
transactions contemplated thereby. Accordingly, the Acquisition and Liquidation
Plan are being presented to TTI's shareholders as a single proposal and neither
the Acquisition Agreement nor the Liquidation Plan will be approved and adopted
unless both the Acquisition and Liquidation
8
<PAGE>
Plan are approved at the Special Meeting. Approval of any items addressed at
the Special Meeting other than the Acquisition and Liquidation Plan is not a
condition to the consummation of the Acquisition Agreement, and any such
consummation does not depend on the approval of those other matters.
Record Date and Vote Required. Only holders of record of TTI Common Stock at
the close of business on , 1996 (the "Record Date"), are entitled to notice
of, and to vote at, the Special Meeting. On the Record Date, there were
shares of TTI Common Stock outstanding, held by approximately 430 holders of
record. Each share of TTI Common Stock entitles the holder thereof to one vote
upon all matters submitted to a vote of shareholders. Under the Pennsylvania
Business Corporation Law (the "Pennsylvania Law"), approval and adoption of the
Acquisition Agreement and the Liquidation Plan require the affirmative vote of
the holders of a majority of the outstanding shares of TTI Common Stock
entitled to vote thereon. The presence, either in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of TTI
Common Stock is necessary to constitute a quorum at the Special Meeting.
Abstentions will be counted as being present for purposes of determining
whether a quorum is present. With respect to the proposal to approve and adopt
the Acquisition Agreement and the Liquidation Plan, abstentions will have the
same effect as a vote against such proposal. Under the rules of the NASD,
brokers who hold shares in street name for customers will not have the
authority to vote on the proposal to approve and adopt the Acquisition
Agreement and the Liquidation Plan, unless they receive specific instructions
from the beneficial owners of the shares they hold. While such a broker non-
vote will be counted as present for purposes of a quorum, it will have the same
effect as a vote against approval and adoption of the Acquisition Agreement and
the Liquidation Plan.
Shares Held by Directors, Executive Officers and Affiliates; Shareholder
Agreements. As of the Record Date, directors, officers and affiliates of TTI,
together with persons and entities related to or affiliated with them, held an
aggregate of 15,551,015 shares of TTI Common Stock, representing 58.5% of the
outstanding TTI Common Stock. Certain of these persons also hold options to
acquire shares of TTI Common Stock and, if all those options were exercised in
full, at or prior to the Closing Date, such persons would hold an aggregate of
16,425,284 shares of TTI Common Stock on a fully diluted basis representing
58.6% of the outstanding TTI Common Stock as of the Closing Date. See
"Information Concerning TTI--Officers, Directors and Key Personnel",
"Information Concerning TTI--Principal Stockholders" and "Information
Concerning TTI--Executive Compensation and Other Matters." Under the terms of
the Acquisition Agreement, Lance V. D'Ambrosio and F. Lorenzo Crutchfield Jr.
are contractually obligated to vote in favor of approval of the Acquisition
Agreement and the Liquidation Plan and, consistent with that contractual
obligation, have granted members of the Pacific Telesis Board of Directors
proxies to vote their shares in favor of approval of the Acquisition Agreement
and the Liquidation Plan and any matter that could reasonably be expected to
facilitate the Acquisition. Mr. Crutchfield and Mr. D'Ambrosio own, as of the
Record Date, directly or indirectly, collectively approximately 57.6% of the
outstanding TTI Common Stock. Therefore, assuming that the proxies granted to
Pacific Telesis by such shareholders are voted in favor of the Acquisition
Agreement and the Liquidation Plan, the Acquisition Agreement and the
Liquidation Plan and the transactions contemplated thereby will be approved at
the Special Meeting.
Voting and Revocation of Proxies. Shares of TTI Common Stock represented by a
proxy properly signed and received at or prior to the Special Meeting, unless
subsequently revoked at or prior to the Special Meeting, will be voted in
accordance with the instructions thereon. IF A PROXY IS SIGNED AND RETURNED
WITHOUT INDICATING ANY VOTING INSTRUCTIONS, THE SHARES OF TTI COMMON STOCK
REPRESENTED BY THE PROXY WILL BE VOTED FOR THE PROPOSAL TO APPROVE AND ADOPT
THE ACQUISITION AGREEMENT AND THE LIQUIDATION PLAN. Any proxy given pursuant to
this solicitation may be revoked by the person giving it at any time before the
proxy is voted by the filing of an instrument revoking it, by the delivery of a
duly executed proxy bearing a later date with the Secretary of TTI prior to or
at the Special Meeting, or by voting in person at the Special Meeting. All
written notices of revocation and other communications with respect to
revocation of proxies should be addressed to TTI, 102 West 500 South,
9
<PAGE>
Suite 320, Salt Lake City, Utah 84101, Attention: Secretary. A shareholder's
attendance at the Special Meeting will not in and of itself constitute a
revocation of a proxy.
Approval of the TTI Board of Directors. The directors of TTI unanimously
approved the Acquisition Agreement on November 9, 1995.
Dissenters' Rights. Under Pennsylvania Law, a corporation's shareholders are
generally entitled to receive dissenters' or appraisal rights if the
corporation sells all or substantially all of its assets outside of the normal
course of business. Because the sale of substantially all of TTI's assets is
being made in connection with the Liquidation of TTI, however, there are no
dissenters' or appraisal rights available to shareholders of TTI under
Pennsylvania Law with respect to the Acquisition.
THE ACQUISITION
Terms of the Acquisition. Under the terms of the Acquisition Agreement,
subsidiaries of Pacific Telesis will acquire all of the capital stock of WHI,
VBAI and Videotron USA and Pacific Telesis will issue shares of Pacific Telesis
Common Stock equaling the Exchange Value plus pay all Outstanding Indebtedness
as of the Closing Date owed to TTI by WHI or VBAI. Pacific Telesis will also
pay Videoway the Videotron Cash Amount and all Outstanding Indebtedness as of
the Closing Date owed to affiliates of Videotron Canada from WHI or VBAI and,
if certain conditions are met, will issue to Videoway an additional number of
shares of Pacific Telesis Common Stock with a value equal to the Videoway
portion of the Separate Allocations. In addition, Pacific Telesis will issue to
TTI an additional number of shares of Pacific Telesis Common Stock with a value
equal to the TTI portion of the Separate Allocations. Because of the
complicated exchange formula and the number of variables comprising such
formula, it is difficult to quantify with any certainty the maximum or minimum
number of shares of Pacific Telesis Common Stock which will be issued in the
Acquisition. However, based on the Assumed Values described under "--General"
above, if the Acquisition were to have closed on , 1996, the number of
shares that would have been issued would have been . In such case, the
shares would represent approximately % of the shares of Pacific Telesis Common
Stock then outstanding. On , 1996, the last sale price of Pacific Telesis
Common Stock as reported on the New York Stock Exchange Composite Tape was $
per share.
Approval of the TTI Board of Directors. The Board of Directors of TTI
unanimously approved the Acquisition Agreement and the Liquidation Plan on
November 9, 1995.
Financial Advisors.
Wasserstein, Perella & Co., Inc., an investment banking firm retained by
TTI's Board of Directors to act as TTI's financial advisor in connection with
the Acquisition, has rendered its opinion that, subject to the satisfaction of
the conditions set forth therein, the consideration to be received by TTI in
the Acquisition is fair from a financial point of view to TTI. The analysis,
support and limitations of this opinion are discussed below with the opinion
itself attached as Appendix C hereto. See "The Acquisition and Related
Transactions--Financial Advisors."
Conditions to the Acquisition; Termination and Amendment. The consummation of
the Acquisition is subject to the satisfaction of various conditions which, if
not fulfilled or waived, permit termination of the Acquisition Agreement. As of
the date hereof, these conditions include conditions relating to the number and
status of certain of WHI's FCC licenses (or leases thereto) and other matters.
TTI believes that some of these conditions may not be satisfied. Therefore, the
Acquisition Agreement may not close unless Pacific Telesis affirmatively waives
those conditions. Pacific Telesis has not agreed to waive any conditions and
there can be no assurance that Pacific Telesis will do so. The Acquisition
Agreement may also be terminated under certain other circumstances, including
termination by mutual consent of the parties, termination by Pacific Telesis if
there is a material adverse change (which is not cured within thirty days of
notice thereof) in the Financial Status of the Acquired Companies, in the
System or in any of the Tampa System, the Northern Bay Area System or the
Southern Bay Area System. Further, the Acquisition Agreement may be terminated
(notwithstanding the approval
10
<PAGE>
by the TTI shareholders of the TTI Transaction and Liquidation at the Special
Meeting) by any party (provided such party has complied in all material
respects with its obligations under the Acquisition Agreement) if the
Acquisition is not consummated on or before November 9, 1996. See "The
Acquisition Agreement--Conditions to the Acquisition."
The Acquisition Agreement may be amended by the parties thereto (provided the
amendment is in writing) at any time before or after the approval and adoption
of the Acquisition Agreement by the TTI shareholders; but, after any such
shareholder approval has been obtained, no amendment of any of the agreements
executed in connection with the Acquisition may be made which by law requires
the further approval of the TTI shareholders, without obtaining such further
approval. In the event of any resolicitation of the TTI shareholders in
connection with any such amendment, such resolicitation will be conducted with
an updated prospectus filed as part of a post-effective amendment to the
Registration Statement that will have been declared effective by the SEC. See
"The Acquisition Agreement--Termination; Amendment and Waiver."
The Spin-Off. The Acquisition Agreement requires WHI and VBAI to dispose of
the Spin-Off Assets and the Spin-Off Liabilities prior to the closing of the
Acquisition. The Spin-Off Assets, as more particularly described above under
"The Companies--Wireless Holdings, Inc." and "--Videotron (Bay Area) Inc.",
comprise the SMATV systems operated by BAC in the San Francisco area, certain
franchised cable and related operations conducted by TWTV Spokane in Spokane,
Washington, and certain franchised cable and SMATV-related assets of VBAI in or
near Tampa, Florida. The Spin-Off Liabilities are principally the contracts and
obligations associated with the Spin-Off Assets. To satisfy this condition,
under the Supplemental Agreement, WHI and VBAI agreed that WHI (or its
subsidiaries) and VBAI would sell the Spin-Off Assets to one or more designated
affiliates of Videotron Canada for purchase prices totalling $4,300,000 and the
assumption of the Spin-Off Liabilities, with adjustments to the purchase price
as if the sale were completed on January 1, 1996. Commencing January 1, 1996,
the Spin-Off Assets and the Spin-Off Liabilities were administered by WHI and
its subsidiaries and VBAI for the benefit of the purchasers. The transfer of
the Spin-Off Assets and the assumption of the Spin-Off Liabilities were
completed July 31, 1996. In accordance with the Supplemental Agreement, the
purchase price was paid by a reduction in the Outstanding Indebtedness of WHI
and VBAI to Videotron USA. See "The Acquisition and Related Transaction--The
Spin-Off."
Shareholder Agreements. Pursuant to the Acquisition Agreement, shareholders
of TTI holding in the aggregate approximately 57.6% of the outstanding TTI
Common Stock as of the Record Date (approximately 55.7% of the outstanding TTI
Common Stock on a fully diluted basis if all optionees under outstanding
options exercise the options they hold) are contractually obligated to vote in
favor of the Acquisition Agreement and the Liquidation Plan and, consistent
with such contractual obligation, have granted the Pacific Telesis Board of
Directors proxies to vote their shares of TTI Common Stock in favor of the
Acquisition Agreement and the Liquidation Plan at the Special Meeting. See "The
Acquisition and Related Transactions--Shareholder Agreements."
Resales of Pacific Telesis Common Stock; Affiliate Agreements. Certain
"affiliates" (as that term is defined for purposes of Rule 145 of the
Securities Act) of TTI and the Acquired Companies have entered or will enter
into agreements restricting the sale or disposition of their shares of TTI
Common Stock prior to the Acquisition and the resale or other disposition of
shares of the Pacific Telesis Common Stock they receive in the Acquisition and
Liquidation so as to comply with the requirements of securities and tax laws.
See "The Acquisition and Related Transactions--Resales of Pacific Telesis
Common Stock; Affiliate Agreements."
Certain Federal Income Tax Considerations. The TTI Exchange is intended to
qualify as a reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code, as amended (the "Code"), in which case neither TTI nor the TTI
shareholders would recognize any gain or loss on the receipt of Pacific Telesis
Common Stock in the Liquidation, and TTI shareholders would each obtain a tax
basis in the Pacific Telesis Common Stock received equal to his or her
respective tax basis in the TTI Common Stock surrendered. It is a condition to
the
11
<PAGE>
obligation of each of Pacific Telesis and TTI to consummate the Acquisition
that TTI receive a legal opinion of Parsons Behle & Latimer, TTI's legal
counsel, to the effect that the TTI Exchange will qualify as a reorganization
within the meaning of Section 368(a)(1)(C) of the Code. BECAUSE OF THEIR
INDIVIDUAL CIRCUMSTANCES, ALL TTI SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE TTI EXCHANGE. See
"The Acquisition and Related Transactions--Certain Federal Income Tax
Considerations."
Accounting Treatment. The Acquisition will be accounted for as a "purchase"
for financial accounting purposes in accordance with generally accepted
accounting principles, whereby the purchase price will be allocated based on
the fair values of the assets acquired and liabilities assumed. Any excess of
such purchase price over the amounts so allocated will be allocated to
goodwill. See "The Acquisition and Related Transactions--Accounting Treatment."
Governmental and Regulatory Approvals. The consummation of the transactions
contemplated by the Acquisition Agreement is subject to certain regulatory and
government approvals. The notification and waiting period imposed upon Pacific
Telesis, TTI and Videotron Canada under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") expired on June 2, 1996.
Prior to the execution of the Telecommunications Act of 1996, Pacific Telesis
was subject to the Modification of Final Judgment ("MFJ"). On November 25,
1995, the United States District Court for the District of Columbia granted
Pacific Telesis' motion to modify the court's previous orders which permitted
Pacific Telesis to own and operate Interexchange Facilities and related
equipment to deliver video programming by extending such relief to include
Interexchange Facilities used in MMDS operations.
Prior to the closing of the Acquisition, the FCC licenses held by VBAI will
be assigned to Bay Area License, Inc. ("BALI"), to the extent required by law.
VBAI and BALI filed the necessary pro forma assignment applications with the
FCC on June 4, 1996. There is no particular time frame in which the FCC is
required to act on these applications, and the FCC has requested additional
information with respect to one of the applications before it takes any action.
The FCC must approve these applications in order for the Acquisition to close
and there can be no assurance that it will do so; however, as of the date of
this Prospectus/Proxy Statement the FCC has granted three out of the four VBAI
assignment applications. See "The Acquisition and Related Transactions--
Regulatory Matters." Additionally, prior to the closing of the Acquisition,
those licensees with whom the Acquired Companies have entered into agreements
to acquire certain FCC licenses must obtain approval to assign the FCC licenses
to Pacific Telesis or one of its subsidiaries to the extent required by the
Acquisition Agreement. Pacific Telesis and these licensees filed applications
for these assignments during the week of May 28, 1996. There is no particular
time frame in which the FCC is required to act on these assignment
applications, and the FCC may require additional information before it takes
any action. As of the date of this Prospectus/Proxy Statement, the FCC has
granted all but one of the licensee assignment applications. See "The
Acquisition and Related Transactions--Regulatory Matters."
Dissenters' Rights. There are no dissenters' or appraisal rights available to
shareholders of TTI under Pennsylvania Law with respect to the Acquisition and
the Liquidation. See "Terms of the Acquisition and Related Transactions--
Dissenters' Rights."
THE LIQUIDATION OF TTI
As part of the approval of the Acquisition Agreement, the shareholders of TTI
will be required to approve the Liquidation Plan, pursuant to which the shares
of Pacific Telesis Common Stock received by TTI in the Acquisition and the
other assets of TTI, if any (after payment of TTI's liabilities), will be
distributed to the shareholders of TTI and TTI will be dissolved. Under the
terms of the Liquidation Plan, TTI will engage an agent to act as the
facilitator of the liquidation and to effectuate the delivery of any Pacific
Telesis Common Stock (and other assets) not distributed to TTI's shareholders
by TTI prior to its liquidation and dissolution. See "The Acquisition and
Related Transactions--The TTI Liquidation."
12
<PAGE>
ARBITRATION PROCEEDING
On September 24, 1996, Pacific Telesis filed an arbitration request with a
commercial arbitrator against TTI, Videotron USA and other parties relating to
the Acquisition Agreement. See "Certain Legal Proceedings--Arbitration."
MARKET AND DIVIDEND INFORMATION
Pacific Telesis. The Pacific Telesis Common Stock is listed on the New York,
Pacific, Chicago, Swiss and London Stock Exchanges and is traded under the
symbol "PAC" on the New York, Pacific and Chicago Stock Exchanges and under the
symbol "Pacific Telesis" on the London and Swiss exchanges. On , 1996, the
closing price per share for the Pacific Telesis Common Stock was $ based on
New York Stock Exchange Composite Transactions. The market price of the Pacific
Telesis Common Stock is subject to change.
Set forth below are the high and low closing prices for the Pacific Telesis
Common Stock based on the New York Stock Exchange Composite Transactions and
the quarterly dividends per share on the Pacific Telesis Common Stock for the
respective periods indicated:
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
------- ------- --------
<S> <C> <C> <C>
1996
1st Quarter............................................ $35.25 $26.375 $0.545
2nd Quarter............................................ 34.50 31.875 0.315
3rd Quarter............................................ 35.00 32.25 0.315
4th Quarter (through October , 1996)..................
1995
1st Quarter............................................ $31.25 $28.375 $0.545
2nd Quarter............................................ 31.00 25.875 0.545
3rd Quarter............................................ 30.75 25.875 0.545
4th Quarter............................................ 34.25 29.75 0.545
1994
1st Quarter*........................................... $57.625 $52.625 $0.545
2nd Quarter............................................ 32.375 29.875 0.545
3rd Quarter............................................ 33.375 30.25 0.545
4th Quarter............................................ 31.75 28.375 0.545
</TABLE>
- --------
* Reflects market prices per share prior to the April 1, 1994 spin-off of
AirTouch Communications, Inc. ("Air Touch").
The declaration and timing of all dividends are at the discretion of Pacific
Telesis' Board of Directors and are dependent upon Pacific Telesis' earnings
and financial requirements, general business conditions and other factors;
there can be no assurances as to the amount or frequency of any future
dividends on the Pacific Telesis Common Stock. In addition, under the Merger
Agreement with SBC, Pacific Telesis may not pay a dividend in excess of 73.3%
of SBC's dividend.
TTI. From October 31, 1994 to April 11, 1996, TTI's Common Stock was listed
on the Boston Stock Exchange and was traded under the symbol "TWL". On April
11, 1996, the TTI Common Stock was voluntarily delisted on such exchange and
now trades on the over-the-counter market through the market making activities
of two brokerages under the symbol "TTIW". On , 1996, the last bid
quotation per share of the TTI Common Stock was $ as reported on the over-
the-counter market.
13
<PAGE>
Set forth below are the high and low bid quotation per share prices for the
TTI Common Stock as reported on the Boston Stock Exchange until April 10, 1996
and on the over-the-counter market from April 11, 1996 to , 1996, for each
of the respective periods indicated. TTI has never declared or paid any cash
dividends on the TTI Common Stock. The quotations reflect inter-dealer prices,
without retail markup, markdown or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996 (Fiscal Year End--October 31, 1996)
1st Quarter...................................................... $1.125 $0.875
2nd Quarter...................................................... 1.125 0.875
3rd Quarter ..................................................... 1.063 1.688
4th Quarter (August 1 through October , 1996)..................
1995 (Fiscal Year End--October 31, 1995)
1st Quarter...................................................... $2.375 $0.437
2nd Quarter...................................................... 2.250 1.375
3rd Quarter...................................................... 1.875 1.250
4th Quarter...................................................... 1.875 0.875
1994 (Fiscal Year End--October 31, 1994)
1st Quarter...................................................... $6.750 $5.000
2nd Quarter...................................................... 5.750 3.750
3rd Quarter...................................................... 5.000 1.625
4th Quarter...................................................... 2.250 1.250
</TABLE>
WHI, VBAI and Videotron USA. No public trading market exists for the capital
stock of WHI, VBAI or Videotron USA.
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Pacific
Telesis, TTI, WHI, VBAI and Videotron USA and pro forma per share data on an
unaudited pro forma basis for TTI, assuming that (i) the Acquisition had
occurred on , 1996, (ii) an Exchange Value of $ based on the Assumed
Values had been paid, and (iii) TTI received $ of such assumed Exchange
Value. Pro forma amounts for Pacific Telesis, WHI, VBAI and Videotron USA are
not meaningful. The following information should be read in conjunction with
and is qualified in its entirety by the consolidated financial statements and
accompanying notes of Pacific Telesis included in the documents described under
"Incorporation of Certain Information by Reference" and the financial
statements and accompanying notes of TTI, WHI, VBAI and Videotron USA included
elsewhere herein.
<TABLE>
<CAPTION>
PACIFIC VIDEOTRON
HISTORICAL TELESIS TTI WHI VBAI USA
- ---------- ------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income (loss) per share
for the year ended
December 31, 1995 for
Pacific Telesis,
October 31, 1995 for TTI
and August 31, 1995 for
WHI, VBAI and Videotron
USA ...................... $(5.43) $(0.22) $(1,169.97) $(2,173.83) $(2,403.66)
for the quarter ended June
30, 1996 for Pacific
Telesis, July 31, 1996 for
TTI and May 31, 1996 for
WHI, VBAI and Videotron
USA....................... 0.66 (0.04) (307.01) (1,078.92) (1,021.77)
Book value per share
as of December 31, 1995
for Pacific Telesis,
October 31, 1995 for TTI
and August 31, 1995 for
WHI, VBAI and Videotron
USA ...................... 5.11 .002 (438.17) 6,150.00 7,345.67
as of June 30, 1996 for
Pacific Telesis, July 31,
1996 for TTI and
May 31, 1996 for WHI, VBAI
and Videotron USA ........ 5.75 (.044) (1,341.02) 2,881.00 4,426.33
Dividends per share
for the year ended
December 31, 1995 for
Pacific Telesis,
October 31, 1995 for TTI
and May 31, 1995 for WHI,
VBAI and Videotron USA ... 2.18 -0- -0- -0- -0-
for the quarter ended June
30, 1996 for Pacific
Telesis, July 31, 1996 for
TTI and May 31, 1996 for
WHI, VBAI and Videotron
USA....................... 0.315 -0- -0- -0- -0-
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA TTI
- --------- ---
<S> <C>
Net income (loss) per share
for the year ended October 31, 1995 .......................................
for the quarter ended July 31, 1996 .......................................
Book value per share
as of October 31, 1995 ....................................................
as of July 31, 1996 .......................................................
Dividends per share
for the year ended October 31, 1995 .......................................
for the quarter ended July 31, 1996 .......................................
</TABLE>
The following table sets forth the bid and closing, respectively, sales price
per share of TTI Common Stock and Pacific Telesis Common Stock as reported on
The Boston Stock Exchange (in the case of TTI for the period prior to April 11,
1996), the over-the-counter market (in the case of TTI for the period
commencing on and after April 11, 1996) and the New York Stock Exchange
Composite Tape (in the case of Pacific Telesis). The equivalent per share price
(as described below) of TTI Common Stock on November 28, 1995, the business
date immediately preceding the public announcement of the Acquisition, and on
, 1996, the last trading day before the time of the printing of this
Prospectus/Proxy Statement is also presented. The shares of WHI, VBAI and
Videotron USA are not traded on any public exchange or automated quotation
system and, as a result, no market price is available for such shares as of
November 28, 1995 or , 1996.
<TABLE>
<CAPTION>
PACIFIC TTI
TTI TELESIS EQUIVALENT
COMMON COMMON PER SHARE
STOCK STOCK PRICE(1)
------ ------- ----------
<S> <C> <C> <C>
November 28, 1995..................................... $1.50 $29.875 $
, 1996............................................ $ $ $
</TABLE>
- --------
(1) The equivalent per share price of a share of TTI Common Stock is based on
numerous assumptions including (i) a Closing Date of , 1996; (ii) an
Exchange Value of $ based on the Assumed Values; and (iii) TTI's
receiving $ of such Exchange Value or, upon the TTI Liquidation, 0.
shares of Pacific Telesis Common Stock for each share of TTI Common Stock
(the "TTI Pro Forma Equivalent"). The equivalent per share price of a share
of TTI Common Stock is calculated by multiplying the closing price of
Pacific Telesis Common Stock on the New York Stock Exchange Composite
Transactions Tape (as reported in the Wall Street Journal) on such date by
the TTI Pro Forma Equivalent ( ). The actual PTG Common Stock Price may
be significantly higher or lower than the prices used above. The TTI Pro
Forma Equivalent may be more or less than . depending upon changes in
the foregoing assumptions.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR PACIFIC TELESIS
COMMON STOCK AND TTI COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE
PRICES OF OR MARKETS FOR THE PACIFIC TELESIS COMMON STOCK OR THE TTI COMMON
STOCK. IN ADDITION, IF THE MERGER AGREEMENT WITH SBC IS CONSUMMATED, SHARES OF
PACIFIC TELESIS COMMON STOCK ISSUED IN THE ACQUISITION WILL BE CONVERTED INTO
SHARES OF SBC COMMON STOCK, AS SET FORTH IN THE MERGER AGREEMENT. NO ASSURANCE
CAN BE GIVEN THAT THE MERGER AGREEMENT WITH SBC WILL BE CONSUMMATED OR, IF
CONSUMMATED, AS TO THE FUTURE PRICES OF OR MARKETS FOR THE SBC COMMON STOCK.
15
<PAGE>
THE TTI SHAREHOLDERS' MEETING
DATE, TIME, PLACE AND PURPOSE
The Special Meeting of Shareholders of TTI will be held at the Hilton Hotel
located at 150 West 500 South, Salt Lake City, Utah 84101 on , 1996, at
9:00 a.m., local time. The purpose of the Special Meeting is to vote upon a
proposal to approve and adopt the Acquisition Agreement, providing for the
sale of substantially all of TTI's assets to a wholly owned subsidiary of
Pacific Telesis, and the Liquidation Plan, pursuant to which TTI will be
dissolved. The TTI Shareholders are being asked to approve and adopt the
Acquisition Agreement, the Liquidation Plan and the transactions related
thereto as a part of one approval. The shareholders will not be entitled to
separately approve and adopt the Acquisition Agreement or the Liquidation
Plan.
RECORD DATE AND OUTSTANDING SHARES
Only TTI shareholders at the close of business on the Record Date, , 1996
are entitled to notice of, and to vote at, the TTI Special Meeting. On the
Record Date, there were approximately 430 holders of record of TTI Common
Stock with shares of TTI Common Stock issued and outstanding. Except for
the shareholders identified herein under "Information Concerning TTI--
Principal Shareholders of TTI," on the Record Date there were no other persons
known to the management of TTI to be the beneficial owners of more than 10% of
the outstanding capital stock of TTI. Each share of TTI Common Stock is
entitled to one vote at the TTI Special Meeting.
VOTING OF PROXIES
Holders of TTI Common Stock are requested to complete, date, sign and
promptly return the accompanying form of proxy in the enclosed envelope.
Shares of TTI Common Stock represented by properly executed proxies received
by TTI and not revoked at or before the Special Meeting will be voted at the
Special Meeting in accordance with the instructions contained therein. If
instructions are not contained therein, proxies will be voted (i) FOR approval
and adoption of the Acquisition Agreement and the Liquidation Plan, and (ii)
in the discretion of the holders of the proxy with respect to any other
procedural matters incident to the conduct of the Special Meeting that may
properly come before the Special Meeting. A shareholder who has executed and
returned a proxy may revoke it at any time before it is voted at the Special
Meeting by executing and returning a proxy bearing a later date, by filing
written notice of such revocation with the Secretary of TTI stating that the
proxy is revoked or by attending the Special Meeting and voting in person.
Attendance at the Special Meeting will not in and of itself constitute a
revocation of a proxy.
VOTE REQUIRED
The presence, in person or by proxy, of shareholders holding a majority of
the outstanding shares of TTI Common Stock entitled to vote will constitute a
quorum at the Special Meeting. Under the Pennsylvania Law, approval and
adoption of the Acquisition Agreement and the Liquidation Plan require the
affirmative vote of the holders of a majority of the outstanding shares of
TTI's Common Stock entitled to vote thereon. Abstentions and broker non-votes
(which occur when a nominee holding shares for a beneficial owner does not
vote on a particular proposal because the nominee does not have discretionary
voting power regarding that issue and has not received instructions from the
beneficial owner) are counted for the purposes of determining the presence or
absence of a quorum at the Special Meeting. However, because the affirmative
vote of the holders of a majority of the outstanding shares of TTI Common
Stock is required to approve the Acquisition Agreement and the Liquidation
Plan, abstentions and broker non-votes will have the same effect as negative
votes.
As of the Record Date, the directors, officers and affiliates of TTI,
together with persons and entities related to or affiliated with them, held an
aggregate of 15,551,015 shares of TTI Common Stock, representing approximately
58.5% of the outstanding TTI Common Stock. These same persons also hold
unexercised options to acquire shares of TTI Common Stock which, if exercised
would have resulted in such persons holding an aggregate of approximately
16,425,284 shares of TTI Common Stock on a fully diluted basis, representing
58.6% of the outstanding TTI Common Stock. Under the terms of the Acquisition
Agreement, Lance V. D'Ambrosio
16
<PAGE>
and F. Lorenzo Crutchfield, Jr. are contractually obligated to vote in favor
of the Acquisition Agreement and the Liquidation Plan and have granted the
Pacific Telesis Board of Directors, consistent with such contractual
obligation, proxies to vote their shares in favor of approval of the
Acquisition, the Acquisition Agreement and the Liquidation Plan and any matter
that could reasonably be expected to facilitate the Acquisition. The proxies
expire upon the termination of the Acquisition Agreement. Mr. Crutchfield and
Mr. D'Ambrosio own, as of the Record Date, directly or indirectly,
collectively approximately 57.6% of the outstanding TTI Common Stock.
Therefore, assuming that the proxies granted to Pacific Telesis by such
shareholders are voted in favor of the Acquisition Agreement and the
Liquidation Plan, approval of the Acquisition Agreement and the Liquidation
Plan is assured.
EXPENSES; SOLICITATION OF PROXIES
This Prospectus/Proxy Statement, the accompanying notice and proxy are being
mailed on or about , 1996 to holders of TTI Common Stock entitled to notice
of, and to vote at, the Special Meeting. Each party will bear its respective
costs of preparing, assembling, printing, filing and mailing the
Prospectus/Proxy Statement. Brokers, nominees and fiduciaries and other
custodians have been requested to forward soliciting materials to beneficial
owners of shares of TTI Common Stock held of record by them, and such
custodians will be reimbursed for their expenses. Certain officers, directors
and employees of TTI may solicit proxies by telephone or personal contact.
Such officers, directors and employees will not be additionally compensated
for such solicitation (other than their regular salaries). TTI may also engage
the services of a commercial proxy solicitation organization to assist its
officers, directors and employees in conducting the solicitation of proxies
for the Special Meeting. The costs of such commercial solicitor is expected to
be approximately $3,500.
DISSENTERS' RIGHTS
Under the Pennsylvania Law, holders of TTI Common Stock who do not vote in
favor of the Acquisition Agreement and Liquidation Plan will not have
dissenters' or appraisal rights.
OTHER MATTERS TO BE CONSIDERED
It is not anticipated that any matter other than those discussed in this
Prospectus/Proxy Statement will be brought before the Special Meeting. If
other matters are properly presented, proxies for TTI Common Stock will be
voted in accordance with the best judgment of the proxy holders.
STOCKHOLDER PROPOSALS
TTI will hold an Annual Meeting of Shareholders only if the Acquisition is
not consummated prior to the time thereof. In the event of such a meeting,
shareholder proposals must have been received by TTI no later than April 3,
1996 to be considered for inclusion in the Proxy Statement and form of proxy
for the Annual Meeting of Shareholders. TTI did not receive any shareholder
proposals to be considered for inclusion in the Proxy Statement for the Annual
Meeting.
ACCOUNTANTS
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Special Meeting and available to respond to appropriate questions and will
also have the opportunity to make a statement at such time if they desire to
do so.
SECTION 16(A) DISCLOSURE
Section 16(a) of the Exchange Act requires TTI's executive officers and
directors, and persons who own 10% or more of a registered class of TTI's
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. Those persons are also required by
Securities and Exchange Commission regulations to furnish TTI with copies of
all Section 16(a) forms they file.
17
<PAGE>
On the basis of reports and representations submitted by the directors,
executive officers and 10% or more shareholders of TTI, all Forms 3, 4 and 5
showing ownership of and changes of ownership in TTI's equity securities
during TTI's fiscal year ended October 31, 1995 were timely filed with the
Securities and Exchange Commission and the Boston Stock Exchange as required
by Section 16(a), except as follows: (i) Maitland Wells, a former director and
officer of TTI, acquired 4,000 shares of TTI Common Stock, (ii) Wallace
Boyack, an outside director of TTI, acquired 3,600 shares of TTI Common Stock
from R. Bret Jenkins, also an outside director of TTI, and (iii) George
Sorenson, an outside director of TTI, acquired 2,500 shares of TTI Common
Stock. Each of these transactions was a transaction exempt from reporting on
Form 4 under Rule 16a-6 of the Exchange Act, but was required to be reported
on Form 5. None of the Forms 5 was timely filed. Also, during TTI's fiscal
year ended October 31, 1994, a corporation in which Mr. Sorenson is a
noncontrolling shareholder was issued 80,000 shares of TTI Common Stock in
exchange for a loan guarantee provided to TTI. In connection with such
transaction, TTI accrued a liability relating to its obligation to issue the
shares to the corporation, but the issuance of the shares was not effected
until TTI's fiscal year ended October 31, 1995. The transfer of the shares to
the corporation was not timely reported on Form 5.
As a result of TTI's voluntary delisting of its common stock on the Boston
Stock Exchange, TTI's officers, directors and 10% or more stockholders are no
longer subject to the reporting requirements of Section 16(a). TTI's stock was
delisted from the Boston Stock Exchange effective August 11, 1996.
18
<PAGE>
THE ACQUISITION AND RELATED TRANSACTIONS
BACKGROUND OF THE ACQUISITION
TTI and Videotron USA Contracts. In November 1993, TTI and Videotron USA
formed WHI as a joint venture Delaware corporation for the purpose of
acquiring, developing and operating wireless cable television and SMATV
systems in certain individual markets within the United States.
In connection with the formation of WHI, TTI and Videotron USA entered into
a shareholders agreement (the "WHI Shareholders Agreement") under which
Videotron USA agreed, if and to the extent required by the WHI Board of
Directors prior to January 1, 1995, to loan WHI funds for financing its
business. Initially, TTI had until January 1, 1995 to pay one half of those
loaned amounts in order to maintain its 50% ownership in WHI. If TTI paid
those amounts, all of Videotron USA's and TTI's loans to WHI were to be
converted into additional WHI stock (or, if both Videotron USA and TTI agreed,
maintained as loans payable to Videotron USA and TTI). If TTI failed to match
those amounts on or before January 1, 1995, TTI's 50% interest in WHI was to
be diluted. After January 1, 1995 (but only if TTI and Videotron USA each
owned 50% of WHI) either party had the right to elect to dissolve WHI under
the terms of the WHI Shareholders Agreement. WHI's assets were then to be
liquidated and/or distributed to TTI and Videotron USA equally in accordance
with a prescribed procedure based on market valuations and other factors.
Under the terms of the WHI Shareholders Agreement, TTI and Videotron USA
also agreed that, with certain exceptions, WHI would be the sole vehicle used
by each of them in the United States for acquiring, developing and operating
wireless cable television and SMATV systems until such time as WHI owned or
operated wireless cable systems or SMATV systems with at least four million
line-of-sight homes.
At the same time TTI and Videotron USA formed WHI, TTI and its then-
subsidiary, VBAI, agreed that VBAI would sell and issue to Videotron USA stock
constituting 80% of VBAI's outstanding stock. Under the terms of Videotron
USA's purchase of the VBAI stock, it also agreed (i) to meet certain funding
requirements for the expansion and operation of VBAI, (ii) that TTI's 20%
interest in VBAI was non-dilutable, and (iii) to purchase TTI's interest in
VBAI at any time after December 31, 1994 and at TTI's request for the greater
of $2.6 million or its "fair market value" as defined in the VBAI agreement.
In December 1994, disputes arose between TTI and Videotron USA regarding the
scope of WHI's business operations, and TTI filed suit against Videotron USA
and certain other parties (including certain officers and directors of
Videotron USA and its affiliates) in the United States District Court for the
District of Utah. The suit alleged breach of fiduciary duty, tortious
interference with economic relations, misappropriation of corporate
opportunities, fraud, misappropriation of assets and misuse of proprietary
business information, conspiracy and other matters. Concurrently with the
filing of the suit, TTI filed an arbitration action in Tampa Bay, Florida, as
provided in the WHI Shareholders Agreement. TTI also made demand for the
dissolution of WHI pursuant to the provisions of the WHI Shareholders
Agreement.
As of March 31, 1995, TTI, Videotron USA and the other parties to the suit
settled their disputes by entering into a settlement agreement (the
"Settlement Agreement"). Under the terms of the Settlement Agreement, the
parties agreed they would engage the services of Goldman, Sachs & Co.
("Goldman") for the purpose of facilitating a transaction under which WHI and
VBAI would be sold, merged with or otherwise acquired by a third party. The
Settlement Agreement also (i) eliminated TTI's obligation to provide matching
funds to WHI in order to maintain its 50% interest in WHI, (ii) provided WHI
with continuing financing from Videotron USA through October 31, 1995 and
thereafter as necessary to complete any such transaction, (iii) eliminated the
equity conversion features of the outstanding loans to WHI and reduced the
interest rate on outstanding debt, and (iv) provided for a series of cross
purchase options under which TTI or Videotron USA could acquire the other
party's interest in WHI and VBAI if no other sale, merger or other disposition
of WHI and VBAI was consummated with a third party pursuant to an agreement
made on or before October 31, 1995.
19
<PAGE>
Auction Process. Commencing in June 1995, representatives of Goldman
contacted a number of potential buyers, including Pacific Telesis, to solicit
bids for WHI and VBAI or portions thereof. A number of parties entered into
confidential disclosure agreements with WHI and VBAI and received information
describing WHI and VBAI. On July 14, 1995, Pacific Telesis submitted its
preliminary indication of interest. During July and August, Pacific Telesis
conducted preliminary due diligence on WHI and VBAI. On August 24, Pacific
Telesis submitted its final bid in the Goldman auction process. Goldman had
also received proposals from other parties. Based on a determination by TTI
and Videotron USA that the Pacific Telesis proposal was potentially superior
to the other proposals because it covered the acquisition of substantially all
of WHI and VBAI, was structured as a tax-free transaction for TTI and its
shareholders and placed the highest valuation on WHI and VBAI, TTI and
Videotron USA agreed to enter into formal acquisition negotiations with
Pacific Telesis. On August 11, 1995, representatives of Pacific Telesis met
with representatives of Goldman, Videotron USA and TTI in Goldman's Chicago
offices to discuss generally the nature of a potential offer by Pacific
Telesis. Following the meeting, on or about August 24, 1995, Pacific Telesis
delivered a revised proposal as to valuation and structure to TTI and
Videotron USA through Goldman. Representatives of Pacific Telesis, TTI and
Videotron USA clarified the terms of this proposal in a series of telephone
calls.
Negotiations with Pacific Telesis. On August 30 and September 1, 1995,
representatives of Pacific Telesis, TTI and Videotron USA met in the offices
of Pacific Telesis' attorneys in Los Angeles in an effort to agree on a term
sheet for the Acquisition. Negotiation of the proposed term sheet presented
several issues that the parties could not agree on, and these negotiations
ended unsuccessfully.
Over the ensuing Labor Day weekend, representatives of Videotron USA
discussed ways of resolving the open issues with representatives of Pacific
Telesis by telephone. Following these conversations, Goldman conducted further
negotiations of the open issues with Pacific Telesis by telephone. After these
negotiations, on September 11, 1995, Goldman distributed a revised term sheet
to Videotron USA and TTI. TTI rejected the terms proposed by Pacific Telesis
in the revised term sheet, and the parties suspended their negotiations.
On September 18, 1995, Videotron USA commenced an arbitration proceeding
against TTI, seeking enforcement of the Settlement Agreement by requiring TTI
to continue to negotiate with Pacific Telesis, and, on September 15, 1995,
filed an action in the United States District Court for the District of
Delaware (the "Delaware Action") seeking an injunction in aid of the relief
sought in the arbitration proceeding. TTI filed a counterclaim alleging that
Videotron USA violated the Settlement Agreement by negotiating unilaterally
with Pacific Telesis.
Commencing on September 19, 1995, Goldman and Videotron USA resumed
telephone discussions regarding the term sheet with representatives of Pacific
Telesis. Over the next several days the parties revised the terms of the term
sheet, including certain terms relating to the proposed escrow arrangement and
certain FCC matters. In the view of TTI, these changes reduced the likelihood
that the Exchange Value would be adjusted downward. As a result, on September
26, 1995, TTI agreed to resume formal negotiations with Pacific Telesis and,
on October 2, 1995, TTI and Videotron USA stipulated to a dismissal of the
Delaware Action without prejudice.
Commencing on September 21, 1995, TTI engaged Wasserstein Perella & Co.,
Inc. ("WP&Co.") to provide financial advisory services to TTI. In such role,
WP&Co. advised TTI, from time to time and at the request of TTI, with respect
to the proposed terms of the Acquisition. WP&Co. did not directly participate
in any of the negotiations relating to the Acquisition. Representatives of
Goldman participated in the negotiations with Pacific Telesis on behalf of
both TTI and Videotron USA until October 31, 1995, when its engagement expired
and was not extended.
On September 29, 1995, representatives of the parties met at the offices of
Pacific Telesis' attorneys in San Francisco to resume negotiations on the
Acquisition and to agree on an issues list as the basis for further
negotiations. During October and early November, representatives of the
parties and their respective counsel negotiated the terms of the definitive
Acquisition Agreement, conducted legal and business due diligence reviews and
addressed a number of ancillary matters in a series of meetings and telephone
calls. These activities
20
<PAGE>
culminated on November 9, 1995, when the parties agreed upon the terms of the
Acquisition Agreement. In addition, subsequent to November 9, 1995, the
parties to a proposed joint bidding agreement that was ancillary to the
Acquisition Agreement, which parties were affiliates of the parties to the
Acquisition Agreement, declared under penalty of perjury that such joint
bidding agreement was null and void and submitted these declarations to the
FCC pursuant to an FCC letter decision dated November 28, 1995 (the "Letter
Decision"). The joint bidding agreement was never executed. TTI is reviewing
the Letter Decision and the declarations.
From November 9, 1995 through early April 1996, the parties engaged in the
Basic Trading Area ("BTA") license auction process for the Multipoint
Distribution Service and, as a result, became subject to FCC "anti-collusion"
rules. As a consequence of these rules, the parties participated only in very
limited communications in accordance with the FCC rules clarified by a
decision issued by the FCC on November 28, 1995.
Additional Matters. In January 1996 (effective November 9, 1995), TTI,
Videotron USA and certain other parties executed the Supplemental Agreement,
under which they defined the procedures necessary to complete the Acquisition
Agreement. Under the terms of the Supplemental Agreement, TTI and Videotron
USA amended the terms of the Settlement Agreement to provide for matters
arising under the Acquisition Agreement, dismissed with prejudice certain
litigation and arbitration proceedings between them and agreed upon the terms
under which Videotron USA would provide WHI and VBAI with operational funding
until the consummation of the Acquisition. Under the terms of the Supplemental
Agreement, if the Acquisition does not close, the parties' continuing
obligations with respect to WHI's and VBAI's operations will be governed by
the terms of the Settlement Agreement, as amended by the Supplemental
Agreement.
The Supplemental Agreement includes various provisions for indemnity by and
among TTI, Mr. Crutchfield and Videotron Canada and certain of their
affiliates. Subject to certain limitations, TTI and Mr. Crutchfield agreed to
indemnify Videotron Canada, Videoway and the Acquired Companies against
liabilities in connection with the Registration Statement of which this
Prospectus/Proxy Statement is a part, except to the extent of information
included in or omitted from the Registration Statement in reliance on
information provided by the indemnified parties to Pacific Telesis in writing
for inclusion in the Registration Statement. Also, subject to certain
limitations, Videotron Canada agreed to indemnify TTI, WHI and Mr. Crutchfield
from any liability in connection with the Registration Statement attributable
solely to information provided to Pacific Telesis in writing for inclusion in
the Registration Statement by Videotron Canada, Videoway, Videotron USA or
VBAI. Videotron Canada also agreed to indemnify TTI from any loss or liability
in connection with the Vanguard litigation.
Under a separate agreement with Mr. Crutchfield, also dated as of November
9, 1995, Videotron Canada agreed, subject to certain limitations, to indemnify
Mr. Crutchfield to the extent of certain obligations he may have under the
Acquisition Agreement to indemnify Pacific Telesis solely by reason of the
inclusion in or omission from the Registration Statement of information
concerning or relating to any of the Acquired Companies, Videoway or Videotron
Canada.
On February 23, 1996, TTI's board of directors approved the Liquidation
Plan. As part of the Liquidation Plan, on March 12, 1996, the Company notified
the SEC and the Boston Stock Exchange of its request to voluntarily delist the
TTI Common Stock from the Boston Stock Exchange. In accordance with this
notice, on March 13, 1996, the Boston Stock Exchange suspended trading of the
TTI Common Stock. The SEC delisted the TTI Common Stock from the Boston Stock
Exchange effective April 11, 1996. The TTI Common Stock is currently traded on
the over-the-counter market.
REASONS FOR THE ACQUISITION; APPROVAL OF THE TTI BOARD OF DIRECTORS
Pacific Telesis. The Board of Directors of Pacific Telesis approved and
adopted the Acquisition Agreement because the Board believes that the
Acquisition will enhance Pacific Telesis' competitive position in the wireless
cable industry. The Acquisition will increase the aggregate number and size of
Pacific Telesis'
21
<PAGE>
wireless cable television systems and channel rights at what the Board of
Directors believes to be favorable acquisition costs. The Acquisition
complements Pacific Telesis' planned wireless digital television service in
Southern California.
TTI. On November 9, 1995 the Board of Directors of TTI approved the
Acquisition Agreement. On February 23, 1996 the Board of Directors of TTI
approved the Plan of Liquidation. In reaching its determination to approve the
Acquisition and Liquidation Plan, the TTI Board of Directors consulted with
TTI's management, as well as legal counsel and investment/financial advisors,
and considered a number of factors. These factors included (i) the nature and
scope of the business of Pacific Telesis, (ii) the quality and breadth of
Pacific Telesis' assets and properties, (iii) Pacific Telesis' financial
condition, competitive position and prospects for future business, (iv)
Pacific Telesis' current interest and investments in the wireless cable
industry, (v) the evolving regulatory environment, (vi) TTI's strategic
alternatives and business relationship with Videotron USA, (vii) the proposed
structure of the transaction, including the fact that the Pacific Telesis
Common Stock will be registered securities upon their issuance, (viii) the
significant management resources of Pacific Telesis, and (ix) trends in the
wireless cable industry and the industry's competitive environment. TTI's
Board of Directors also concluded that consummation of the transactions
contemplated in the Acquisition Agreement would provide TTI's shareholders
with a vehicle for participating more fully in the wireless cable industry
through ownership of equity securities in a company which has substantial
financial resources, more diverse holdings than TTI and enjoys substantial
competitive advantages.
Videotron Canada and Videoway. The Board of Directors of Videotron Canada
and Videoway approved the Acquisition Agreement as appropriate to carry out
decisions by various subsidiaries to liquidate all interests in Videotron USA,
WHI and VBAI in accordance with the procedures adopted in the Settlement
Agreement.
FINANCIAL ADVISORS
Goldman. In April 1995, Videotron Canada and TTI engaged Goldman to contact
potential buyers for WHI and VBAI. Commencing in June 1995, Goldman conducted
an auction with respect to the sale of the companies and provided financial
advisory services to Videotron USA and TTI in connection with the auction and
the potential acquisition of WHI and VBAI by Pacific Telesis. On October 31,
1995, Goldman's engagement expired and was not extended.
WP & Co. On September 21, 1995, TTI engaged WP&Co. to provide financial
advisory services to TTI. In May 1996, TTI engaged WP&Co. to provide a
fairness opinion in connection with the Acquisition. On June 25, 1996, WP&Co.
delivered an opinion to TTI that, as of such date, and subject to the various
assumptions and considerations set forth in such opinion, the consideration to
be received by TTI in the sale of its interests in WHI and VBAI is fair from a
financial point of view to TTI (the "Fairness Opinion"). WP&Co. noted in the
Fairness Opinion that it was not expressing any opinion on the Liquidation in
accordance with the Liquidation Plan, the disposition of TTI's pay-per-call
telephone operations, the Spin-Off Assets and Spin-Off Liabilities and the
transfer of such in accordance with the Spin-Off, or the price at which the
Pacific Telesis Common Stock will actually trade at any time.
THE FULL TEXT OF THE FAIRNESS OPINION IS ATTACHED HERETO AS APPENDIX C
HERETO. HOLDERS OF TTI COMMON STOCK ARE URGED TO READ THE FAIRNESS OPINION IN
ITS ENTIRETY FOR INFORMATION WITH RESPECT TO THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY WP&CO. IN
RENDERING THE FAIRNESS OPINION. REFERENCES TO THE FAIRNESS OPINION HEREIN AND
THE SUMMARY OF THE FAIRNESS OPINION SET FORTH BELOW ARE QUALIFIED BY THE
ACTUAL LANGUAGE OF APPENDIX C, WHICH IS INCORPORATED HEREIN BY REFERENCE.
The Fairness Opinion is directed only to the fairness from a financial point
of view to TTI of the consideration TTI is to receive pursuant to the sale of
its ownership interests in WHI and VBAI, and does not address any other aspect
of the Acquisition. The Fairness Opinion does not constitute a recommendation
to any holder of TTI Common Stock with respect to whether to vote in favor of
any matter being submitted to such shareholder, and should not be relied upon
by any holder of TTI Common Stock as such.
22
<PAGE>
The Fairness Opinion was prepared and delivered based upon the conditions as
they existed and could be evaluated by WP&Co. as of June 25, 1996. In arriving
at its opinion, WP&Co. reviewed the Acquisition Agreement, certain publicly
available financial and other information concerning TTI, WHI, VBAI, Pacific
Telesis and SBC, certain financial and operating information and budgets
relating to WHI and VBAI provided by managements of TTI, WHI and VBAI, and
information concerning the respective businesses, operations, assets,
financial conditions and future prospects of TTI, WHI and VBAI provided during
discussions with the managements of TTI, WHI and VBAI and their respective FCC
counsel. WP&Co., in addition, reviewed the Settlement Agreement.
The preparation of a fairness opinion is a complex process that is not
purely mathematical and is not necessarily susceptible to partial analysis or
summary description. The preparation of a fairness opinion involves complex
considerations and judgments.
In arriving at its opinion, WP&Co. assumed and relied upon the accuracy of
all the financial and other information that was provided by TTI, WHI and VBAI
or publicly available to it. WP&Co. also relied upon the reasonableness and
accuracy of the financial budgets and analyses supplied to it by the
managements of TTI, WHI and VBAI, and has assumed that they were reasonably
prepared in good faith on bases reflecting the best currently available
judgments and estimates of TTI's, WHI's and VBAI's managements, and WP&Co.
does not express any opinion with respect to such financial budgets and
analyses. WP&Co. did not assume any responsibility for conducting a physical
inspection of the respective properties of TTI, WHI or VBAI, or for making an
independent evaluation or appraisal of the respective assets and liabilities
of TTI, WHI and VBAI. In addition, WP&Co. was not authorized to, and did not
solicit alternative offers for, TTI, WHI, VBAI or their respective assets, or
investigate any other alternative transaction which may be available to TTI,
WHI or VBAI.
In performing its analysis for the Fairness Opinion, WP&Co. relied on
numerous assumptions made by the managements of TTI, WHI and VBAI and made
industry judgments of its own with regard to the respective performances of
TTI, WHI and VBAI, industry performance, general business and economic
conditions and other matters, many of which are beyond TTI's ability to
control. In concurrence with the views of TTI management, WP&Co. assumed for
the purposes of the Fairness Opinion that the FCC Adjustment is less than or
equal to $6,250,000 and that the Pacific Telesis Common Stock to be issued to
TTI but held in escrow will be fully released for the benefit of TTI on the
expiration of the escrow. Analyses relating to values of companies do not
purport to be appraisals or to reflect the prices at which companies may be
actually sold.
In connection with their opinion on June 25, 1996, representatives of WP&Co.
considered various financial and other matters that they deemed relevant.
General valuation considerations deemed to be relevant by WP&Co. included,
without limitation: (i) wireless cable service and demographic trends as a
whole in WHI's and VBAI's markets; (ii) TTI's, WHI's and VBAI's respective
historical financial and operating performance and future prospects in the
context of their respective business strategies, market positions, and current
and prospective competition; (iii) the development stage nature of the
wireless cable industry; (iv) TTI's, WHI's and VBAI's respective
technological, marketing and product strategies; (v) respective size and asset
mix of TTI, WHI and VBAI; (vi) TTI's minority ownership of VBAI, and shared
control of WHI; (vii) budgets for WHI and VBAI provided by TTI management;
(viii) the breadth and depth of the potential acquisition universe for TTI;
(ix) Pacific Telesis' financial resources; (x) recent BTA auctions for
wireless cable service; (xi) the success of Pacific Telesis in winning
licenses in the BTA auction in WHI's and VBAI's service areas; and (xii)
Pacific Telesis' announced merger agreement with SBC.
WP&Co. arrived at a range of implied combined enterprise values for WHI and
VBAI based on total proceeds to TTI as part of the transaction, including all
direct payments made by Pacific Telesis to TTI and amounts to be received by
TTI in the allocation of the consideration to be paid by Pacific Telesis to
TTI and Videoway, the exact amount of which is subject to certain FCC and
other closing adjustments, without taking into account any transaction costs
incurred by either TTI, WHI, VBAI or Videotron USA. In arriving at a range of
implied enterprise values of WHI and VBAI, WP&Co. ascribed a relative value of
either 100% or 50% to unbuilt line-of-sight ("LOS") homes compared to built
LOS homes (i.e., the number of "effective LOS homes"
23
<PAGE>
served by a company is calculated as the number of built LOS homes plus the
product of the relative value and the number of unbuilt LOS homes). If the
relative value between unbuilt LOS homes and built LOS homes is 100% (i.e.
there is no difference in value between unbuilt LOS homes and built LOS
homes), then based on the total proceeds to be received by TTI, the enterprise
value per effective LOS homes multiple range is $34.64 to $37.47, the
enterprise value per subscriber multiple range is $10,027 to $10,847, the
adjusted enterprise value per net effective LOS homes multiple range is $30.15
to $33.05 (where "adjusted enterprise value" is the implied enterprise value
of WHI and VBAI less the product of the number of subscribers served by WHI
and VBAI and an applied value per subscriber of $1,500, and "net effective LOS
homes" is the number of effective LOS homes less the number of subscribers
served by WHI and VBAI divided by a 15% total target penetration rate) and the
enterprise value adjusted for near-term penetration per effective LOS homes
multiple range of $45.41 to $48.25 (where the "enterprise value adjusted for
near-term penetration" is the implied enterprise value of WHI and VBAI plus
the product of the number of additional subscribers needed to achieve a
penetration rate of 2.5% and an applied cost per subscriber of $500). If the
relative value between unbuilt LOS homes and built LOS homes is 50%, then
based on the total proceeds to be received by TTI, the enterprise value per
effective LOS homes multiple range is $51.29 to $55.49, the adjusted
enterprise value per net effective LOS homes multiple range is $45.48 to
$49.81, and the enterprise value adjusted for near-term penetration of LOS
homes per effective LOS homes multiple range is $61.36 to $65.56.
These reference ranges of multiples were all considered in the context of
the analyses described below. Each of these analyses supports WP&Co.'s
conclusion in the Fairness Opinion as to the proceeds to be received by TTI
and the implied enterprise value per effective LOS homes, enterprise value per
subscribers, adjusted enterprise value per net effective LOS homes and
enterprise value adjusted to achieve near-term penetration per effective LOS
homes ranges of multiples are within the reference ranges calculated using
public company trading analysis and precedent merger and acquisition
transactions analysis.
Public Company Trading Analysis. WP&Co. reviewed, analyzed and compared
certain operating, financial and trading information of eight other publicly
traded companies (American Telecasting, CAI Wireless, CellularVision,
Heartland Wireless, National Wireless, Peoples Choice TV, Wireless Cable of
Atlanta and Wireless One), including market values, enterprise values (defined
as market value plus debt, preferred stock and minority interest less cash and
cash equivalents), estimated enterprise values of non-wireless cable
operations, number of LOS homes, number of unbuilt LOS homes, number of built
LOS homes and the number of subscribers.
If the relative value between unbuilt LOS homes and built LOS homes is 100%
(i.e., there is no difference in value between unbuilt LOS homes and built LOS
homes), then based on the trading analysis of the above mentioned public
companies, the enterprise value per effective LOS homes multiple range is
$29.70 to $70.30, the enterprise value per subscribers multiple range is
$2,381 to $37,119, the adjusted enterprise value per net effective LOS homes
multiple range is $19.30 to $65.10, and the enterprise value per adjusted
homes multiple range is $40.70 to $80.40.
If the relative value between unbuilt LOS homes and built LOS homes is 50%,
then based on the trading analysis of the above mentioned public companies,
the enterprise value per effective LOS homes multiple range is $32.50 to
$103.30, the adjusted enterprise value per net effective LOS homes multiple
range is $20.80 to $97.20, and the enterprise value adjusted to achieve near-
term penetration per effective LOS homes multiple range is $40.70 to $112.20.
Precedent Merger and Acquisition Transactions. WP&Co. reviewed and analyzed
selected merger and acquisition transactions involving other companies in the
wireless cable industry as it deemed relevant. While there have been many
transactions in the wireless cable industry, WP&Co. reviewed the following
transactions, which it believed are comparable in scope and scale, and are
listed by acquiror(s)/acquiree(s): Wireless One/True Vision, CS Wireless/CAI
Wireless-Heartland Wireless (contribution transaction), Heartland
Wireless/CableMaxx, Heartland Wireless/American Wireless Systems, Pacific
Telesis/Cross Country, Bell Atlantic-NYNEX/CAI Wireless, CAI Wireless/ACS
Enterprises and People's Choice TV/Preferred Entertainment.
24
<PAGE>
If the relative value between unbuilt LOS homes and built LOS home is 100%
(i.e., there is no difference in value between unbuilt LOS homes and built LOS
homes), then based on the selected precedent merger and acquisition
transactions mentioned above, the enterprise value per effective LOS homes
multiple range is $12.50 to $93.60, the enterprise value per subscribers
multiple range is $2,698 to $16,408, the adjusted enterprise value per net
effective LOS homes multiple range is $11.40 to $67.60, and the enterprise
value adjusted to achieve near-term penetration per effective LOS homes
multiple range is $24.60 to $93.70.
If the relative value between unbuilt LOS homes and built LOS home is 50%,
then based on selected precedent merger and acquisition transactions mentioned
above, the enterprise value per effective LOS homes multiple range is $20.00
to $100.50, the adjusted enterprise value per net effective LOS homes multiple
range is $18.30 to $72.40, and the enterprise value adjusted to achieve near-
term penetration per effective LOS homes multiple range is $31.90 to $84.60.
In addition to the above outlined analyses, WP&Co. took into account such
other factors as it deemed appropriate in determining the fairness to TTI of
the consideration to be received pursuant to the sale of its interests in WHI
and VBAI. WP&Co. concluded, based on a full range of its analysis, that the
consideration to be received by TTI pursuant to the sale of its interests in
WHI or VBAI was fair from a financial point of view to TTI.
WP&Co. is an investment banking firm engaged, among other things, in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, and secondary
distributions of listed and unlisted securities and private placements. WP&Co.
was selected to render its opinion regarding the fairness of the consideration
to be reviewed by TTI because it is a nationally recognized investment banking
firm and because of its experience in the valuation of companies.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TTI Exchange. The following discussion summarizes the material federal
income tax considerations relevant to the exchange of TTI's 50% equity
interest in WHI and TTI's 20% equity interest in VBAI for Pacific Telesis
Common Stock pursuant to the Acquisition and the subsequent distribution of
such Pacific Telesis Common Stock to TTI's shareholders in the TTI Liquidation
(the "TTI Exchange"). In particular, this discussion addresses the tax
consequences of the TTI Exchange generally applicable to holders of TTI Common
Stock. It does not address all federal income tax considerations that may be
relevant to particular TTI shareholders in light of their particular
circumstances, such as shareholders who do not hold their TTI Common Stock as
capital assets or persons who acquired their shares in compensatory
transactions. In addition, the following discussion does not address the tax
consequences of transactions effectuated prior or subsequent to, or
concurrently with, the TTI Exchange (whether or not any such transactions are
undertaken in connection with the TTI Exchange) including, without limitation,
the sales of the Spin-Off Assets or any transactions in which shares of TTI
Common Stock are acquired or any shares of Pacific Telesis Common Stock are
disposed of. Furthermore, no foreign, state or local tax considerations are
addressed herein. ACCORDINGLY, TTI SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE TTI EXCHANGE,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM ARISING FROM THE TTI EXCHANGE.
It is intended that the TTI Exchange qualify as a tax-free reorganization
under Section 368(a)(1)(C) of the Code, in which case, subject to the
limitations and qualifications referred to herein, (i) neither TTI nor any TTI
shareholder will recognize any gain or loss on the receipt of the Pacific
Telesis Common Stock upon the consummation of the Acquisition Agreement and
the subsequent TTI Liquidation, (ii) each TTI shareholder will obtain a tax
basis in the Pacific Telesis Common Stock received equal to the tax basis in
his or her TTI Common Stock surrendered in exchange therefor and (iii) the
holding period of the Pacific Telesis Common Stock in the hands of the TTI
shareholders will include the holding period of their TTI Common Stock
exchanged therefor, provided such TTI Common Stock is held as a capital asset
at the effective time of the Closing of the Acquisition
25
<PAGE>
Agreement. Notwithstanding Pacific Telesis' and TTI's intent to treat the TTI
Exchange as a tax free reorganization, no ruling from the IRS will be issued
to Pacific Telesis or TTI concerning such treatment. TTI however, has received
a legal opinion from its counsel, Parsons Behle & Latimer, to the effect that
the TTI Exchange will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code. A copy of the Tax Opinion is attached as
Appendix D hereto. The consummation of the transactions contemplated by the
Acquisition Agreement is conditioned upon the Tax Opinion not having been
withdrawn or modified in any material respect. TTI shareholders should be
aware that the Tax Opinion does not bind the IRS and the IRS is therefore not
precluded from successfully asserting a contrary position. The Tax Opinion is
subject to certain assumptions, including but not limited to the truth and
accuracy of certain representations made by TTI and certain shareholders of
TTI. Of particular importance are certain representations relating to the
Code's "continuity of interest requirement."
To satisfy the continuity of interest requirement, the TTI shareholders, as
a group, must not, pursuant to a plan or intent existing at or prior to the
TTI Exchange, dispose of or transfer so much of either (i) their TTI Common
Stock in anticipation of the TTI Exchange or (ii) the Pacific Telesis Common
Stock to be received in the TTI Exchange (collectively, "Planned
Dispositions"), such that TTI shareholders, as a group, would no longer have a
significant equity interest in the businesses of the Acquired Companies being
conducted by Pacific Telesis after the TTI Exchange. TTI shareholders will
generally be regarded as having a significant equity interest as long as the
number of shares of Pacific Telesis Common Stock received in the TTI Exchange
less the number of shares subject to Planned Dispositions (if any) represents,
in the aggregate, a "substantial" portion (at least 50%, according to IRS
advance ruling guidelines) of the entire consideration received by the TTI
shareholders in the TTI Exchange.
If the IRS were to challenge successfully the "reorganization" status of the
TTI Exchange (as a result of a failure to satisfy the continuity of interest
requirement or otherwise), and the TTI Exchange were held not to constitute a
tax free reorganization, then the TTI Exchange would be treated as a fully
taxable sale of all the assets of TTI. As a result, TTI would recognize
taxable gain to the extent the value of the consideration received by TTI
(including the value of the Pacific Telesis Common Stock received) at the time
of the sale exceeded TTI's tax basis in its assets, and TTI (and its
shareholders, as successors in interest to TTI) would be required to pay
corporate-level income tax on the gain.
In addition, each TTI shareholder would recognize taxable gain or loss upon
the TTI Liquidation equal to the difference between the value of the Pacific
Telesis Common Stock distributed at liquidation and his or her tax basis in
the shares of TTI Common Stock surrendered. The holders of TTI Common Stock
should be aware that it is not likely that they will receive any cash in the
TTI Liquidation. As a result, if a TTI Common Stock holder recognizes taxable
gain on the TTI Liquidation, that holder will have to pay the associated taxes
out of the holder's own funds.
THERE CAN BE NO ASSURANCE THAT THE IRS WILL NOT SEEK TO RECHARACTERIZE THE
TTI EXCHANGE AS A TAXABLE EVENT TO TTI AND/OR THE TTI SHAREHOLDERS. UNDER SUCH
CIRCUMSTANCES, TTI AND/OR THE TTI SHAREHOLDERS MIGHT BE REQUIRED TO USE
CERTAIN PROCEEDS OF THE TTI EXCHANGE TO SATISFY TTI TAX LIABILITIES. IN
ADDITION, THE TTI SHAREHOLDERS WOULD BE REQUIRED TO RECOGNIZE ANY GAIN FROM
THE SURRENDER OF THEIR SHARES OF TTI COMMON STOCK PURSUANT TO THE TTI
EXCHANGE.
An issuance by Pacific Telesis of its own stock is not a taxable event.
Therefore, Pacific Telesis will not recognize any taxable gain or loss on the
TTI Exchange. In addition, the existing holders of the Pacific Telesis Common
Stock will have no federal income tax consequences as a result of the TTI
Exchange.
Videoway Exchange. Videoway is a foreign corporation that has no trade or
business in the United States. It is not expected to receive any fixed or
determinable, annual or periodic income in connection with the Acquisition,
and, therefore, is not expected to incur any United States federal income tax
in connection with the Acquisition.
26
<PAGE>
ACCOUNTING TREATMENT
The Acquisition will be accounted for as a "purchase" for financial
accounting purposes in accordance with generally accepted accounting
principles, whereby the purchase price will be allocated based on the fair
values of the assets acquired and the liabilities assumed. Any excess of such
purchase price over the amounts so allocated will be allocated to goodwill.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Shareholders should be aware that certain members of TTI's management have
interests in the Acquisition that are in addition to the interests of the TTI
shareholders generally. Lance V. D'Ambrosio, TTI's President and Chief
Executive Officer, will receive $100,000 from Pacific Telesis upon
consummation of the Acquisition in consideration for his agreement not to
compete with the Acquired Companies in certain geographic areas for a period
of three years after the Closing Date. In addition, TTI has previously entered
into employment agreements with certain of its key officers and employees of
TTI which, among other provisions, contain provisions that commit TTI to
severance payments under certain circumstances, including termination of such
persons' employment within 60 days of a change of control, as defined in the
agreements. The transactions contemplated by the Acquisition Agreement would
constitute a change of control for purposes of the employment agreements. See
"Interests of Certain Persons in the Acquisition."
In general, under the terms of the employment agreements, TTI's officers and
key employees are entitled to receive, if they are terminated or voluntarily
terminate their employment within 60 days of a change of control, an amount
equal to the greater of one year's base salary or the amounts of salary
remaining to be paid through the end of the employment agreement's terms (with
the exception of Mr. Crutchfield, who is entitled to receive an amount equal
to the greater of two year's base salary or the amount of salary remaining to
be paid through the end of the employment term, but who has also waived all
rights to all such severance payments). The employment agreements generally
terminate on October 31, 1996 (subject to automatic renewal terms of one year
each), and so any termination resulting from change of control on or before
that date would generally subject TTI to the contractual obligation to pay
each such employee one year's base salary.
As used in TTI's employment agreements, the term "change of control" means
any transaction or series of transactions which results in (i) the sale of all
or substantially all of the assets of TTI, (ii) a merger or consolidation of
TTI with or into another entity, (iii) any acquisition by any person or entity
of more than 25% of the issued and outstanding stock of TTI, or (iv) the
acquisition by any person or entity of debt instruments or equity securities
of TTI which may, at any time, be converted into 25% or more of the issued and
outstanding stock of TTI. The assets to be acquired by Pacific Telesis and its
subsidiaries under the terms of the Acquisition Agreement constitute
substantially all of the assets of TTI. Therefore, the transactions
contemplated by the Acquisition Agreement will constitute a change of control
for purposes of the employment agreements. For purposes of the employment
agreements, a change of control is deemed to have been "completed" upon either
the date that TTI enters into a definitive and binding agreement concerning
the transaction in question, or upon the date the transaction in question is
actually completed, at the discretion of the employee.
TTI anticipates that it will terminate the employment of its officers and
key employees under the employment agreements upon the closing of the
transactions contemplated by the Acquisition Agreement. Although it
anticipates that it may employ certain of its officers and key employees to
assist in the liquidation and dissolution of TTI subsequent to the closing of
the Acquisition Agreement, those services will not be covered by the terms of
the employment agreements. TTI and its officers and key employees have agreed
that, in exchange for the waiver and release by such parties of their rights
under their agreements with TTI (including the change of control provisions of
their respective employment agreements), and in lieu of any severance amounts
otherwise due those persons under those agreements (in the aggregate
approximate amount of $565,000), TTI will reduce the exercise price of those
persons' outstanding stock options from an average of $1.12 per share to $.001
per share. The amounts that TTI would have realized if such options had been
exercised without an adjustment to their exercise price would have been
$1,087,500. The modification of the exercise price of the options is
contingent on a number of conditions, including the release of all claims any
such persons may have against TTI under their employment agreements and the
Closing of the Acquisition. As a result of the
27
<PAGE>
modification, TTI will be required to record a compensation expense. See
"Information Concerning TTI--Executive Compensation and Other Matters."
THE SPIN-OFF
The Acquisition Agreement requires WHI and VBAI to dispose of the Spin-Off
Assets and the Spin-Off Liabilities prior to the closing of the Acquisition.
The Spin-Off Assets, as more particularly described above under "The
Companies--Wireless Holdings, Inc." and "The Companies--Videotron (Bay Area)
Inc.", comprise the SMATV systems operated by BAC in the San Francisco area,
certain franchised cable and related operations conducted by TWTV Spokane in
Spokane, Washington, and certain franchised cable and SMATV-related assets of
VBAI in or near Tampa Bay, Florida. The Spin-Off Liabilities are principally
the contracts and obligations associated with the Spin-Off Assets. To satisfy
this condition, under the Supplemental Agreement, WHI and VBAI agreed that WHI
(or its subsidiaries) and VBAI would sell the Spin-Off Assets, effective as of
January 1, 1996, to one or more designated affiliates of Videotron Canada for
purchase prices totalling $4,300,000 and the assumption of the Spin-Off
Liabilities, with adjustments to the purchase price as if the sale were
completed on January 1, 1996. Commencing January 1, 1996, the Spin-Off Assets
and the Spin-Off Liabilities were administered by WHI and its subsidiaries and
VBAI for the benefit of the purchasers. The transfer of the Spin-Off Assets
and the assumption of the Spin-Off Liabilities were completed July 31, 1996.
In accordance with the Supplemental Agreement, the purchase price was paid by
a reduction in the Outstanding Indebtedness of WHI and VBAI to Videotron USA.
THE TTI LIQUIDATION
As part of the approval of the Acquisition Agreement, the shareholders of
TTI are being asked to approve the Liquidation Plan, pursuant to which the
shares of Pacific Telesis Common Stock received by TTI in the Acquisition and
the remaining assets of TTI, if any, will be distributed to the shareholders
of TTI. TTI has selected to act as liquidating agent (the "Agent") for
the purpose of effectuating the delivery of
the Pacific Telesis Common Stock and other TTI assets, if any, to TTI
shareholders after the dissolution of TTI for state law purposes. Pursuant to
the terms of the Liquidation Plan and the agreement between TTI and the Agent,
Pacific Telesis will deliver to TTI the shares of Pacific Telesis Common Stock
to be received by it in the Acquisition for sale or distribution in accordance
with the terms of the Liquidation Plan. It will also deliver Pacific Telesis
Common Stock having a value of approximately $ to a third party that has
loaned funds to TTI. See "The Acquisition and Related Transactions--the TTI
Liquidation," below. TTI anticipates that, upon the consummation of the
Acquisition, Pacific Telesis Common Stock having an aggregate value of
approximately $ (or $ per share of TTI Common Stock) will be sold by TTI
(in the open market or otherwise) to satisfy the known and contingent claims
of TTI, to pay TTI's costs of the Acquisition and to pay certain costs
associated with the winddown and termination of TTI's operations, and shares
of Pacific Telesis Common Stock having an aggregate value equal to
approximately $ (or $ per share of TTI Common Stock) will be available for
distribution to the TTI shareholders. Upon TTI's dissolution, under the
Pennsylvania Law, any assets TTI then holds (including any shares of Pacific
Telesis Common Stock) will be transferred to the Agent, which will then make
provision for TTI's unresolved liabilities and distribute TTI's remaining
assets (including any shares of Pacific Telesis Common Stock) to TTI's
shareholders, pro rata in accordance with their respective interests.
Upon expiration of the TTI escrow, the escrow agent will deliver to the
Agent, for distribution to TTI's shareholders, shares of Pacific Telesis
Common Stock having a value of $6,000,000 (based upon the PTG Common Stock
Price), less any amounts retained to cover claims by Pacific Telesis, to be
distributed among the TTI shareholders. No fractional shares will be issued in
connection with the Liquidation. Instead, fractional shares will be liquidated
by TTI or the Agent on behalf of TTI and distributed in accordance with the
Liquidation Plan.
Assuming TTI shareholders approve the Acquisition and the Liquidation Plan,
promptly after the consummation of the Acquisition, TTI will send to each TTI
shareholder a letter of transmittal ("Letter of
28
<PAGE>
Transmittal") containing instructions regarding procedures for each TTI
shareholder to receive his or her respective portion of the Pacific Telesis
Common Stock (or proceeds thereof). Upon TTI's dissolution and liquidation and
subject to the terms of the Letter of Transmittal, each TTI shareholder will
be entitled to receive, upon return of a duly executed Letter of Transmittal,
such shareholder's pro rata interest in (i) the Pacific Telesis Common Stock
to be distributed, (ii) the remaining proceeds, if any, of the Pacific Telesis
Common Stock after satisfaction of TTI's claims and obligations and any other
remaining TTI assets, and (iii) any remaining Pacific Telesis Common Stock
upon the expiration of the TTI escrow. As contemplated by the Liquidation
Plan, a TTI shareholder's certificate representing TTI Common Stock will, upon
the consummation of the Acquisition, be deemed to represent only the right to
receive such TTI shareholder's pro rata interest in the foregoing amounts.
Any dividends or other distributions declared on or after the Closing Date
on shares of Pacific Telesis Common Stock will be payable to the holders of
record of Pacific Telesis Common Stock on or after the Closing Date. TTI will
be the holder of record for the Pacific Telesis Common Stock received in
connection with the Acquisition at the Closing Date. In no event shall the
person or entity entitled to receive such dividends or other distributions be
entitled to receive interest on such dividends or distributions. If any
dividends, cash attributable to fractional shares or shares of Pacific Telesis
Common Stock are to be paid or issued in a name other than that of the person
entitled thereto as indicated on TTI's books and records, it shall be a
condition of such exchange that the person requesting the exchange pay any
transfer or other taxes required by reason of the issuance of the Pacific
Telesis Common Stock in a name other than that of the person so entitled or to
establish to the satisfaction of TTI (or the Agent, as applicable) that such
tax has been paid or it is not applicable.
In addition to its interests in WHI and VBAI, TTI currently owns certain
other immaterial assets which are not being acquired by Pacific Telesis
pursuant to the Acquisition Agreement, including office and business
equipment. If any of these assets cannot be disposed of by TTI or the Agent,
they may be distributed in kind to the TTI shareholders, pro rata, in
accordance with their interests.
In order to facilitate TTI's operations pending the consummation of the
Acquisition Agreement and TTI's subsequent liquidation and dissolution, TTI
(i) entered into a management agreement with Carolina, pursuant to which TTI
agreed to provide certain management services, assets and equipment to
Carolina for the four month period from July through October, 1996 in exchange
for the payment by Carolina of $100,000 per month during such period, and (ii)
borrowed $2,500,000 from a third party, which was secured by certain assets of
TTI (including the amounts payable to it by WHI under the terms of a
promissory note in the original principal amount of approximately $2,375,000,
and its rights under the terms of an agreement with Videotron USA under which
Videotron USA is required to purchase, at TTI's election, TTI's 20% interest
as a shareholder in VBAI for at least $2,600,000). In connection with this
loan, the lender received warrants to purchase 150,000 shares of TTI Common
Stock at an exercise price of $0.75 per share (the "Warrants"). For a more
detailed description of the terms of TTI's disposition of the Carolina
operations, see "Information Concerning TTI--Introduction" and "Information
Concerning TTI--Related Party Transactions."
Although TTI believes that it has identified and properly accounted for all
of the material liabilities of TTI, there can be no assurance that potential
claimants will not seek to assert claims against the assets of TTI in amounts
in excess of the liabilities recorded on TTI's financial statements. In
addition, TTI may be required to institute litigation to determine the amount
of certain claims prior to making any distribution to TTI shareholders.
Accordingly, there can be no assurance as to the amounts that will ultimately
be distributable to TTI shareholders, if any, or as to the timing of any
distribution. In the event that TTI makes a distribution to TTI shareholders
prior to the final resolution of all claims against TTI, in certain
circumstances creditors of TTI would have the right to proceed against
individual TTI shareholders to recover the amounts so distributed to such
shareholders.
REGULATORY MATTERS
The Acquisition is subject to the HSR Act, which provides that certain
acquisition transactions may not be consummated unless information has been
furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the Federal Trade Commission ("FTC") and certain
waiting period requirements
29
<PAGE>
have been satisfied. Pacific Telesis, TTI and Videotron Canada made the
requisite initial filings under the HSR Act on May 3, 1996, and the waiting
period expired on June 2, 1996. At any time before or after consummation of
the Acquisition, the Antitrust Division or the FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin consummation of the Acquisition. States
and private parties would also have the right to bring legal action under the
antitrust laws under certain circumstances.
Prior to the enactment of the Telecommunications Act of 1996, Pacific
Telesis was subject to the Modification of Final Judgment entered on August
24, 1982 by the U.S. District Court for the District of Columbia (the "Court")
in U.S. v. American Telephone & Telegraph Co. (the "MFJ"). The MFJ, among
other things, prohibited Pacific Telesis from engaging in certain activities
currently engaged in by the Acquired Companies. On November 25, 1995 the
United States District Court for the District of Columbia granted Pacific
Telesis' motion to modify the court's previous orders which permitted Pacific
Telesis to own and operate Interexchange Facilities and related equipment to
deliver video programming by extending such relief to include Interexchange
Facilities used in MMDS operations.
Prior to the closing of the Acquisition, the FCC licenses held by VBAI will
be assigned to BALI, to the extent required by law. VBAI and BALI filed the
necessary pro forma assignment applications with the FCC on June 4, 1996.
There is no particular time frame in which the FCC is required to act on these
applications, and the FCC has requested additional information with respect to
one of the applications before it takes any action. The FCC must approve these
applications in order for the Acquisition to close and there can be no
assurance that it will do so; however, as of the date of this Prospectus/Proxy
Statement the FCC has granted three out of the four VBAI assignment
applications.
Additionally, the Acquisition Agreement requires prior FCC approval of the
assignment of the applications pursuant to which a Pacific Telesis subsidiary
will acquire certain channel licenses. The parties filed these applications
during the week of May 28, 1996. Applicable law requires the FCC to place the
applications on public notice for 30 days during which time an interested
person may file petitions to deny some or all of the applications or one or
more informal objections to the assignments. After the initial 30-day notice
period, and after considering petitions and objections, and replies to such
responses, if any, the FCC will grant or deny the applications. The FCC places
the grant or denial on public notice for an additional 30 days during which
time an interested person may file either a petition for reconsideration or an
application for review. After an additional ten days for the FCC to reconsider
its decision(s) on its own, the FCC's grant or denial becomes final if no
petition for reconsideration or an application for review is filed. These
assignment applications were placed on public notice on June 7, 1996. No
petitions to deny or other objections have been filed. There is no particular
time frame in which the FCC is required to act on these applications, and the
FCC may request additional information before it takes any action. As of the
date of this Prospectus/Proxy Statement, the FCC has granted all but one of
the assignment applications. The FCC has requested additional information on
the other pending application.
Except for the requirements of the HSR Act (which have been satisfied) and
the approvals of the FCC to assign the VBAI licenses, (one approval of which
still remains to be obtained), no other federal or state regulatory
requirements must be complied with in connection with the Acquisition except
for such filings as may be required under federal and state securities laws.
Should any other approval or action be required, it is currently contemplated
that the parties would seek such approval or action. There can be no
assurance, however, that any such approval or action, if needed, could be
obtained and would not be conditioned in a manner that would cause the parties
to abandon the Acquisition.
Pacific Telesis is subject to extensive regulation by federal and state
governments as a provider of telecommunications services. Subsequent to the
consummation of the Acquisition, there can be no assurances that regulatory,
legislative or judicial actions will not occur that could adversely affect the
conduct of Pacific Telesis' or the Acquired Companies' businesses.
30
<PAGE>
NYSE LISTING OF PACIFIC TELESIS COMMON STOCK
Pacific Telesis has agreed in the Acquisition Agreement to use its best
efforts to cause the shares of Pacific Telesis Common Stock to be issued in
the Acquisition to be approved for listing on the New York Stock Exchange,
subject to official notice of issuance, prior to the Closing Date. Pacific
Telesis intends to apply for listing on the New York Stock Exchange of the
shares of Pacific Telesis Common Stock to be issued in connection with the
Acquisition. Approval of such listing is a condition to the respective
obligations of the Acquired Companies, TTI and Videoway to consummate the
Acquisition.
STATUTORY DISSENTERS' RIGHTS
There are no dissenters' or appraisal rights available to shareholders of
TTI under the Pennsylvania Law with respect to the Acquisition. The
Pennsylvania Law provides appraisal rights to dissenting shareholders of a
corporation which engages in certain types of mergers or consolidation, share
exchanges, corporate divisions and conversions, or sales of all or
substantially all of the corporation's assets other than in the usual course
of its business. The Pennsylvania Law contains an exception to the appraisal
rights granted to dissenting shareholders in the case of the sale of all or
substantially all of a corporation's assets other than in the usual course of
its business if such sale takes place in connection with the liquidation of
the corporation. Since the transactions contemplated by the Acquisition will
be conducted in connection with TTI's liquidation and dissolution for both
state corporate law and federal tax law purposes, TTI's shareholders will not
be entitled to dissenters' rights.
PROCEDURAL MATTERS
It is contemplated that the Acquisition Agreement will be consummated at a
single closing at Pacific Telesis' offices in San Francisco, California, as
soon as practicable after the parties have reasonable assurance that all of
the conditions to Closing will have been satisfied or waived.
RESALES OF PACIFIC TELESIS COMMON STOCK; AFFILIATE AGREEMENTS
The Pacific Telesis Common Stock to be issued in connection with the
Acquisition will be freely transferable under the Securities Act, except for
shares issued to any person who may be deemed an "affiliate" of TTI, Videoway
or any of the Acquired Companies within the meaning of Rule 145 under the
Securities Act. In the Acquisition Agreement, each of such persons has agreed
to use its best efforts to cause each of those persons who may be deemed
affiliates of such persons to deliver to Pacific Telesis on or prior to the
Closing Date, a written agreement providing that such persons will not make
any sale, transfer or other disposition of the Pacific Telesis Common Stock
received in connection with the Acquisition in violation of the Securities Act
or the rules and regulations promulgated thereunder. If any affiliate refuses
to provide such an agreement, Pacific Telesis will be entitled to place
appropriate legends on the Pacific Telesis shares to be received by such
affiliate, and to issue stop transfer instructions to Pacific Telesis'
transfer agent in regard to such shares.
MINORITY BUYBACK OF BAC SHARES
Under the terms of the Acquisition Agreement, at the closing of the
Acquisition WHI is required to deliver stock certificates representing 100% of
the outstanding shares of BAC. WHI currently owns 94% of BAC. To acquire 100%
ownership of the outstanding stock of BAC, on October , 1996, WHI initiated
procedures to effect a short form merger pursuant to Section 1110 of the
California General Corporation Law (the "California Law"). In connection with
the short form merger, WHI has offered to purchase the 6% interest in BAC held
by other parties (the "Minority Shareholders") for $4,000,000 (the "BAC Share
Purchase Price"). The BAC Share Purchase Price will be subtracted in
determining the total Exchange Value paid by Pacific Telesis, and may be
increased or decreased by certain post-closing adjustments (the "Acquisition
Price"). The short form merger will be closed simultaneously with or
immediately prior to the closing of the Acquisition.
Under applicable provisions of the California Law, the Minority Shareholders
may make written demand upon WHI for the purchase of their shares at a price
equal to the fair market value of such shares. If, after receipt of such
written demand, the parties are unable to agree to the fair market value of
the shares, the Minority Shareholders will have five months within which to
pursue an appraisal proceeding.
31
<PAGE>
THE ACQUISITION AGREEMENT
The following is a summary of the terms of the Acquisition Agreement, a copy
of which is attached to this Prospectus/Proxy Statement as Appendix A and
incorporated by reference herein. The description of the Acquisition Agreement
contained herein is qualified in its entirety by the Acquisition Agreement.
Any capitalized terms not otherwise defined herein have the meaning set forth
in the Acquisition Agreement.
GENERAL
Upon consummation of the Acquisition, each of the Acquired Companies will be
an indirect, wholly owned subsidiary of Pacific Telesis.
CONSIDERATION
The total number of shares of Pacific Telesis Common Stock exchangeable for
the WHI Common Stock and the VBAI Common Stock held by TTI and the Videotron
USA Common Stock held by Videotron pursuant to the Acquisition Agreement shall
be, subject to certain adjustments, equal to the quotient of (a) the
difference between (i) the sum of (A) $170,000,000, (B) 75% of the Subscriber
Adjustment, (C) any Assumed Interest on Stockholder Debt, and (D) any Approved
Expenditures; and (ii) the sum of (A) the Distribution Adjustment, (B) all
Outstanding Indebtedness as of the Closing Date, (C) the Outstanding
Liabilities as of the Closing Date, (D) the Videotron Cash Amount, and (E) the
FCC Adjustment; divided by (b) the PTG Common Stock Price. In addition, on the
Closing Date, (i) Pacific Telesis will deliver to TTI additional shares of
Pacific Telesis Common Stock equal to the quotient of $5,000,000 divided by
the PTG Common Stock Price; and (ii) if the FCC Adjustment is less than
$14,000,000, Pacific Telesis will deliver to Videoway additional shares of
Pacific Telesis Common Stock equal to the quotient of $1,120,000 divided by
the PTG Common Stock Price. The total number of shares of Pacific Telesis
Common Stock issuable in the Acquisition is subject to a post-closing
adjustment described in Section 14.03 of the Acquisition Agreement.
ESCROW
Of the total number of shares of Pacific Telesis Common Stock to be issued
in the Acquisition, shares of Pacific Telesis Common Stock having a value of
$11,000,000 (based on the PTG Common Stock Price) to be issued to Videoway and
shares of Pacific Telesis Common Stock having a value of $6,000,000 (based on
the PTG Common Stock Price) to be issued to TTI will be deposited in escrow.
The shares of Pacific Telesis Common Stock held in the escrow will be used to
secure (i) the indemnification obligations of Videoway, Videotron Canada and
TTI pursuant to the Acquisition Agreement and (ii) the potential requirement
that Videoway and TTI may be required to return a number of such shares of
Pacific Telesis Common Stock pursuant to the post-closing adjustment described
in Section 14.03 of the Acquisition Agreement. Videoway's escrowed shares will
be held for three (3) years, although $5,000,000 of such shares will be
released at the end of the second year after the Closing Date. TTI's escrowed
shares will be held for the longer of five days after TTI's dissolution or
eleven months after the Closing Date.
THE SPIN-OFF
The Acquisition Agreement requires WHI and VBAI to dispose of the Spin-Off
Assets and the Spin-Off Liabilities. The Spin-Off Assets, as more particularly
described above under "The Companies--Wireless Holdings, Inc." and "The
Companies--Videotron (Bay Area) Inc.", comprise the SMATV systems operated by
BAC in the San Francisco area, certain franchised cable and related operations
conducted by TWTV Spokane in Spokane, Washington, and certain franchised cable
and SMATV-related assets of VBAI in or near Tampa Bay, Florida. The Spin-Off
Liabilities are principally the contracts and obligations associated with the
Spin-Off Assets. To satisfy this condition, under the Supplemental Agreement,
WHI and VBAI agreed that WHI (or its subsidiaries) and VBAI would sell the
Spin-Off Assets to one or more designated affiliates of Videotron Canada for
purchase prices totalling $4,300,000 and the assumption of the Spin-Off
Liabilities, with adjustments to the purchase price as if the sale were
completed on January 1, 1996. Commencing January 1, 1996, the Spin-Off
32
<PAGE>
Assets and the Spin-Off Liabilities were administered by WHI and its
subsidiaries and VBAI for the benefit of the purchasers. The transfer of the
Spin-Off Assets and the assumption of the Spin-Off Liabilities were completed
July 31, 1996. In accordance with the Supplemental Agreement, the purchase
price was paid by a reduction in Outstanding Indebtedness of WHI and VBAI to
Videotron USA.
REPRESENTATIONS AND WARRANTIES
The Acquisition Agreement contains representations and warranties of
Videoway, TTI, Videotron Canada, Videotron USA and Messrs. Crutchfield and
Lance D'Ambrosio, officers and the principal shareholders of TTI. The
representations and warranties include matters relating generally to (i) the
organization of each of such parties and the Acquired Companies and similar
corporate matters, if the party is not an individual, (ii) the execution and
delivery of the Acquisition Agreement by such parties and the enforceability
of the Acquisition Agreement against such parties, (iii) the capital structure
and capitalization of such parties, if the party is not an individual, (iv)
information relating to subsidiaries of the Acquired Companies, (v) the
accuracy of the financial statements of the Acquired Companies and the absence
of undisclosed liabilities, (vi) the absence of adverse changes and specified
events, (vii) the absence of violation of any law, the charter, bylaws or any
material agreement of any of the Acquired Companies or the imposition of any
lien on any of their respective assets as a result of the execution of the
Acquisition Agreement, (viii) governmental and other third-party consents and
approvals, (ix) compliance with laws, licenses, permits and material
contracts, (x) the absence of certain changes, (xi) availability of certain
assets and title, (xii) validity and terms of permits, (xiii) the status of
material assets, (xiv) the absence of litigation and governmental
investigations, (xv) specified tax and environmental matters, (xvi) employee
matters, (xvii) validity and terms of material contracts, (xviii) employee and
affiliated agreements, (xix) proprietary rights, (xx) insurance, (xxi) real
property, (xxii) personal property, (xxiii) personal property leases, (xxiv)
disclosure, (xxv) the accuracy of information supplied, (xxvi) required
filings under the HSR Act, and (xxvii) the ownership of shares of the Acquired
Companies by certain of such parties. The representations and warranties
relating to WHI, VBAI and their respective subsidiaries are made by Videoway,
TTI and Videotron Canada. The representations and warranties relating to
Videotron USA are made by Videotron USA, Videoway and Videotron Canada. The
representations and warranties relating to TTI are made by TTI. Each of the
representations and warranties relating to Messrs. Crutchfield and D'Ambrosio
are made by Messrs. Crutchfield and D'Ambrosio, respectively.
The representations and warranties made by Pacific Telesis, Pacific Telesis
Acquisitions and Pacific Telesis Purchasing in the Acquisition Agreement
include matters relating generally to (i) their organization and similar
corporate matters, (ii) their capital structure, (iii) the accuracy of Pacific
Telesis' filings with the SEC, (iv) the absence of adverse changes, (v) the
execution and delivery of the Acquisition Agreement by such parties and the
enforceability of the Acquisition Agreement against such parties, (vi) the
absence of violation of the charter, bylaws or any material agreement of any
of Pacific Telesis, Pacific Telesis Acquisitions or Pacific Telesis Purchasing
or the imposition of any lien on any of their assets as a result of execution
of the Acquisition Agreement, (vii) governmental consents and approvals,
(viii) the accuracy of Pacific Telesis' financial statements, (ix) litigation
and governmental investigations, (x) disclosure, (xi) the accuracy of
information supplied, and (xii) the investment intent of Pacific Telesis
Acquisitions and Pacific Telesis Purchasing with respect to the acquired
shares. Each of the representations and warranties relating to Pacific
Telesis, Pacific Telesis Acquisitions and Pacific Telesis Purchasing are made
by each such entity, respectively.
CONDUCT OF THE BUSINESS OF THE ACQUIRED COMPANIES PENDING THE ACQUISITION
Pending consummation of the Acquisition, each of WHI and VBAI have agreed,
and each of Videoway, TTI and Videotron Canada have agreed to cause WHI and
VBAI, (i) to carry on the businesses of WHI, VBAI and their respective
Subsidiaries in the Ordinary Course of Business except in connection with the
Spin-Off Assets and Spin-Off Liabilities, and pay all obligations in a timely
manner substantially in accordance with their terms;
33
<PAGE>
and (ii) not to, among other things, (a) make any amendment to WHI's or VBAI's
or any such Subsidiary's charter, bylaws or specified agreements, (b) make any
capital expenditure or change in the business or operations of WHI, VBAI and
their respective Subsidiaries or enter into any contract or commitment
therefor, except in accordance with a budget or budgets approved in writing by
Pacific Telesis from time to time, (c) transfer or allow any lien to be
imposed on any of the properties of WHI, VBAI or any of their respective
Subsidiaries, (d) with certain limited exceptions, issue or modify any
securities of WHI, VBAI or any of their respective Subsidiaries, or (e)
create, incur or assume any indebtedness (other than certain indebtedness to
Videotron USA). Videotron USA, Videoway and Videotron Canada have made
comparable agreements in the Acquisition Agreement regarding the business and
operations of Videotron USA pending consummation of the Acquisition.
The Acquisition Agreement also provides that, prior to the consummation of
the Acquisition, (i) Pacific Telesis will have access to the Acquired
Companies in order to verify the accuracy of the representations and
warranties, compliance with the covenants and satisfaction of the conditions
contained in the Acquisition Agreement; (ii) each party will promptly notify
the other of any relevant litigation and diligently oppose such action; (iii)
Videoway, TTI and Videotron Canada will use their Best Efforts to obtain all
required consents and amendments from parties to agreements and governmental
authorities; (iv) WHI and VBAI will, and Videoway, TTI and Videotron Canada
will cause such companies to, operate their businesses as described in the
preceding paragraph, (v) Videotron USA will, and Videoway and Videotron Canada
will cause Videotron USA to, operate its business as described in the
preceding paragraph, (vi) none of the Acquired Companies nor any of Videoway,
TTI and Videotron Canada will solicit any offers from third parties, (vii)
none of the parties will, without the approval of the others, make any press
release or other announcement concerning the transactions contemplated by the
Acquisition Agreement, except as and to the extent required by law; (viii) the
parties will file with the FTC and the Antitrust Division of the Department of
Justice the notifications and other information required to be filed under the
HSR Act; (ix) Pacific Telesis will receive certain monthly financial
statements of the Acquired Companies and certificates related thereto; (x)
Videoway, TTI and Videotron Canada will cause the acquisition of the shares of
BAC's Common Stock held by Minority Shareholders of BAC; (xi) Videoway, TTI
and Videotron Canada will update the Disclosure Schedule as appropriate; and
(xii) Pacific Telesis will cause the shares of Pacific Telesis Common Stock to
be issued in the Acquisition to be listed on the New York Stock Exchange, upon
official notice of issuance.
The Acquisition Agreement provides that none of WHI, VBAI, their respective
Subsidiaries, Videoway, TTI or Videotron Canada may solicit offers from any
third party to acquire any portion of the assets or equity ownership of WHI,
VBAI or their respective Subsidiaries or enter into any agreement providing
for such an acquisition (except in connection with the Spin-Off). The
Acquisition Agreement contains a comparable provision regarding solicitation
by Videotron USA, Videoway and Videotron Canada of offers from any third party
to acquire assets or equity ownership of Videotron USA.
CONDITIONS TO THE ACQUISITION
Under the Acquisition Agreement, the obligations of Pacific Telesis to
consummate the Acquisition are subject to certain conditions (any or all of
which may be waived by Pacific Telesis in its sole discretion), including, but
not limited to, the following: (i) the representations and warranties of the
Acquired Companies, Videoway, Videotron Canada and TTI being true and correct
in all material respects; (ii) all covenants, agreements and obligations of
such parties in the Acquisition Agreement having been performed in all
material respects; (iii) all actions necessary to authorize the execution of
the Acquisition Agreement having been taken; (iv) no material adverse changes
in the Financial Status of the Acquired Companies, the Tampa System, the
Northern Bay Area System or the Southern Bay Area System; no loss of
subscribers in the Tampa System or the Spokane System in excess of a specified
number; and no lawsuits, claims or proceedings which have a reasonable
likelihood of resulting in such material adverse change; (v) receipt of
opinions of legal counsel; (vi) no restraints or proceedings by any
governmental authority; (vii) all required consents and approvals from
governmental agencies necessary to consummate the Acquisition having been
obtained; (viii) all required consents from third parties having been
obtained; (ix) receipt of resignations of the officers and directors of the
Acquired Companies;
34
<PAGE>
(x) receipt of satisfactory reports regarding liens on the assets of the
Acquired Companies; (xi) the Spin-Off having been consummated; (xii) execution
and delivery of certain documents; (xii) receipt of specified financial
statements; (xiv) receipt of FCC approvals; (xv) WHI and its subsidiaries
having a specified minimum number of Channels in San Francisco and San Jose
through FCC Licenses or Channel Leases which satisfy the FCC Conditions; (xvi)
the Registration Statement, of which this Proxy Statement/Prospectus is a
part, having been declared effective by the SEC; (xvii) receipt by TTI of the
Tax Opinion (in a form acceptable to Pacific Telesis) to the effect that the
TTI Exchange is a tax-free reorganization; (xviii) withdrawal of certain
arbitration proceedings between TTI and Videotron USA; (xix) repayment of
specified affiliate indebtedness; and (xx) delivery of certain documents. The
above list is not exhaustive and reference is made to Article X of the
Acquisition Agreement for a more complete description of the conditions to
Pacific Telesis' obligations under the Agreement. As of the date hereof, TTI
believes that certain of these conditions (including, without limitation,
conditions relating to the minimum number of channels) may not be met.
Accordingly, unless these conditions are waived by Pacific Telesis, the
Acquisition may not close. There can be no assurance that Pacific Telesis will
waive these conditions.
Under the Acquisition Agreement, the respective obligations of Videoway and
TTI to consummate the Acquisition are subject to certain conditions (any or
all of which may be waived by Videoway and TTI in their sole discretion),
including, but not limited to, the following: (i) the representations and
warranties of Pacific Telesis, Pacific Telesis Acquisitions and Pacific
Telesis Purchasing being true and correct in all material respects, (ii) all
covenants, agreements and obligations of such parties in the Acquisition
Agreement having been performed in all material respects, (iii) all actions
necessary to authorize the execution of the Acquisition Agreement having been
taken, (iv) no restraints or proceedings by any governmental authority, (v)
all required consents and approvals from governmental authorities having been
obtained, (vi) receipt by TTI of opinions from counsel to Pacific Telesis,
(vii) the Registration Statement, of which this Proxy Statement/Prospectus is
a part, having been declared effective by the SEC; (viii) approval of the
shares of Pacific Telesis Common Stock for listing on the New York Stock
Exchange having been received, (ix) receipt by TTI of the Tax Opinion to the
effect that the TTI Exchange will constitute a tax-free reorganization under
the Code, (x) payment by Pacific Telesis of certain outstanding indebtedness
of the Acquired Companies to TTI and certain affiliates of Videotron Canada,
(xi) payment by Pacific Telesis of $100,000 to Lance D'Ambrosio in exchange
for his non-compete agreement, (xii) execution and delivery of certain other
agreements, (xiii) receipt of opinions of legal counsel, and (xiv) delivery of
various closing certificates.
The Acquisition Agreement requires Pacific Telesis to cause the shares of
Pacific Telesis Common Stock which are to be delivered in the Acquisition to
be registered under the Act. Certain affiliates of the Acquired Companies will
be obligated to deliver to Pacific Telesis agreements relating to the
restricted nature of the shares of Pacific Telesis Common Stock which such
affiliates receive. The shares of Pacific Telesis Common Stock which Videoway
receives in the Acquisition will also be subject to certain resale
restrictions.
Inasmuch as each stockholder of WHI, VBAI and Videotron USA has signed the
Acquisition Agreement, no further vote or approval of such stockholders is
required to consummate the Acquisition. Approval of the shareholders of TTI is
required to consummate the Acquisition. Approval of the shareowners of Pacific
Telesis is not required under the Nevada Revised Statutes.
POST-CLOSING MATTERS
Pacific Telesis may employ certain employees of the Acquired Companies after
the consummation of the Acquisition. With certain exceptions, each of
Videoway, Videotron Canada, TTI, F. Lorenzo Crutchfield, Jr. and Lance
D'Ambrosio has agreed, commencing on the date of the Acquisition Agreement and
continuing for a period of six months after the Closing Date, not to encourage
any employee or consultant to decline an employment or consulting arrangement
with Pacific Telesis. With certain exceptions, each of such persons has also
agreed, for a period of three years after the Closing Date, not to encourage
or induce any employee of Pacific Telesis to leave Pacific Telesis' employ, or
to take any action which would affect Pacific Telesis' efforts to acquire
necessary licenses, approvals or permits or to operate the System, or to
develop any of the properties of
35
<PAGE>
the Acquired Companies. With certain exceptions, Videoway, Videotron Canada
and TTI have agreed not to use the intellectual property of the Acquired
Companies or disclose such intellectual property to any other person, firm or
corporation other than Pacific Telesis and Pacific Telesis' employees, agents
and representatives, and Pacific Telesis has agreed to change the corporate
names of VBAI and Videotron USA and not to use those and certain related
names.
In furtherance of the sale of the shares to Pacific Telesis and to more
effectively protect the business and good will of the Acquired Companies, and,
in the case of Lance V. D'Ambrosio, for consideration of $100,000 upon the
consummation of the transactions contemplated by the Acquisition Agreement,
each of Videoway, Videotron Canada, TTI and Lance V. D'Ambrosio has agreed
that, for a period commencing on the Closing Date and ending on the third
annual anniversary of the Closing Date, those parties and their affiliates
will not: (i) directly or indirectly (whether as an employer, employee,
partner, stockholder, director, representative or otherwise) anywhere within
the States of California or Nevada and anywhere within a radius of 100 miles
of the Collocation Sites (or with respect to Seattle, KCTS Television Tower,
18th and East Madison Street) inclusive of any BTA's in their entireties
included in such 100 mile radius with respect to states other than California
and Nevada organize, invest in, sponsor or promote, participate or become
interested, affiliated or connected with or provide management, employment or
consulting services to, any person which is engaging or intending to engage in
the ownership or operation of any ITFS, MDS, LMDS or MMDS system, or other
wireless cable system or other activities using the same frequencies.
Should actions be taken that violate any of the foregoing agreed-upon
provisions, the Acquisition Agreement provides that Pacific Telesis will be
entitled to injunctive relief without limitations.
POST-CLOSING ADJUSTMENTS
Within 30 days after the Closing Date, TTI and Videoway must cause to be
prepared and delivered unaudited financial statements (the "Post-Closing
Financial Statements"), for WHI, VBAI and Videotron USA and their respective
Subsidiaries, together with a statement certified by TTI and Videoway which
sets forth the Post-Closing Adjustment, if any, and the aggregate number of
shares of Pacific Telesis Common Stock to be adjusted. Pacific Telesis will
have 90 days after the receipt of the Post-Closing Financial Statements to
review or conduct a full audit on all Financial Statements, Pre-Closing
Financial Statements and Post-Closing Financial Statements of WHI, VBAI and
Videotron USA and their respective Subsidiaries.
Within 90 days after its receipt of the Post-Closing Financial Statements,
Pacific Telesis may deliver to TTI and Videoway audited Post-Closing Financial
Statements of WHI, VBAI and Videotron USA and their respective Subsidiaries,
together with a statement setting forth the Post-Closing Adjustment and the
aggregate number of shares of Pacific Telesis Common Stock to be adjusted. If
TTI and Videoway do not object to such Post-Closing Financial Statements in
writing within 15 days of receipt, or if no such Post-Closing Financial
Statements are delivered by Pacific Telesis, then the Post-Closing Financial
Statements delivered by TTI and Videoway will constitute the Final Starting
Balance Sheet and the Final Closing Balance Sheet.
If TTI and Videoway do object to the financial statements provided by
Pacific Telesis and there is an unresolved dispute with respect to the
financial statements, and, if Pacific Telesis and TTI and Videoway do not
resolve such dispute within 20 days after the objection, Price Waterhouse or
any other Big-Six Accounting Firm independent of Pacific Telesis, TTI and
Videotron Canada may be selected to resolve the dispute.
INDEMNIFICATION
The Acquisition Agreement obligates each of Videoway, Videotron Canada, TTI
and Mr. Crutchfield (in specified proportions) to indemnify Pacific Telesis
and the Acquired Companies against all Loss and Expense (as defined in the
Acquisition Agreement) incurred by Pacific Telesis or the Acquired Companies
by reason of (i) a breach by any of Videoway, Videotron Canada, TTI or the
Acquired Companies (as constituted prior to the
36
<PAGE>
closing) of any of their respective covenants or agreements in the Acquisition
Agreement, (ii) any failure of any of such parties to perform any of their
respective obligations thereunder, (iii) any breach of any warranty or any
inaccuracy of any representation by any of such parties therein, (iv) certain
tax matters, the Spin-Off and advisors' fees, and (v) any third party claims
relating to the operations of the businesses of WHI, VBAI and their
Subsidiaries. Subject to certain limitations, Videotron Canada and Videoway
are jointly and severally responsible for 100% of any Loss or Expense relating
to VBAI, its subsidiaries and Videotron USA and for 50% of any Loss and
Expense relating to WHI and its subsidiaries. TTI and Mr. Crutchfield are
responsible for the remaining 50% of such Loss and Expense relating to WHI and
its subsidiaries.
The Acquisition Agreement obligates Videotron Canada and Videoway, jointly
and severally, to indemnify Pacific Telesis and the Acquired Companies against
all Loss and Expense incurred by Pacific Telesis or the Acquired Companies by
reason of (i) a breach of any warranty or the inaccuracy of any representation
of Videotron Canada, Videoway or Videotron USA (as constituted prior to the
closing) contained in the Acquisition Agreement or any certificate delivered
by or on behalf of any of them, (ii) certain tax matters, (iii) any third
party claims relating to the operations of the business of Videotron USA, (iv)
untrue statements or material omissions concerning or relating to any of the
Acquired Companies or Videoway or Videotron Canada contained in the
Registration Statement and (v) any action brought by a shareholder of TTI in
connection with the Registration Statement, subject to certain limitations.
The Acquisition Agreement obligates TTI and Mr. Crutchfield to indemnify
Pacific Telesis and the Acquired Companies against all Loss and Expense
incurred by Pacific Telesis or the Acquired Companies by reason of (i) a
breach of any warranty or the inaccuracy of any representation of TTI, Mr.
Crutchfield or Mr. D'Ambrosio contained or referred to in Article V or Article
VA of the Acquisition Agreement or any certificate delivered by or on behalf
of any of them, (ii) certain tax matters, (iii) breaches of agreements
relating to the TTI Special Meeting, the voting of Messrs. D'Ambrosio and
Crutchfield's TTI Common Stock or such persons' covenants not to sue and (iv)
untrue statements or material omissions concerning or relating to WHI or its
subsidiaries, TTI or Mr. Crutchfield contained in the Registration Statement.
Pacific Telesis may not make any claim for indemnification under these
provisions, unless the aggregate amount of Loss and Expense incurred by
Pacific Telesis exceeds $1,000,000 (at which point only amounts in excess of
such $1,000,000 shall be paid, except with respect to any Loss and Expense
individually exceeding $500,000 in which case such individual item will be
paid in full and except that the $1,000,000 threshold amount will not apply to
any matters with respect to an action for fraud, intentional misrepresentation
or active concealment). Furthermore, the Acquisition Agreement provides that
Pacific Telesis will not be entitled to indemnification in excess of (i)
$36,000,000 in the aggregate from Videotron Canada and Videoway (except with
respect to matters relating to untrue statements or material omissions
concerning or relating to any of the Acquired Companies, Videotron Canada or
Videoway contained in this Registration Statement as described below, or
actions for fraud, intentional misrepresentation or active concealment) and
(ii) $6,000,000 in the aggregate from TTI until the termination of the escrow
agreement and thereafter from Mr. Crutchfield up to 50% of the value of the
Pacific Telesis Common Stock distributed from the TTI escrow, except in each
case with respect to untrue statements or omissions relating to TTI, WHI and
its subsidiaries or Mr. Crutchfield contained in the Registration Statement of
which this Prospectus/Proxy Statement forms a part, or actions for fraud,
intentional misrepresentation or active concealment.
The Acquisition Agreement provides for indemnification by Pacific Telesis of
Videoway, TTI and Videotron Canada against all Loss and Expense incurred by
any of them in connection with an untrue statement or material omission
relating to Pacific Telesis in the Registration Statement. The Acquisition
Agreement also provides that TTI and Videoway, Videotron Canada and Pacific
Telesis will forever indemnify, defend and save harmless each other from and
against any claims by any broker, person or entity of such person.
Certain notice and other procedural requirements relating to the foregoing
indemnification provisions are set forth in Article XV of the Acquisition
Agreement.
37
<PAGE>
TERMINATION; AMENDMENT AND WAIVER
The Acquisition Agreement may be terminated at any time prior to
consummation of the Acquisition, (i) by the mutual consent of Pacific Telesis,
Videoway and TTI, (ii) by Pacific Telesis or TTI if at the TTI Special Meeting
the requisite vote of the shareholders of TTI approving the Acquisition is not
obtained, (iii) by Pacific Telesis if there is a material adverse change in
the Financial Status of the Acquired Companies, the System, the Tampa System,
the Northern Bay Area System or the Southern Bay Area System, or (iv) if for
any reason the consummation of the Acquisition has not occurred on or before
November 9, 1996, but only if the party terminating the Acquisition Agreement
has complied in all material respects with its obligations under the
Acquisition Agreement.
No amendment, modification or waiver of the Acquisition Agreement will be
binding unless executed in writing by the party or parties to be bound
thereby.
FEES AND EXPENSES
The Acquisition Agreement provides that each of the parties thereto will pay
its own fees and expenses, including, without limitation, legal, finder's,
brokerage, investment banking and accounting fees.
38
<PAGE>
THE REGULATORY ENVIRONMENT AND WIRELESS CABLE INDUSTRY
THE COMMUNICATIONS ACT
The wireless cable industry is subject to regulation by the Federal
Communications Commission pursuant to the Communications Act of 1934, as
amended (the "Communications Act"). The Communications Act empowers the FCC,
among other things, to issue, revoke, modify and renew licenses within the
spectrum available to wireless cable; to approve the assignment and/or
transfer of control of such licenses; to regulate the kind, configuration and
operation of certain equipment used by wireless cable systems; and to impose
certain equal employment opportunity and other requirements on wireless cable
operators. The FCC has determined that wireless cable systems are not "cable
systems" for purposes of the Communications Act. Accordingly, a wireless cable
system does not require a local franchise and is not subject to certain other
requirements imposed by the 1992 Cable Act that are applicable to hard-wire
cable systems.
THE CABLE ACT
In October 1992, Congress passed the 1992 Cable Act, which imposes greater
regulation on traditional hard-wire cable operators and generally permits
regulation of prices in areas in which there is no "effective competition."
Rates charged by wireless cable operators, typically already lower than
traditional hard-wire cable rates, are not subject to regulation under the
Cable Act. The 1992 Cable Act also provides for deregulation of traditional
hard-wire cable in a given market once 50% of the customers in a franchise
area have access to a competing multi-channel video provider, and other multi-
channel video providers actually serve, in the aggregate, at least 15% of the
cable franchise area. Cable systems were deregulated further by the
Telecommunications Act of 1996, which provides that the mere presence of a
telephone-company-owned competing video programming distributor (other than by
satellite) constitutes "effective competition," regardless of the level of
market penetration by the competitor. In addition, the Telecommunications Act
of 1996 deregulated rates charged by small hard-wire cable systems immediately
and by all hard-wire cable systems by March 1999.
While current FCC regulations are aimed at promoting the development of a
competitive multichannel video industry, the rules and regulations affecting
the wireless cable industry may change, and any future changes in FCC rules,
regulations, policies and procedures could have a material adverse effect on
Pacific Telesis's wireless cable activities. In particular, the 1992 Cable Act
prohibits discriminatory or unfair practices in the sale of satellite
programming to multi-channel video programming distributors that compete with
hard-wire cable systems. The Telecommunications Act of 1996 extended this
prohibition to programming controlled by telephone companies. Wireless cable
system operators' costs to acquire satellite programming could be affected by
implementation and enforcement of these statutory requirements.
OTHER REGULATIONS
Certain municipalities have recently enacted taxes and customer-service
ordinances which could increase the cost of wireless cable operations. Hard-
wire cable operators are prohibited from acquiring in-region MDS or wireless
cable interests unless there is effective competition. Wireless cable license
holders are subject to regulation by the Federal Aviation Administration with
respect to the construction of transmission towers and to certain local zoning
regulations affecting construction of towers and other facilities. There may
also be other restrictions imposed by local authorities. There can be no
assurance that wireless cable operators will not be required to incur
additional costs in complying with such regulations and restrictions.
Due to the regulated nature of the multichannel video industry, the wireless
cable industry may be adversely impacted by the adoption of new or changes to
existing laws or regulations.
AVAILABILITY OF PROGRAMMING
Once a wireless cable operator has obtained the right to transmit
programming over specified frequencies, the operator must then obtain the
right to use the programming to be transmitted. Currently, with the exception
39
<PAGE>
of the retransmission of local off-air VHF/UHF broadcast signals, programming
is made available in accordance with contracts with program suppliers under
which the system operator generally pays a royalty based on the number of
subscribers receiving service each month. Individual program pricing varies
from supplier to supplier; however, more favorable pricing for programming is
generally afforded to operators with larger subscriber bases. The likelihood
that program material will be unavailable to wireless cable operators has been
mitigated by the 1992 Cable Act and various FCC regulations issued thereunder
which, among other things, impose limits on exclusive programming contracts
and prohibit video programmers in which a cable operator or telephone company
has an attributable interest from discriminating against competitors with
respect to the price, terms and conditions of programming.
COPYRIGHT
Under the Federal copyright laws, permission from the copyright holder
generally must be secured before a video program may be retransmitted. Under
Section 111 of the Copyright Act of 1976, cable operators, including wireless
cable television operators and others, are entitled to engage in the secondary
transmission of programming without the prior permission of the holders of
copyrights in the programming. In order to do so, an operator must secure a
compulsory copyright license. Such a license may be obtained upon the filing
of certain reports and the payment of certain fees.
RETRANSMISSION CONSENT
Broadcasters generally may require that hard-wire and wireless cable
operators and other multichannel video programming distributors obtain their
consent before retransmitting off-air VHF/UHF broadcasts. There can be no
assurance that such consents can be obtained on satisfactory terms.
40
<PAGE>
CERTAIN LEGAL PROCEEDINGS
VIDEOTRON USA AND TTI LITIGATION
On or about December 31, 1994, TTI commenced a lawsuit against Videotron USA
and WHI in the United States District Court for the District of Utah alleging
breach of the Shareholder Agreement among WHI, TTI and Videotron USA in
connection with the investment by an affiliate of Videotron USA in OpTel, Inc.
("OpTel"), a company owned by Vanguard Communications, L.P. The suit alleged
breach of fiduciary duty, misappropriation of corporate opportunities,
tortious interference with economic relations, fraud, misuse of proprietary
information, conspiracy and other matters. As of March 31, 1995, the suit and
two related arbitration proceedings were settled under the Settlement
Agreement. See "The Acquisition and Related Transactions--Background of the
Acquisition."
In July 1995, TTI and Videotron USA entered into negotiations with Pacific
Telesis for the acquisition of WHI and VBAI. On September 11, 1995, TTI
rejected the acquisition terms proposed by Pacific Telesis and Videotron USA
subsequently filed an arbitration proceeding alleging breach by TTI of the
Settlement Agreement. On September 15, 1995, Videotron USA filed an action in
United States District Court for the District of Delaware seeking an
injunction against TTI and claiming that TTI was not negotiating in good faith
pursuant to the Settlement Agreement. TTI counterclaimed, alleging that
Videotron USA violated the Settlement Agreement by negotiating unilaterally
with Pacific Telesis. TTI and Videotron USA subsequently negotiated a series
of revisions to the Pacific Telesis proposal. On November 9, 1995, TTI and
Videotron entered into the Acquisition Agreement with Pacific Telesis.
Effective as of that date, TTI and Videotron USA also entered into the
Supplemental Agreement, which, among other things, settled the arbitration and
the disputes which gave rise to the action filed in Delaware.
OTHER LITIGATION
Viernow Litigation. In January 1995, an action was brought in a Texas State
Court against certain persons who acted as officers and directors of TTI while
it engaged in business under its former name, Euripides Development
Corporation, alleging fraudulent actions in connection with the plaintiff's
inability to exercise Class A and Class B warrants initially sold by TTI as
part of its 1989 registration statement. The suit asks for damages and a
punitive award of $400,000. On January 31, 1996, the Texas State Court granted
TTI's motion to transfer the case to a Utah federal district court. TTI moved
for summary judgment in the matter. On August 12, 1996 the U.S. District Court
for the State of Utah, Central Division, ruled in favor of TTI on its motion
for summary judgement and dismissed the action with prejudice. On September 9,
1996 the Court entered an order in the matter dismissing the suit with
prejudice. The plaintiff has appealed the U.S. District Court's decision to
the U.S. Court of Appeal for the 10th Circuit.
ATI Litigation. In January 1996, VBAI commenced an action against American
Telecasting, Inc. ("ATI"), now pending in the United States District Court for
the Middle District of Florida (C.A. 96-347), alleging breach of an agreement
between the parties and seeking specific performance and damages of $113
million. VBAI alleges that ATI is obligated to cooperate with VBAI in VBAI's
efforts to upgrade its wireless cable system and increase its transmitting
power but that ATI is obstructing these efforts by refusing to abide by non-
interference agreements and to acknowledge for the FCC that it does not object
to certain applications filed by VBAI in Tampa. ATI asserts that its refusal
to perform pursuant to the non-interference agreement is justified by VBAI's
temporary increase of the transmitter power of its system without FCC
approval. The case is set for trial on the July 1997 trial calendar.
ARBITRATION PROCEEDING
On September 24, 1996, Pacific Telesis filed an arbitration proceeding
against TTI, WHI, Messrs. D'Ambrosio and Crutchfield, VBAI, Videotron USA,
Videotron Canada and Videoway relating to the Acquisition Agreement.
In the arbitration filing, Pacific Telesis alleged that TTI and the other
respondents breached their obligations under the Acquisition Agreement. The
arbitration requests that the respondents be ordered to complete the
41
<PAGE>
transactions contemplated by the Acquisition Agreement. The filing also
requests damages, interest and attorneys' fees. The respondents believe that
they have substantial defenses to each of the claims set forth in the
arbitration and intend to defend the action vigorously.
On October 9, 1996, Videotron USA, Videoway and Videotron Canada filed a
response, cross-claim and counter-claims against Pacific Telesis and TTI
contesting Pacific Telesis' claims and asserting cross-claims against TTI and
counterclaims against Pacific Telesis for any damages they sustain as a result
of Pacific Telesis' and/or TTI's breaches of the Acquisition Agreement. On
October 16, 1996, TTI filed counter-claims and cross-claims. In addition,
Messrs. D'Ambrosio and Crutchfield individually petitioned to be dismissed
from the arbitration, on the grounds that they are not signatories to the
arbitration provisions of the Acquisition Agreement. Pacific Telesis has
indicated that it may assert claims against the directors of TTI individually
if they do not recommend the transaction to the TTI shareholders, but has not
yet stated any basis for such a claim despite TTI's requests that it do so.
42
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
Prior to the consummation of the Acquisition, no officer, director or
employee of TTI, WHI, VBAI or Videotron USA was an officer, director or
employee of Pacific Telesis. No officer or director of Pacific Telesis is an
officer or director of TTI, WHI, VBAI or Videotron USA or holds any of such
corporations' capital stock. As a condition to Pacific Telesis' obligation to
consummate the Acquisition, each current officer and director of WHI, VBAI and
Videotron USA will resign.
Each of Videotron Canada, Videoway, TTI and Lance D'Ambrosio has agreed, for
the benefit of Pacific Telesis and the Acquired Companies, that such persons
will not, for a period of three years after the Closing Date, directly or
indirectly, own, operate or participate in any business in certain geographic
areas which is engaging or intending to engage in the ownership or operation
of any ITFS, MDS, MMDS or LMDS system, or other wireless cable system or other
activities using the same frequencies in the Pacific Telesis operating area.
TTI shareholders should be aware that certain members of TTI's management
have interests in the Acquisition that are in addition to the interests of TTI
shareholders generally. Lance D'Ambrosio, TTI's President and Chief Executive
Officer, will receive $100,000 from Pacific Telesis upon consummation of the
Acquisition in consideration for his agreement not to compete with the
Acquired Companies in certain geographic areas for a period of three years
after the Closing Date.
In addition, TTI has previously entered into employment agreements with
certain key officers and employees of TTI which, among other provisions,
contain provisions that commit TTI to make severance payments under certain
circumstances, including termination within 60 days of a change of control, as
defined in those agreements. The transactions contemplated by the Acquisition
Agreement would constitute a change of control for purposes of the employment
agreements. The amounts due under these severance provisions are approximately
$565,000 in the aggregate. See "The Acquisition and Related Transactions--
Interests of Certain Persons in the Transaction" and "Information Concerning
TTI--Executive Compensation and Other Matters."
The Board of Directors of TTI has approved an arrangement under which, in
exchange for the waiver and release by the persons subject to such employment
agreements of any claims they may have against TTI for severance payments
resulting from a change in control, or otherwise, TTI will reduce the exercise
price of all stock options currently held by such persons to $.001 per share.
The amounts TTI would have received from the exercise of such options
(assuming their full exercise) prior to any modification of their exercise
price would have been approximately $1,087,500 in the aggregate. TTI
anticipates that all such persons will accept the modification of the exercise
price of their options. See "The Acquisition and Related Transactions--
Interests of Certain Persons in the Transaction" and "Information Concerning
TTI--Executive Compensation and Other Matters."
Pacific Telesis may, in its sole discretion, offer to enter into employment
or consulting agreements with employees of WHI or VBAI. The terms of any such
agreements would be negotiated directly between Pacific Telesis and such
employee.
43
<PAGE>
INFORMATION CONCERNING PACIFIC TELESIS
PACIFIC TELESIS-BUSINESS
General. Pacific Telesis was incorporated in 1983 under the laws of the
State of Nevada and has its principal executive offices at 130 Kearny Street,
San Francisco, California 94108 (telephone number 415/394-3000). Pacific
Telesis is one of seven regional holding companies formed in connection with
the 1984 divestiture by AT&T Corp. of its 22 wholly owned operating telephone
companies ("BOCs") pursuant to a consent decree settling antitrust litigation
approved by the United States District Court for the District of Columbia.
Pacific Telesis includes a holding company, Pacific Telesis; two BOCs, Pacific
Bell and Nevada Bell; and certain diversified subsidiaries. The holding
company provides financial, strategic planning, legal and general
administrative functions on its own behalf and on behalf of its subsidiaries.
The Telephone Companies and their Subsidiaries. Nevada Bell and Pacific Bell
and its wholly owned subsidiaries, Pacific Bell Directory, Pacific Bell
Information Services, Pacific Bell Mobile Services, Pacific Bell Internet
Services, Pacific Bell Network Integration, and others, provide a variety of
communications and information services in California and Nevada. These
services include: (1) dialtone and usage services, including local service
(both exchange and private line), message toll services within a service area,
Wide Area Toll Service (WATS)/800 services within a service area, Centrex
service (a central office-based switching service) and various special and
custom calling services; (2) exchange access to interexchange carriers and
information service providers for the origination and termination of switched
and non-switched (private line) voice and data traffic; (3) billing services
for interexchange carriers and information service providers; (4) various
operator services; (5) installation and maintenance of customer premises
wiring; (6) public communications services; (7) directory advertising; (8)
selected information services, such as voice mail; (9) Internet access; and
(10) network integration services.
. Pacific Bell Directory ("Directory") publishes the Pacific Bell SMART
Yellow Pages (R). It is the oldest and largest publisher of Yellow Pages in
California and is among the largest Yellow Pages publishers in the United
States. As part of its ongoing small business advocacy efforts, Directory
produces an award-winning publication in partnership with the U.S. Small
Business Administration. "Small Business Success," now in its ninth year,
addresses topics of importance to entrepreneurs.
. Pacific Bell Information Services ("PBIS") provides business and
residential voice mail and other selected information services. Current
products include The Message Center for home use, Pacific Bell Voice Mail for
businesses and Pacific Bell Call Management, a service that handles incoming
business calls and connects computer databases to answer routine customer
questions.
. Pacific Bell Mobile Services ("PBMS") was formed in 1994 to pursue
opportunities in personal communications services ("PCS"), a new generation of
wireless services geared to the business and consumer markets. In 1995,
Pacific Telesis Mobile Services, a wholly owned subsidiary of Pacific Telesis,
obtained two licenses to offer PCS services in California and Nevada from the
Federal Communications Commission ("FCC"). PBMS will design, construct,
manage, and market services for the network. Management expects a widespread
offering of PCS services by early 1997.
. Pacific Bell Internet Services ("PBI") was formed in 1995 to provide
Internet access services to a broad range of customers in California. PBI
began providing Internet access to large businesses in the third quarter of
1995 and began providing residential service in 1996.
. Pacific Bell Network Integration ("PBNI") was formed in 1995 to pursue
opportunities in the network integration business. In 1995, PBNI began
offering network design, installation and maintenance, and network management
services for business data communication networks. PBNI anticipates it will
expand its service offerings in 1996.
Other Subsidiaries and Telesis Foundation. Pacific Bell Communications
("PBC") was formed in 1995 to compete in the long-distance market under the
Telecommunications Act of 1996 (the "Telecommunications Act"). Although PBC
must meet certain requirements before it can offer long-distance service,
management
44
<PAGE>
expects to fulfill those requirements in the first part of 1997. In March
1996, PBC filed an application for certification to provide local and long-
distance services in California with the California Public Utilities
Commission ("CPUC").
. Pacific Telesis Enterprises was formed to be the holding company for
certain other subsidiaries and work groups that are pursuing entry into
competitive and/or emerging markets such as wireless, traditional and
interactive video, and Internet information and shopping services.
. Pacific Telesis Enhanced Services was formed to provide support functions
to certain other subsidiaries thereby allowing these subsidiaries to focus on
service and customer development.
. Pacific Bell Interactive Media ("PBIM") is the successor company to ESS
Ventures, a joint venture with the Los Angeles Times. PBIM was formed to
develop and offer California specific information, activity and shopping
opportunities on the Internet.
. Pacific Bell Video Services ("PBVS") was formed to provide video services.
. Cross Country Wireless Inc. ("CCW") was acquired in July 1995. CCW has
existing wireless television operations with over 40,000 video customers in
and near Riverside, California and holds licenses and lease rights to provide
wireless television in Los Angeles, Orange County, and San Diego.
. Pacific Telesis Wireless Broadband Services ("PTWBS") was granted licenses
in the 38 Ghz band from the FCC and has other applications pending. PTWBS is
currently evaluating its strategic options for the granted licenses.
. PacTel Capital Resources ("PTCR") has issued commercial paper and medium-
term notes guaranteed by Pacific Telesis from time to time since 1987. In the
future, PTCR may provide other forms of financial support for its affiliates.
. PacTel Capital Funding may issue guarantees and other forms of financial
support for its affiliates and third parties.
. PacTel Re Insurance Companies, Inc. reinsures policies of outside
insurance companies covering workers' compensation, general liability, and
auto liability exposures of the Corporation and its subsidiaries and
affiliates. The subsidiary also issues policies of property insurance directly
to Pacific Telesis' subsidiaries and engages in property reinsurance
transactions in insurance markets worldwide.
. Pacific Telesis Group--Washington represents Pacific Telesis' interests in
Washington, D.C. before the three branches of the federal government. It also
acts as a liaison with other telecommunications companies, trade associations,
government agencies, and a wide variety of interest groups.
. Telesis Foundation, a private foundation organized under section 501(c)(3)
of the Internal Revenue Code, makes grants in the areas of education, health
and welfare, cultural, community, and civic activities. As of December 31,
1995, Telesis Foundation had total assets with an estimated market value of
$56 million.
. Pacific Telesis Financing I and Pacific Telesis Financing II, two Delaware
business trusts owned by Pacific Telesis, have issued trust originated
preferred securities ("TOPrS") subject to a limited guarantee from Pacific
Telesis and have invested the proceeds in subordinated deferrable interest
debentures of Pacific Telesis.
PACIFIC TELESIS--PROPOSED MERGER WITH SBC
SBC and Pacific Telesis have entered into the Merger Agreement, pursuant to
which Pacific Telesis would become a wholly owned subsidiary of SBC. Under
terms of the Merger Agreement, each share of Pacific Telesis Common Stock will
be converted into 0.733 shares of common stock, par value $1.00 per share, of
SBC (the "SBC Common Stock"), subject to adjustment, as described in the
Merger Agreement. Under the Merger Agreement Pacific Telesis may not pay a
dividend in excess of 73.3% of SBC's dividend. The transaction, which
45
<PAGE>
has been approved by the board of directors and shareholders of each company,
will be accounted for as a pooling of interests and be a tax-free
reorganization. The Merger Agreement is subject to certain regulatory
approvals. There can be no assurance that the Merger Agreement will be
consummated. Details of the proposed merger with SBC, including certain
financial information, appear in Pacific Telesis' Proxy Statement dated June
3, 1996, which is incorporated by reference herein.
SBC is a holding company whose subsidiaries and affiliates operate
predominantly in the communications services industry. SBC's subsidiaries and
affiliates provide landline and wireless telecommunications services and
equipment, directory advertising, publishing and cable television services.
Southwestern Bell Telephone Company is SBC's largest subsidiary, providing
telecommunications services in Texas, Missouri, Oklahoma, Kansas and Arkansas.
SBC is subject to the informational reporting requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the SEC's regional offices located at 7 World Trade Center,
13th Floor, New York, New York 10019 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
may be obtained by mail from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The SEC maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding entities that file electronically with the SEC, including SBC. In
addition, reports, proxy statements and other information concerning SBC may
be inspected at the offices of the following stock exchanges on which the
common stock of SBC is traded: the New York Stock Exchange, 20 Broad Street,
New York, New York 10005; the Chicago Stock Exchange, One Financial Place, 440
South La Salle Street, Chicago, Illinois 50504; and the Pacific Stock
Exchange, 301 Pine Street, San Francisco, California 94104. Pacific Telesis
does not assume any responsibility for the accuracy or completeness of the
information concerning SBC contained in such documents and does not warrant
that there have not occurred events not yet publicly disclosed by SBC which
would affect the accuracy or completeness of the information concerning SBC
included therein.
The following table sets forth for the fiscal periods indicated the high and
low reported sale prices for SBC's common stock on the New York Stock
Exchange.
<TABLE>
<CAPTION>
REPORTED
SALE PRICE
---------------
HIGH LOW
------- -------
<S> <C> <C>
1994
First Quarter.......................................... $42.000 $36.750
Second Quarter......................................... 44.375 38.500
Third Quarter.......................................... 44.250 40.250
Fourth Quarter......................................... 43.125 39.250
1995
First Quarter.......................................... $43.875 $39.625
Second Quarter......................................... 47.875 41.625
Third Quarter.......................................... 55.125 45.500
Fourth Quarter......................................... 58.500 53.125
1996
First Quarter.......................................... $60.250 $49.750
Second Quarter......................................... 50.750 46.250
Third Quarter.......................................... 51.000 45.625
Fourth Quarter (through October 9)..................... 50.125 48.000
</TABLE>
46
<PAGE>
PACIFIC TELESIS-SELECTED FINANCIAL INFORMATION
The following financial and operating data should be read in conjunction
with the consolidated financial statements and related notes of Pacific
Telesis and its Management's Discussion and Analysis of Results of Operations
and Financial Condition included in the Pacific Telesis 1996 Proxy Statement
dated as of March 15, 1996, which is incorporated by reference into this
Prospectus/Proxy Statement. See "Incorporation of Certain Documents by
Reference." The results of operations and other financial data for the five
years ended December 31, 1995 are derived from financial statements that have
been audited by Coopers & Lybrand L.L.P., independent certified public
accountants. See "Independent Public Accountants."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Operating revenues........ $ 9,042 $ 9,235 $ 9,244 $ 9,108 $ 9,168
Operating expenses........ 7,031 7,041 8,582 7,025 7,217
Operating income.......... 2,011 2,194 662 2,083 1,951
Income from continuing
operations............... 1,048 1,136 191 1,173 931
Income (loss) from spun-
off operations........... -- 23 29 (31) 84
Cumulative effect of
accounting changes....... -- -- (1,724) -- --
Extraordinary item, net of
tax...................... (3,360) -- -- -- --
Net income (loss)......... $(2,312) $ 1,159 $ (1,504) $ 1,142 $ 1,015
EARNINGS (LOSS) PER SHARE
Income from continuing
operations............... $ 2.46 $ 2.68 $ 0.46 $ 2.91 $ 2.37
Income (loss) from spun-
off operations........... -- 0.05 0.07 (0.08) 0.21
Cumulative effect of
accounting changes....... -- -- (4.16) -- --
Extraordinary item........ (7.89) -- -- -- --
Net income (loss)......... $ (5.43) $ 2.73 $ (3.63) $ 2.83 $ 2.58
OTHER FINANCIAL DATA
Dividends per share....... $ 2.18 $ 2.18 $ 2.18 $ 2.18 $ 2.14
Total assets*............. $15,841 $ 20,139 $ 23,437 $ 21,849 $ 21,226
Net assets of spun-off
operations............... -- -- $ 2,874 $ 745 $ 663
Shareowners' equity....... $ 2,190 $ 5,233 $ 7,786 $ 8,251 $ 7,729
Continuing Operations**:
Book value per share...... $ 5.11 $ 12.34 $ 11.61 $ 18.53 $ 17.62
Return on equity (%)...... -51.3 22.0 -26.3 16.1 13.4
Return on capital (%)..... -18.0 14.3 -8.6 12.0 10.6
Debt maturing within one
year..................... $ 1,530 $ 246 $ 595 $ 1,158 $ 951
Long-term obligations..... $ 4,737 $ 4,897 $ 5,129 $ 5,207 $ 5,395
Debt ratio (%)............ 74.1 49.6 53.8 45.9 47.3
Capital expenditures...... $ 2,961 $ 1,684 $ 1,886 $ 1,852 $ 1,737
Cash from operating
activities............... $ 2,769 $ 2,947 $ 2,727 $ 2,807 $ 2,439
OTHER OPERATING DATA
Total employees at
December 31.............. 48,889 51,590 55,355 57,023 59,037
Volume Indicators:
Toll messages
(millions)***............ 4,819 4,460 4,251 4,145 4,081
Carrier access minutes-of-
use (millions)........... 59,193 53,486 49,674 46,800 43,872
Customer switched access
lines in service at
December 31 (thousands;
1994***)................. 15,782 15,315 14,873 14,551 14,262
</TABLE>
- --------
Effective third quarter 1995, management discontinued, for external financial
reporting purposes, the application of SFAS 71, "Accounting for the Effects of
Certain Types of Regulation," an accounting standard for entities subject to
traditional regulation as it related to its Pacific Bell subsidiary. Pacific
Telesis' Nevada Bell subsidiary still accounts for its operations under the
provisions of SFAS 71. As a result, during 1995, Pacific Telesis recorded a
non-cash, extraordinary charge of $3.4 billion, or $7.89 per share, which is
net of a deferred income tax benefit of $2.4 billion. As a result of the
extraordinary charge, Pacific Telesis' shareowners' equity was reduced by $3.4
billion.
47
<PAGE>
Effective April 1, 1994, Pacific Telesis spun off to its shareowners its
domestic and international cellular, paging and other wireless operations in a
one-for-one stock distribution of its 86 percent interest in these operations.
As a result, Pacific Telesis' total assets and shareowners' equity were each
reduced by $2.9 billion during 1994. Pacific Telesis' previous interests in
the operating results and net assets of "spun-off operations" are classified
separately and excluded from Pacific Telesis' revenues, expenses, and other
amounts presented for "continuing operations."
Results for 1993 and 1991 reflect restructuring charges which reduced income
from continuing operations by $861 million and $122 million, for each
respective year, and related per share amounts by $2.08 and $.30 for each
respective year. Results for 1993 also reflect the cumulative after-tax
effects of applying new accounting rules for postretirement and postemployment
benefits to prior years.
* Includes net assets of spun-off operations for the years 1991-1993.
** Excludes spun-off operations.
*** Restated.
PACIFIC TELESIS-MARKET AND DIVIDEND INFORMATION
The Pacific Telesis Common Stock is listed on the New York, Pacific,
Chicago, Swiss and London Stock Exchanges and is traded under the symbol "PAC"
on the New York, Pacific and Chicago Stock Exchanges and under the symbol
"Pacific Telesis" on the London and Swiss exchanges. On , 1996, the
closing price per share for the Pacific Telesis Common Stock was $ , based
on New York Stock Exchange Composite Transactions. The market price of the
Pacific Telesis Common Stock is subject to change. Set forth below are the
high and low closing prices of the Pacific Telesis Common Stock based on New
York Stock Exchange Composite Transactions and the quarterly dividends per
share paid on the Pacific Telesis Common Stock for the respective periods
indicated:
<TABLE>
<CAPTION>
PERIOD HIGH LOW DIVIDEND
------ ------- ------- --------
<S> <C> <C> <C>
1996
1st Quarter....................................... $35.25 $26.375 $0.545
2nd Quarter....................................... 34.50 31.875 0.315
3rd Quarter....................................... 35.00 32.25 0.315
4th Quarter (through October , 1996)............
1995
1st Quarter....................................... $31.25 $28.375 $0.545
2nd Quarter....................................... 31.00 25.875 0.545
3rd Quarter....................................... 30.75 25.875 0.545
4th Quarter....................................... 34.25 29.75 0.545
1994
1st Quarter*...................................... $57.625 $52.625 $0.545
2nd Quarter....................................... 32.375 29.875 0.545
3rd Quarter....................................... 33.375 30.25 0.545
4th Quarter....................................... 31.75 28.375 0.545
</TABLE>
- --------
* Reflects market prices per share prior to the April 1, 1994 spinoff of Air
Touch.
As of September 30, 1996 there were 690,211 holders of record of the Pacific
Telesis Common Stock. The Capital Group Companies, Inc. and Capital Research
and Management Company ("Capital") were known to Pacific Telesis to
beneficially own 6.8% of the PTG Common Stock. The Acquisition will not have a
material effect on Capital's holdings of Pacific Telesis Common Stock,
beneficial ownership of which is disclaimed by Capital.
Pacific Telesis from time to time purchases shares of its Common Stock on
the open market or through privately negotiated purchases.
The declaration and timing of all dividends are at the discretion of Pacific
Telesis' Board of Directors and are dependent upon Pacific Telesis' earnings
and financial requirements, general business conditions and other factors;
there can be no assurances as to the amount or frequency of any future
dividends on the Pacific Telesis Common Stock. In addition, under the Merger
Agreement with SBC, Pacific Telesis may not pay a dividend in excess of 73.3%
of SBC's dividend.
48
<PAGE>
INFORMATION CONCERNING TTI
INTRODUCTION
TTI is a Pennsylvania corporation which is engaged in the telecommunications
business. TTI currently has indirect interests in two existing wireless cable
television systems and indirect interests in lease rights in several markets.
TTI is a 20% owner of VBAI, which owns an operating wireless cable system
located in Tampa Bay, Florida. In addition, TTI owns 50% of WHI. Each of the
other 50% of WHI and the other 80% of VBAI is owned by Videotron USA. WHI owns
wireless cable rights and operating SMATV systems in San Francisco and San
Jose, California, through its subsidiary BAC, and an operating wireless cable
system in Spokane, Washington, through its wholly-owned subsidiary, TWTV
Spokane. WHI also owns (through wholly-owned subsidiaries) lease rights to 25
channels in Greenville, South Carolina; 20 channels in Victorville,
California; 16 channels in Seattle, Washington; 10 channels in San Diego,
California; 8 channels in Gilroy, California and 4 channels and additional
agreements with applicants for new channels in Santa Rosa, California. FCC and
other approvals are needed to integrate all of these channels into a wireless
cable system. There is no certainty that all of these approvals will be
obtained. Some channel capacity must be dedicated for educational programming.
WHI also has options to acquire some of these channel licenses subject to
obtaining prior FCC approval (see "Regulatory Matters"). As of June 30, 1996,
VBAI, BAC and TWTV Spokane have approximately 35,900 subscribers (including
approximately 18,000 subscribers served by assets disposed of as part of the
Spin-Off to affiliates of Videotron Canada on July 31, 1996 and effective as
of January 1, 1996) on an equivalent billing unit basis.
Prior to July 1, 1996, TTI also engaged, through its wholly-owned
subsidiary, Carolina, in the telephone pay-per-call business. The pay-per-call
operations primarily related to customer information and entertainment phone
programs (using "800" and "900" telephone numbers) targeted toward the adult
market. In the telecommunications industry, these types of services are
generally referred to as "audiotext services." The audiotext industry is
highly regulated and subject to numerous marketing and business risks.
In February 1994, the Board of Directors of TTI voted to discontinue
Carolina's operations. Effective July 1, 1996, TTI transferred its interest in
Carolina to Mr. Crutchfield, TTI's largest shareholder, in retirement of
2,000,000 shares of Mr. Crutchfield's TTI Common Stock. As a result of the
transaction, Mr. Crutchfield's beneficial ownership of the outstanding shares
of TTI Common Stock was reduced from 50.6% (on a fully diluted basis) to
approximately 47.1% (on a fully diluted basis).
In connection with TTI's disposition of its interest in Carolina, TTI
entered into a management agreement pursuant to which it will provide certain
management and administrative services to Carolina during the four month
period from July through October 1996 in exchange for a management fee of
$100,000 per month. After the conclusion of the four month management period,
Carolina may continue to use TTI's management services on terms mutually
acceptable to the parties.
DESCRIPTION OF TTI'S BUSINESS; COMPETITION
TTI's principal business is the acquisition (either on its own behalf or
through WHI), development, build-out and operation of television systems
utilizing microwave transmission facilities. Because no cable or wiring is
used to deliver programming to subscribers in this type of system, it is
commonly referred to as "wireless cable." Wireless cable programming is
delivered using microwaves employing super high frequencies ("SHF") which are
beamed directly to an antenna at each subscriber's residence. Transmitters are
grouped together at a single transmission site, where programming channels are
received by the system operator, scrambled and then retransmitted using SHF
microwaves to each subscriber's home. The signal requires a "line-of-sight"
transmission from the system operator's transmission tower to the subscriber's
antenna. When the signal is received at the subscriber's antenna, a
downconverter changes it into a normal VHF television signal. This signal is
then fed to a converter/descrambler connected to the subscriber's television
set. Similar to hard-wire cable television systems, wireless cable systems
offer a full range of basic and premium programming options, including local
off-air and on-air channels, movie channels, music channels, news channels and
specialized programming.
49
<PAGE>
Wireless cable television systems typically compete with both hard-wire
cable systems and satellite delivery systems. Several other technologies are
under development which may significantly affect the pay television industry
and which may result in new competitors. There can be no assurances that these
new technologies will not have an adverse effect on the wireless cable
industry.
Wireless cable television's primary competition is from traditional hard-
wire cable systems. Wireless cable systems eliminate the need for networks of
cables and amplifiers, which are required in traditional hard-wire cable
systems. Therefore, the fixed capital cost per installed wireless subscriber
is generally less than the installation cost for a traditional hard-wire cable
subscriber. This cost savings is reflected in monthly service prices, which
are generally lower than those charged by traditional hard-wire cable
operators. Certain hard-wire cable systems and wireless cable operators
currently may set rates without regulatory limitations.
Traditional hard-wire cable systems have been hampered in providing
additional programming channels by the current analog transmission and coaxial
cable technologies. New technologies are in various stages of development
which would increase channel capacity. These technologies include the use of
fiberoptic networks, digital compression techniques and other product
developments that allow hard-wire cable franchise operators to carry more
programming signals on existing coaxial cable networks. These technologies are
also expected to increase the efficiency and capacity of wireless cable
systems.
Satellite broadcast systems using orbital satellites also provide services
which are competitive with wireless cable systems. The primary advantages of
wireless cable systems over these systems generally result from the wireless
cable system's lower equipment costs and broader availability of local
programming. These systems are also relatively expensive to implement (ranging
from less than $1,000 to in excess of $3,000 per subscriber), and require the
use of large satellite dishes.
A number of companies have recently begun marketing high-powered
transmission satellites--often called "direct broadcast systems"--to
distribute high-capacity programming using antennas as small as 18 inches in
diameter. The cost of constructing and launching these new satellites is
substantial. These systems also generally do not provide access to local news,
weather and sports, or allow the subscriber to use interactive television
technologies. In addition, these systems typically require the customer to buy
the antenna (at prices ranging from approximately $650 for an installed
single-television system to $1,400 for an installed two-television system) as
well as pay for a program decoder in order to view programming.
GENERAL DEVELOPMENT OF TTI'S BUSINESS
Organization. TTI was organized in the Commonwealth of Pennsylvania on
December 11, 1987, under the name "Euripides Development Corporation." Shortly
after its organization, TTI filed a registration statement with the SEC on
Form S-18 for the sale of 12,500,000 units, each composed of one Class A
warrant, one Class B warrant and one share of common stock with a par value of
$0.001 per share. The offering was completed in July of 1989, when TTI sold
all 12,500,000 units at $.02 per unit. In early 1992, TTI effected a ten-for-
one reverse stock split for all of its issued and outstanding shares of common
stock, as well as its Class A warrants and the Class B warrants. The warrants
were not exercisable until TTI filed a registration statement with the
Securities and Exchange Commission and met other requirements. All warrants
expired unissued on February 28, 1994.
Material Business Transactions.
(a) Transactions Prior to 1995 Fiscal Year. Between the time of TTI's
organization in 1987 and early 1992, it did not engage in any active business
operations. Beginning in March 1992, and continuing through TTI's 1994 fiscal
year, TTI entered into the following series of transactions:
CAROLINA AND PARK CITY TRANSACTIONS. In March 1992, TTI acquired all of the
issued and outstanding stock of Carolina. Also in March 1992, TTI acquired all
of the stock of Transworld Wireless Television, Inc. ("TWTV Park City"), a
Nevada corporation, which holds licenses from the FCC for four MMDS channels
in Park City, Utah. As a result of these transactions, Carolina and TWTV Park
City became wholly-owned subsidiaries of TTI. In February 1994, TTI's Board of
Directors determined to discontinue Carolina's business
50
<PAGE>
operations. Effective July 1, 1996, TTI transferred its interest in Carolina
to F. Lorenzo Crutchfield in exchange for 2,000,000 shares of TTI Common Stock
held by Mr. Crutchfield. See "Information Concerning TTI--Related Party
Transactions," below. TTI's interest in TWTV Park City was transferred to
Wireless Cable & Communications, Inc., a Nevada corporation ("WCCI"), as part
of a transaction intended to qualify under sections 355 and 368(a)(1)(D) of
the Internal Revenue Code in August 1995. TTI and WCCI are currently seeking
FCC approval of this transaction. See "Auckland and Park City Transfers"
below.
VIDEOTRON TAMPA BAY AND WHI TRANSACTIONS. Effective October 31, 1992, TTI
acquired WCTV Tampa Bay, Inc. ("WCTV"), a Florida corporation engaged in the
wireless cable television business, through a merger into VBAI (then a newly
formed wholly-owned subsidiary of TTI known as "Transworld Wireless T.V.--
Tampa Bay, Inc.").
The purchase price for the WCTV assets was $11,749,000, including the
assumption by VBAI of certain WCTV liabilities in the amount of $6,562,908. In
addition, TTI issued 385,157 shares of its Class A Series A preferred stock
having a face value of $10.00 per share (for a total value of $3,851,570) in
exchange for debt and equity of WCTV and 583,853 shares of its common stock at
a value of $1,334,522. In connection with the VBAI transaction, the parties
restructured the capital and debt of WCTV. In order to accomplish that
restructuring, VBAI modified the terms of $1,125,000 in debentures WCTV had
previously issued to its creditors. As described in more detail in the section
entitled "VBAI Preferred Stock Conversion and Debenture Exchange" below, TTI
subsequently converted the Class A Series A preferred stock issued in the
merger into shares of TTI Common Stock, and exchanged shares of TTI Common
Stock for approximately 80% of the debentures.
In November 1993, TTI effected two transactions with Videotron USA. On
November 19, 1993, Videotron USA acquired an 80% interest in VBAI (which was
then a wholly-owned subsidiary of TTI). Videotron USA invested approximately
$7 million in VBAI, purchased 1,000 shares of a new series of TTI's Class A
Series B preferred stock for $1.5 million cash, and agreed that TTI's 20%
equity interest in VBAI could not be diluted. The agreement also gave TTI the
right to require Videotron USA to purchase TTI's 20% interest in VBAI at any
time after December 31, 1994 at the greater of $2.6 million or "fair market
value", as determined by the agreement.
In TTI's second transaction with Videotron USA, Videotron USA and TTI each
invested approximately $4.6 million to form WHI. WHI's business purpose was to
acquire, develop and operate interactive wireless cable television and SMATV
systems in the United States.
ACQUISITION OF AUCKLAND, NEW ZEALAND RIGHTS. In May, 1994 WHI acquired,
through its wholly-owned subsidiary TTI Acquisition Corp., certain wireless
cable leases and license rights in Victorville, California and Greenville,
South Carolina held by Prescient Telecommunications International, Inc.
("PTI"). In connection with the PTI transaction, TTI acquired the lease and
license rights formerly held by PTI located in Auckland, New Zealand. The
rights consisted of licenses to 8 MMDS channels in the Auckland market, plus
the lease rights to two additional channels. See "Auckland and Park City
Transactions" below.
VBAI PREFERRED STOCK CONVERSION AND DEBENTURE EXCHANGE. In June 1994, in a
negotiated transaction with TTI, all of the holders of TTI's outstanding Class
A Series A Redeemable Cumulative Convertible Preferred Stock, consisting of
317,089 shares, converted their preferred shares into 1,153,052 shares of the
TTI Common Stock.
In connection with the conversion of the preferred shares, TTI agreed to pay
the former preferred shareholders approximately $400,000 for their surrender
of certain call rights associated with the preferred shares that they had
previously exercised. TTI paid these amounts, in part, from the proceeds of
certain debenture pre-payments TTI received from VBAI, as described below.
In conjunction with the preferred stock conversion transactions, TTI
acquired $839,224 in face amount of outstanding VBAI debentures in exchange
for 307,882 shares of TTI Common Stock. The debentures, which were convertible
into shares of TTI Common Stock, bore interest at 8% per annum and required
semiannual payments of $68,982.50 through November 1, 2002. The debentures TTI
acquired in the transactions represented approximately 80% of the face amount
of all such debentures.
51
<PAGE>
In October, 1994, TTI entered into an agreement with VBAI under which VBAI
paid TTI $700,000 in full satisfaction of all amounts due under the debentures
held by TTI. TTI used a portion of these amounts to pay the former preferred
shareholders approximately $400,000 for call rights they exercised prior to
the conversion of the preferred stock into TTI Common Stock.
VIDEOTRON PREFERRED STOCK CONVERSION. In September 1994, TTI converted the
1,000 shares of its Class A Series B redeemable preferred stock held by
Videotron USA into 1,000 shares of TTI Common Stock pursuant to the terms of
the WHI organizational documents and the rights and privileges of the Class A
Series B redeemable preferred stock.
CONTRIBUTION OF COMMON STOCK. In August, 1994, Mr. Crutchfield surrendered
2.5 million shares of TTI Common Stock as an adjustment to the number of
shares that he obtained in the transaction whereby TTI acquired Carolina as a
wholly owned subsidiary in 1993. In connection with that transaction, Mr.
Crutchfield also relinquished all stock options he then held to acquire shares
of TTI Common Stock (in the total amount of 358,334 shares), and agreed to
forgo all cash salary amounts due him under the terms of his employment
contract. The shares surrendered by Mr. Crutchfield under the agreement were
subsequently used by TTI to effect the conversion of its Class A Series A
preferred stock without materially diluting TTI's other common shareholders'
equity positions. Mr. Crutchfield relinquished his options on the condition
that they also be used to replace stock options previously granted to TTI's
officers and directors without materially diluting TTI's other common
shareholders' equity positions.
(b) Transactions During 1995 Fiscal Year. During TTI's 1995 fiscal year, it
entered into the following transactions:
SETTLEMENT AGREEMENT. Effective March 31, 1995, TTI, Mr. Crutchfield,
Videotron USA, WHI and VBAI entered into the Settlement Agreement. See "The
Acquisition and Related Transactions--Background of the Acquisition" and
"Certain Legal Proceedings."
AUCKLAND AND PARK CITY TRANSFERS. On July 26, 1995, TTI's Board of Directors
voted to transfer to its shareholders two of its subsidiaries (in transactions
qualifying under sections 355 and 368 (a) (1) (D) of the Internal Revenue Code
of 1986). The two subsidiaries spun-off were Auckland Independent Television
Services, Inc. ("AITS") which held TTI's Auckland, New Zealand wireless cable
rights, and Transworld Wireless Television, Inc. ("TWTV Park City") which held
certain wireless cable rights located in Park City, Utah.
On August 1, 1995, the transfer was effected by TTI contributing its
interest in AITS, TWTV Park City and certain other miscellaneous assets to a
newly formed Nevada corporation, WCCI in exchange for WCCI's issuance to TTI
of 3,500,000 shares of WCCI common stock. TTI and WCCI are currently seeking
FCC approval of the TWTV Park City transfer. TTI then transferred these shares
to an escrow agent to be held for the benefit of TTI's shareholders. The
distribution of the 3,500,000 shares from the escrow agent will be delayed
until TTI and WCCI have complied with certain requirements of the securities
laws. At that time, the 3,500,000 shares will be distributed to TTI's
shareholders of record as of August 1, 1995, on a non-pro rata basis, with the
management and principal shareholder of TTI relinquishing a portion of their
shares in favor of the public shareholders. The public shareholders of record
on August 1, 1995 will receive approximately 1.6 shares of WCCI's common stock
for each 10 shares of TTI's Common Stock they held on August 1, 1995.
In connection with the transfer, TTI agreed to loan up to $1,000,000 to WCCI
through the one-year period following the transfer for purposes of funding
WCCI's ongoing business operations. The commitment is subject to a number of
conditions including TTI having available resources to fund its other
obligations and commitments. On June 28, 1996, TTI borrowed $2.5 million from
an unrelated party to finance its operations pending the closing of the
Acquisition Agreement and to meet its obligations through its subsequent
liquidation under the Liquidation Plan. TTI anticipates that a portion of this
financing will be used to fund its loan agreement to WCCI.
ACQUISITION AGREEMENT. On November 9, 1995, TTI, Videotron USA and other
parties entered into the Acquisition Agreement. See "The Acquisition and
Related Transactions--Background of the Acquisition."
52
<PAGE>
TTI--DESCRIPTION OF PROPERTIES
TTI maintains an administrative office in approximately 2,500 square feet of
leased office space at 102 West 500 South, Suite 320, Salt Lake City, Utah.
The lease for the office space is with a third party, is on a month-to-month
term and requires rental payments of $2,400 per month. In addition, TTI
maintains an administrative office in approximately 1,241 square feet of
leased office space at 706 Green Valley Road, Greensboro, North Carolina. The
lease for the office space is with a third party, is on a 38 month term
commencing March 15, 1994 and requires rental payments of $1,655 per month.
Mr. Crutchfield (or an affiliate of Mr. Crutchfield) has agreed to assume this
lease as part of the Liquidation. TTI has approximately 6 full-time employees.
TTI--DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS
The Company has not declared or paid any dividends to the holders of TTI
Common Stock or its Class A Series B preferred stock. The Company paid
dividends to the holders of shares of its Class A Series A preferred stock in
1994.
TTI-LEGAL PROCEEDINGS
See "Certain Legal Proceedings."
TTI--SELECTED FINANCIAL INFORMATION
The following selected historical financial data as of and for the periods
ended October 31, 1995 and 1994 have been derived from the audited
consolidated financial statements of TTI appearing elsewhere herein. The
selected historical financial data as of and for the nine months ended July
31, 1996 and 1995, respectively, have been derived from the unaudited
financial statements as of July 31, 1996 and 1995, respectively, appearing
elsewhere herein. The unaudited consolidated financial statements, in the
opinion of management of TTI include all adjustments, consisting of normal
recurring accruals, which TTI, considers necessary for a fair presentation of
the results of operations for that period. Operating results for the nine
months ended July 31, 1996 are not necessarily indicative of the results that
may be expected for the entire fiscal year ending October 31, 1996. The
selected financial data are qualified in their entirety, and should be read in
conjunction with TTI's financial statements, including the notes thereto
appearing elsewhere herein, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of TTI.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED JULY 31, OCTOBER 31,
---------------- ----------------
1996 1995 1995 1994
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net revenue............................... $ -- $ -- $ -- $ --
Operating loss............................ (2,076) (1,572) (2,468) (4,183)
Net loss.................................. (2,102) (3,791) (6,175) (3,627)
Net loss per common share................. (0.07) (0.14) (.22) (.13)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
JULY 31, OCTOBER 31,
1996 1995
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets............................................. $1,698 $1,612
Note payable............................................. 2,500 --
Stockholders' equity (deficit)........................... (1,163) 52
</TABLE>
TTI-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Historically TTI has been actively expanding its telecommunications
business, primarily through acquisitions, and each fiscal period contains
different compositions of the underlying acquired businesses. Therefore, TTI's
management believes that a year-to-year comparison of revenues and expenses is
not meaningful to an understanding of TTI's operations.
53
<PAGE>
Material Changes in Financial Condition.
Nine Months Ended July 31, 1996. At July 31, 1996, TTI had current assets of
$1,202,962, compared to $113,278 at October 31, 1995, an increase of
$1,089,684. Cash increased by $932,812 from $94,391 to $1,027,203 during the
nine-month period, primarily as a result of TTI obtaining a $2,500,000 loan
from the Pacific Mezzanine Fund ("Pacific Loan") for the purposes of
facilitating the payment of expenses associated with completing its proposed
liquidation and distribution in conjunction with the Acquisition. TTI pledged
its 20% interest in VBAI as collateral for the Pacific Loan. A portion of the
net loan proceeds was used to pay accounts payable, accrued liabilities, a
related party note payable and to fund a loan commitment to Wireless Cable &
Communications, Inc., ("WCCI"). Current liabilities as of July 31, 1996, were
$360,445, compared to $1,559,665 as of October 31, 1995, for a decrease of
$1,199,220.
At July 31, 1996, total assets were $1,697,913, compared to $1,611,845 as of
October 31, 1995, an increase of $86,068. The increase in total assets was due
to the receipt by TTI of the net proceeds from the Pacific Loan described
above and partially offset by a decrease attributable to the equity in net
loss of WHI and Videotron Tampa Bay, totaling $995,214 for the nine month
period (which reduces investment in and advances to investee companies
account) and a decrease in cash which was primarily used to reduce accounts
payable and accrued liabilities. Total stockholders' equity (deficit)
decreased by $1,214,712 from $52,180 at October 31, 1995, to ($1,162,532) at
July 31, 1996.
Year Ended October 31, 1995. At October 31, 1995, TTI had current assets of
$113,278, compared to $402,312 at October 31, 1994, for a decrease of
$289,034. Cash decreased by $171,071 from $265,462 to $94,391 during the
fiscal year, primarily as a result of TTI's payment of accounts payable and
accrued liabilities. Current liabilities as of October 31, 1995, were
$1,559,665, compared to $1,891,000 as of October 31, 1994, for a decrease of
$331,335. The decrease in current liabilities was due to the payment of
accounts payable and accrued liabilities.
At October 31, 1995, total assets were $1,611,845, compared to $9,065,192 as
of October 31, 1994, for a decrease of $7,453,347. The decrease in total
assets is attributable to net loss of WHI and VBAI, totaling $5,865,766 for
the fiscal year (which reduces the investment in and advances to investee
companies balance sheet account), a decrease in cash which was primarily used
to reduce accounts payable and accrued liabilities and a decrease in channel
rights and amortization associated with the assets which were transferred to
WCCI in August 1995. Total stockholders' equity decreased by $7,122,012 from
$7,174,192 at October 31, 1994, to $52,180 at October 31, 1995.
Material Changes in Results of Operations.
Nine Months Ended July 31, 1996. TTI did not have operating revenues for
either of the nine months ended July 31, 1995 or 1996. However, in the same
period, TTI's discontinued operations generated revenue of $2,940,934 and
$1,716,528 during 1995 and 1996, respectively. The revenue from discontinued
operations decreased $1,224,406, in large part because of new regulations
imposed on the audiotex industry which restrict the number of phone lines
available for the business and because 1996 results are through June 30, 1996
at which time TTI disposed of its discontinued operations. During the nine
months ending July 31, 1996, total operating expenses (and operating loss)
were $2,076,454, compared to $1,572,017 for the same nine-month period a year
earlier, for an increase of $504,437. The increase in operating loss is a
result of an increase in administrative expenses and professional fees due to
the expenses incurred by TTI in conjunction with the Acquisition and the
expenses associated with the Pacific Loan. This increase was offset by a
decrease in channel rights and amortization associated with the assets which
TTI transferred to WCCI.
During the nine months ending July 31, 1996, TTI had a net loss of
$2,101,603, compared to a net loss of $3,791,255 for the same period a year
earlier, for a decrease of $1,689,652. The decrease in net loss is primarily a
result of the decrease in the equity in the net loss of WHI, offset by a
decrease in income from discontinued operations and the increase in
administrative expenses and professional fees. The equity in the net loss of
WHI was lower because TTI has completely written off its investment in and
advances to investee companies in WHI,
54
<PAGE>
and, therefore, will not continue to record WHI losses. The decrease in the
income from discontinued operations was offset partially by a decrease in
operating expenses primarily due to changing the clearing house parameters to
screen fraudulent callers which reduced chargeback expenses. For the nine
months ended July 31, 1996, there was a net loss per share of $(0.07),
compared to a net loss per share of $(0.14) for the same period a year
earlier.
Year ended October 31, 1995. TTI did not have revenues for the fiscal years
ended October 31, 1995 or October 31, 1994. However, Carolina had revenues of
$3,714,383 and $5,810,419 for the 1995 and 1994 fiscal years, respectively,
which are reduced by expenses and included in the income from discontinued
operations. The decrease in Carolina's revenues is primarily due to increased
regulation in the pay-per-call services industry which has resulted in a
reduction of available telephone lines. Net income of Carolina as a percentage
of net sales increased from 40% in fiscal 1994 to 51% in fiscal 1995. The
increase was primarily attributable to a decrease in chargeback expenses due
to changing the clearing house parameters to screen fraudulent callers.
During the fiscal year ended October 31, 1995, TTI's total operating
expenses (and operating loss) were $2,468,366, compared to $4,183,270 for the
same period a year earlier, for a decrease of $1,714,904. The decrease is
primarily a result of the decrease in contract services and salaries and
related benefits and an increase in channel right payments and amortization.
During the fiscal year ended October 31, 1995, TTI had a net loss of
$6,174,509, compared to a net loss of $3,626,519 a year earlier. The increase
in loss is primarily attributable to TTI's share of the losses of WHI and VBAI
totaling $5,865,766 in 1995 (which are reported as equity in net loss of
affiliated companies) compared to $1,405,350 in 1994. However, the net loss
was also affected by an increase in interest income related to the WHI debt, a
decrease in interest expense related to the conversion of TTI's Class A Series
A Redeemable Cumulative Convertible Preferred Stock, and a decrease in the
income from discontinued operations due to the reduction in revenue. For the
fiscal year ended October 31, 1995, TTI had a net loss per share of $0.22,
compared to a net loss per share of $0.13 for the same period a year earlier.
Year ended October 31, 1994. TTI did not have revenues for the fiscal year
ended October 31, 1994, as compared to $1,010,824 for the same period a year
earlier. The decrease in revenue resulted from a transaction TTI closed in
November 1993, whereby VBAI, then a wholly owned subsidiary of TTI, sold to
Videotron USA, 800 shares of VBAI common stock. The result of the transaction
was to transfer ownership of 80% control of VBAI to Videotron USA. Subsequent
to that transaction, TTI has accounted for its investment in WHI and VBAI
using the equity method. Summary financial data for WHI and VBAI are presented
in note 2 to the Financial Statements of TTI included as part of this
Prospectus/Proxy Statement.
During the fiscal year ended October 31, 1994, TTI's total operating
expenses were $4,183,270, compared to $4,131,593 for the same period a year
earlier, for an increase of $51,677. TTI experienced an operating loss of
$4,183,270, compared to an operating loss of $3,120,769 for a year earlier.
The increase in operating loss is primarily a result of the decrease in
revenues from VBAI's operations described above, an increase in administrative
expenses and professional fees and an increase in compensation expense due to
stock options awarded at exercise prices that were below market value. See
note 5 to the Financial Statements of TTI included as part of this
Prospectus/Proxy Statement.
During the fiscal year ended October 31, 1994, TTI had a net loss of
$3,626,519, compared to a net loss of $2,100,239 a year earlier. The increase
in loss is primarily attributable to the increase in loss from operations and
TTI's share of the losses of WHI and VBAI totaling $1,405,350 (which are
reported as equity in net loss of affiliated companies). For the fiscal year
ended October 31, 1994, TTI had a net loss per share of $0.13, compared to a
net loss per share of $0.08 for the same period a year earlier.
Liquidity and Capital Resources.
In November, 1995, Pacific Telesis agreed to acquire, subject to the
approval of TTI's shareholders, TTI's entire interest in WHI and VBAI pursuant
to the terms of the Acquisition Agreement. As part of the Acquisition, TTI has
adopted the Liquidation Plan. The Liquidation Plan is more particularly
described in the section entitled "The Acquisition and Related Transactions--
The TTI Liquidation." In order to satisfy TTI's liabilities as of
55
<PAGE>
April 30, 1996 and the expenses associated with completing the Acquisition, in
June 1996, TTI obtained a loan from an unrelated party in the amount of
$2,500,000. The loan is more particularly described in the section entitled
"The Acquisition and Related Transactions--The TTI Liquidation."
In a separate transaction, TTI transferred to Mr. Crutchfield all of its
interest in Carolina (subject to its liabilities) in exchange for, and in
retirement of, 2,000,000 shares of Mr. Crutchfield's TTI Common Stock,
effective July 1, 1996. The net current liabilities of TTI's discontinued
operations (which were $886,891 at June 30, 1996) were assumed by Mr.
Crutchfield as part of the transfer. As part of this transaction,
Mr. Crutchfield agreed to engage TTI to manage Carolina's operations for an
initial term of four months, beginning July 1, 1996. Carolina agreed to pay
TTI $100,000 per month for these services.
TTI expects to satisfy all of its liabilities as of July 31, 1996 and any
liabilities or expenses associated with the liquidation of TTI through the
proceeds from the June 1996 loan, the Carolina transfer and management
agreement, and the Acquisition.
TTI--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On October 1, 1993, KPMG Peat Marwick LLP replaced TTI's independent
certified public accountants, Burnham and Schumm, for the year ending October
31, 1993. Burnham & Schumm's termination in that capacity was not because of
any, resolved or unresolved, disagreement on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure.
The decision to change accountants from Burnham & Schumm to KPMG Peat
Marwick LLP was recommended and approved by TTI's Board of Directors, or an
audit or similar committee of TTI's Board of Directors, and were ratified by
TTI's shareholders at the 1995 Annual Shareholders Meeting, held August 1,
1995.
TTI--MARKET PRICES OF COMMON STOCK; DIVIDENDS
From October 31, 1994 to April 11, 1996, TTI's Common Stock was listed on
the Boston Stock Exchange and was traded under the symbol TWL. On April 11,
1996, the TTI Common Stock was voluntarily delisted on such exchange and now
trades on the over-the-counter market through the market making activities of
two brokerages under the symbol TTIW. On October , 1996, the bid quotation
price per share of the TTI Common Stock was $ , as reported on the over-the-
counter market.
Set forth below are the high and low bid quotation per share prices for the
TTI Common Stock as reported on the Boston Stock Exchange until April 10, 1996
and on the over-the-counter market from April 11, 1996 to , 1996, for each
of the respective periods indicated. TTI has never declared or paid any cash
dividends on the TTI Common Stock. The quotations reflect inter-dealer prices,
without retail markup, markdown or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996 (Fiscal Year End--October 31, 1996)
1st Quarter................................................. $1.125 $0.875
2nd Quarter................................................. 1.125 0.875
3rd Quarter ................................................ 1.063 1.688
4th Quarter (August 1, 1996 through October , 1996)........
1995 (Fiscal Year End--October 31, 1995)
1st Quarter................................................. $2.375 $0.437
2nd Quarter................................................. 2.250 1.375
3rd Quarter................................................. 1.875 1.250
4th Quarter................................................. 1.875 0.875
1994 (Fiscal Year End--October 31, 1994)
1st Quarter................................................. $6.750 $ 5.00
2nd Quarter................................................. 5.75 3.75
3rd Quarter................................................. 5.00 1.625
4th Quarter................................................. 2.25 1.25
</TABLE>
56
<PAGE>
TTI--OFFICERS, DIRECTORS AND KEY PERSONNEL
TTI's directors and executive officers, and their respective ages and
positions with TTI, are set forth below in tabular form. Biographical
information for each of the directors and executive officers is set forth
following the tabular information. There are no family relationships between
any of TTI's, directors or executive officers, with the exception of Lance
D'Ambrosio and Troy D'Ambrosio, who are brothers. Each director holds office
until his successor has been duly elected and qualified, and to the knowledge
of TTI there is no voting trust or other arrangement in place regarding the
election of TTI's directors.
As of the date hereof, the following individuals are officers and directors
of TTI:
<TABLE>
<CAPTION>
OFFICERS
- --------------------------------------------------------------------------------
NAME AGE POSITION OFFICE ADDRESS
---- --- -------- --------------
<S> <C> <C> <C>
Lance D'Ambrosio.......... 39 President and Chief 102 West 500 South #320
Executive Officer Salt Lake City, UT 84101
(801)328-5618
Paul Gadzinski............ 42 Vice-President (Market 102 West 500 South #320
Development) Salt Lake City, UT 84101
(801)328-5618
E. Andrew Lowe............ 51 Vice-President (Finance) 1590 Sandpoint Drive
and Secretary Roswell, GA 30175
(770)643-8050
Anthony Sansone........... 31 Treasurer and Assistant 102 West 500 South #320
Secretary Salt Lake City, UT 84101
(801)328-5618
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS
- -------------------------------------------------------------------------------
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
<S> <C> <C> <C>
Chairman of the
F. Lorenzo Crutchfield, Jr. ............ 40 Board 1992
Lance D'Ambrosio........................ 39 Director 1992
Troy D'Ambrosio......................... 35 Director 1993
Wallace T. Boyack....................... 54 Director 1993
R. Bret Jenkins......................... 37 Director 1993
E. Andrew Lowe.......................... 51 Director 1992
George Sorenson......................... 40 Director 1994
</TABLE>
F. Lorenzo Crutchfield, Jr.--Mr. Crutchfield has been active in the
communications field since 1989, when he founded Teleworld Communications,
Inc., a company engaged in the telephone pay-per-call business. Mr.
Crutchfield is the largest shareholder of TTI. Since 1992, Mr. Crutchfield has
acted as Chairman of the Board of Directors of TTI and has been responsible
for assisting in acquisitions, strategic planning and identifying new wireless
technologies. Mr. Crutchfield received a B.A. in Business Management from Shaw
University in 1978.
Lance D'Ambrosio--Mr. D'Ambrosio is the President, Chief Executive Officer
and a Director of TTI, and holds other executive officer and director
positions with WHI (where he acts as both a Director and President) and in
TTI's and WHI's subsidiaries. Mr. D'Ambrosio is responsible for TTI's
financing plans. Mr. D'Ambrosio has held his positions with TTI since 1992.
Between 1987 and 1992, Mr. D'Ambrosio was the President of Bridgeport
Financial, Inc., a holding company that owned a full service broker/dealer
securities operation. During this period, Mr. D'Ambrosio was also an executive
officer in other entities involved in raising venture capital for investments
with high-technology companies. Mr. D'Ambrosio received a B.S. in Marketing
and Management from the University of Utah in 1979.
57
<PAGE>
Paul Gadzinski--Mr. Gadzinski is the Vice President of Market Development
for TTI. Between 1989 and 1994, Mr. Gadzinski was the Director of Marketing
and General Manager for Cross Country Wireless Cable, of Riverside, California
("Cross Country"). Between 1985 and 1989, Mr. Gadzinski was the Marketing
Director and Operations Manager of Cablevision International in Luquillo,
Puerto Rico (now doing business as TCI Cablevision of Puerto Rico, Inc.). Mr.
Gadzinski attended Santiago Community College, where he majored in Small
Business.
E. Andrew Lowe--Mr. Lowe is the Vice President of Finance and a Director of
TTI and WHI, and holds executive officer and director positions in TTI's and
WHI's subsidiaries. Between 1966 and 1992, Mr. Lowe was an employee of
Citicorp, most recently serving as Director of Marketing and Customer
Relations for the Real Estate Investment Advisory Division, where he was the
principal interface between pension funds, insurance companies and
international investment agencies and Citibank.
Anthony Sansone--Mr. Sansone is the Treasurer and Assistant Secretary of
TTI. Mr. Sansone has been employed by TTI as its controller since April, 1994.
Between 1993 and 1994, Mr. Sansone was the controller, secretary and director
of shareholder relations for Paradigm Medical Industries, Inc., a manufacturer
of ophthalmic cataract removal devices. Between 1992 and 1993 he was the
assistant controller of HGM Medical Lasers, Inc., which manufactures and
markets surgical and dental lasers. Between 1988 and 1992, he was the
assistant to the Vice President of Public Relations and the assistant to the
Chairman of the Board of American Stores Company, a large retail grocery and
drug store chain. Mr Sansone received a Bachelor of Science degree in
Accounting from Utah State University in 1988 and an MBA from the University
of Utah in 1991.
Troy D'Ambrosio--Mr. D'Ambrosio is a Director of TTI. Mr. D'Ambrosio is the
Client Service Manager for Wasatch Advisors, an investment and financial
service company. Between November of 1993 and September of 1996, he served as
Vice President, Administration for TTI, as well as an executive officer and
director in various TTI and WHI subsidiaries. From July of 1992 to November of
1993, Mr. D'Ambrosio was a vice-president and partner in a public relations
firm specializing in legal, economic and government relations for business.
Between 1985 and 1992, Mr. D'Ambrosio was Vice-President of Corporate
Communications and Government Relations with American Stores Company.
Mr. D'Ambrosio received a Bachelor of Arts degree in Political Science from
the University of Utah in 1982.
Wallace T. Boyack--Mr. Boyack is a Director of TTI. Mr. Boyack is an
attorney licensed to practice law in the State of Utah and has been engaged in
private practice since 1981. Mr. Boyack is of counsel to the law firm of
Boyack, Ashton and Jenkins, L.C. He was previously of counsel with the firm of
Brown, Larson, Jenkins and Halliday. Between 1969 and 1975, Mr. Boyack was an
attorney with the Securities and Exchange Commission, and between 1976 and
1981 was an assistant U.S. Attorney in the State of Utah. Mr. Boyack received
a Bachelor of Arts Degree in Accounting and a Master of Business
Administration from the University of Utah in 1966. Mr. Boyack received a
Juris Doctor from Georgetown University Law Center in 1971.
R. Bret Jenkins--Mr. Jenkins is a Director of TTI. Mr. Jenkins is an
attorney licensed to practice law in the State of Utah. Mr. Jenkins is a
member of the law firm of Boyack, Ashton and Jenkins, L.C. Between 1991 and
1996, Mr. Jenkins was a shareholder in the firm of Brown, Larson, Jenkins and
Halliday. Mr. Jenkins received a Bachelor of Arts Degree in Accounting from
the University of Utah in 1984 and a Juris Doctor from the University of Utah
in 1987.
George Sorenson--Mr. Sorenson is a Director of TTI. Mr. Sorenson is a
principal in FondElec Group, Inc., a corporation which invests in energy and
electricity markets in Latin America and advises United States corporations on
their investments in that area. Between 1990 and 1992, Mr. Sorenson was the
Associate Director of Bear, Sterns & Co., Inc., where he was principally
responsible for its international investment accounts in New York and Tokyo.
Between 1983 and 1990, Mr. Sorenson worked for Drexel Burnham & Lambert, Inc.,
most recently as a Senior Vice President in Tokyo, Japan, where he managed
that company's high-yield bond operations in Asia. Mr. Sorenson received a
Bachelor of Arts Degree in Finance from the University of Utah in 1979, and a
Masters degree in International Business Management in 1991 from the American
Graduate School of International Management.
58
<PAGE>
TTI--PRINCIPAL SHAREHOLDERS
As of October , 1996, the only persons known by TTI to be the beneficial
owners of more than ten percent (10%) of TTI's' voting securities were as
follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE
TITLE OF CLASS BENEFICIAL OWNER OF BENEFICIAL OWNER PERCENT OF CLASS
-------------- ------------------- ------------------- ----------------
<S> <C> <C> <C>
Common Stock... F. Lorenzo Crutchfield, 13,197,985 shares(1) 47.1%(2)
Jr.
3 Crossfield Court
Greensboro, NC 27408
</TABLE>
- --------
(1) The shares are held of record as follows: 12,728,500 shares in the name of
Crutchfield Enterprises, LLC, which is controlled by Mr. Crutchfield;
469,485 shares in the name of Teleworld, which is owned 100% by Mr.
Crutchfield. Mr. Crutchfield does not disclaim beneficial ownership of any
such shares. The shares shown reflect the retirement, effective July 1,
1996, of 2,000,000 shares of Mr. Crutchfield's TTI Common Stock in
connection with the distribution to him of TTI's interest in Carolina.
(2) Based on 28,019,228 outstanding shares of TTI Common Stock as of October
, 1996 (assuming the exercise of all outstanding options and the
Warrants).
59
<PAGE>
As of October , 1996, the executive officers and directors of TTI held the
following beneficial interests in the equity securities of TTI:
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF PERCENT OF POSITION OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER CLASS(1) BENEFICIAL OWNER
-------------- ----------------------- ---------------- ---------- ------------------------
<C> <S> <C> <C> <C>
Common Stock F. Lorenzo Crutchfield, 13,197,985(2) 47.1% Chairman of the Board
Jr.
3 Crossfield Court
Greensboro, North
Carolina 27408
Common Stock Lance V. D'Ambrosio 2,396,272(3) 8.5% President, Chief
6385 Shenandoah Park Executive Officer,
Avenue Director
Salt Lake City, Utah
84121
Common Stock Troy A. D'Ambrosio 272,968(4) * Director
2914 Nila Way
Salt Lake City, Utah
84124
Common Stock E. Andrew Lowe 245,529(5) * Vice Pres. (Secretary
1590 Sandpoint Drive Finance), Director
Roswell, Georgia 30075
Common Stock Paul Gadzinski 150,000(6) * Vice Pres. (Market
6649 Wintertree Drive Development)
Riverside, California
92506
Common Stock Anthony Sansone 30,000(7) * Treasurer and Assistant
3692 S. 645 East Secretary
Salt Lake City, Utah
84106
Common Stock Wallace T. Boyack 26,130(8) * Director
4739 S. Fortune Way
Holladay, Utah 84124
Common Stock R. Bret Jenkins 93,900(9) * Director
5573 S. Crosspark Drive
Salt Lake City, Utah
94123
Common Stock George A. Sorenson 12,500(10) * Director
51 Forest Avenue, Apt.
14
Old Greenwich,
Connecticut 06870
Common Stock Directors and officers 16,425,284 58.6% N/A
as a group (9 persons)
</TABLE>
- --------
* Less than 1%
(1) Based on 28,019,228 outstanding shares of TTI Common Stock as of October
, 1996 (assuming exercise of all outstanding options and the Warrants).
(2) The shares are held of record as follows: 12,728,500 shares in the name
of Crutchfield Enterprises, LLC, which is controlled by Mr. Crutchfield,
and 469,485 shares in the name of Teleworld which is owned 100% by Mr.
Crutchfield. Mr. Crutchfield does not disclaim beneficial ownership of
any such shares.
(3) Includes 2,110,500 shares of TTI Common Stock held of record as follows:
2,060,500 shares in the name of Mr. D'Ambrosio; 1,329 shares in the name
of a limited liability company, and 48,671 shares in the name of a
limited partnership. The limited liability company is the general partner
of the limited partnership and Mr. D'Ambrosio is the managing member of
the limited liability company. Mr. D'Ambrosio does not disclaim
beneficial ownership of any such shares. Includes 285,772 shares of TTI
Common Stock for which Mr. D'Ambrosio has options.
(4) Includes 172,968 shares of TTI Common Stock for which Mr. D'Ambrosio has
options.
(5) Includes 195,529 shares of TTI Common Stock for which Mr. Lowe has
options.
(6) Consists solely of options.
(7) Consists solely of options.
(8) Includes 15,000 shares of TTI Common Stock for which Mr. Boyack has
options.
(9) Includes 15,000 shares of TTI Common Stock for which Mr. Jenkins has
options.
(10) Includes 10,000 shares of TTI Common Stock for which Mr. Sorenson has
options. Does not include 80,000 shares of TTI Common Stock held by a
closely held corporation in which Mr. Sorenson is a minority shareholder,
and for which Mr. Sorenson disclaims beneficial ownership.
60
<PAGE>
TTI-EXECUTIVE COMPENSATION AND OTHER MATTERS
Executive Compensation.
Salary and Other Compensation. The following table summarizes all
compensation awarded to, earned by, or paid to the executive officers of TTI
for services rendered to TTI and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------
ANNUAL COMPENSATION AWARDS PAYMENTS
------------------------------------ -------------------------- ----------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER ANNUAL RESTRICTED ALL OTHER
NAME AND PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY($) BONUS($) SATION($) AWARD(S)($) SARS(#) PAYOUTS($) SATION($)
- ----------------------- ---- ---------- --------- ------------ ----------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lance D'Ambrosio, 1995 160,000.00(1) 7,500.00 -- -- -- -- See note 7
President & Chief 1994 160,000.00(2) -- -- -- 285,772 shares(6) -- --
Executive Officer 1993 -- -- -- -- 316,667 shares(3) -- --
Troy D'Ambrosio, 1995 80,000.00 10,000.00 -- -- -- -- See note 7
Vice President 1994 80,000.00(3) -- -- -- 172,968 shares(6) -- --
& Secretary(8) 1993 -- -- -- -- 191,667 shares(5) -- --
E. Andrew Lowe, 1995 80,000.00 -- -- -- -- -- See note 7
Vice President 1994 80,000.00(4) -- -- -- 195,529 shares(6) -- --
1993 -- -- -- -- 214,667 shares(5) -- --
Paul Gadzinski 1995 125,000.00 1,000.00 -- -- 75,000 shares -- See note 7
Vice President 1994 83,334.00 -- -- -- 75,000 shares -- --
1993 -- -- -- -- -- -- --
Anthony Sansone 1995 42,000.00 2,250.00 -- -- 20,000 shares -- --
Treasurer and Assistant 1994 18,500.00 -- -- -- 10,000 shares -- --
Secretary
</TABLE>
- --------
(1) A portion of the amount shown was paid in the subsequent year.
(2) A portion of the amount shown was accrued. A portion of the accrual amount
was paid in the subsequent fiscal year; and the remaining amount was paid
in 1996.
(3) A portion of the amount shown was accrued and the accrual was paid in the
subsequent fiscal year.
(4) A portion of the amount shown was accrued and, as of the date hereof, has
not been paid.
(5) The options shown, which were granted with a market exercise price, were
subsequently terminated and replaced with options with exercise prices
below market price. See note 6.
(6) The options shown, which were granted with an exercise price that was
below market, were issued in replacement of the options granted in the
previous fiscal year. See note 5.
(7) Each named individual has entered into an employment contract with TTI
which provides for the payment of certain severance payments if the named
individual terminates his employment with (or has his employment
terminated by) TTI as a result of a "change of control," as defined in
such agreements. TTI has agreed to reduce the exercise price of the
options of such individuals, as described in column (g) for fiscal 1994,
to $0.001 per share in lieu of the payment of such severance amounts. The
total of all severance payments under all such contracts for TTI's
executive officers is approximately $565,000 in cash (exclusive of
ancillary payments for insurance and other matters, which will be waived
by the employees as part of the arrangement); the total additional
compensation expense to be recorded by TTI as a result of this arrangement
with such persons will be approximately $1,140,275.
(8) Mr. D'Ambrosio resigned as an officer and employee of TTI in September
1996.
Employment Contracts. On October 31, 1993, TTI entered into employment
contracts with each of F. Lorenzo Crutchfield, Jr., Lance D'Ambrosio, Troy
D'Ambrosio and E. Andrew Lowe. Each of the employment contracts contains
similar terms and conditions. In general, the contracts have initial
employment terms of three years, and are subject to renewal for subsequent
periods of one year. Under the contracts,
61
<PAGE>
Mr. Lance D'Ambrosio's base salary is $160,000, Mr. Wells's base salary is
$120,000, and Mr. Lowe's base salary are each $80,000. Mr. Troy D'Ambrosio's
base salary under this contract was $80,000, but he resigned as an officer and
employee of TTI in September, 1996. In addition to base salary, each of these
persons is entitled to receive incentive bonuses, as determined by the
Company's board of directors, standard benefits such as health, life
insurance, and reimbursement of reasonable expenses incurred on the Company's
behalf. Mr. Crutchfield's employment agreement provides for an annual base
salary of $200,000, but he has agreed to forgo all salary under his employment
agreement. He will, however, continue to receive health insurance, expense
reimbursement and all other benefits provided for under the employment
agreement.
In general, the employment contracts may be terminated only for cause, which
is defined in the agreements as willful misconduct, fraud, misappropriation,
embezzlement and similar unlawful acts. In addition, the employee can
terminate the contract on 180 days' notice. If the contract is terminated
without cause, or within 60 days of a "change of control," the employee is
entitled to receive severance pay in an amount equal to the greater of one
year's base pay or the total amount of the base pay for the initial term less
the portion already paid. In addition, the terminated employee will receive
health and life insurance benefits for one year. The employment contracts
define a "change of control" as the sale of all or substantially all of the
assets of TTI, the acquisition by any person or entity of more than 25% of the
issued and outstanding stock of TTI, or the acquisition by any person or
entity of debt instruments which are convertible into more than 25% of the
equity of TTI. The transactions contemplated by the Acquisition Agreement
would constitute a "change of control" for purposes of the employment
agreements.
On March 1, 1995, TTI entered into an employment agreement with Paul
Gadzinski for the term of one year. The contract renewed automatically for an
additional one year period on March 1, 1996. In general, Mr. Gadzinski's
contract has similar terms and conditions as other employment contracts
entered into by TTI. Mr. Gadzinski's base salary under his contract is
$125,000 per year.
On July 3, 1996, the Board of Directors of TTI approved an arrangement under
which each of its contract employees (and all other employees having any
employment arrangements with TTI) agreed to have the exercise price for all
options they hold to acquire shares of TTI Common Stock reduced to $.001 per
share in exchange for the waiver and release of all claims they might have
under the terms of their arrangements with TTI, including under any change of
control provisions contained in written employment contracts. The modification
of the exercise prices of the outstanding options and the release by such
persons of their rights against TTI, are contingent upon, among other matters,
the closing of the Acquisition Agreement.
TTI estimates that, if it were required to pay severance amounts to its
employees in accordance with the "change of control" provisions, or under
similar or other arrangements, those payments would total approximately
$565,000. TTI also estimates that, if the exercise price of all of its
outstanding options in favor of such persons were reduced to $.001 per share
and all such options were exercised, the total amount it would receive upon
such exercise would be approximately $975, versus approximately $1,087,500 if
the exercise prices of such options remained unmodified but were exercised by
their holders.
None of TTI's officers, directors or other key employees has worked for or
managed a company in the same business or industry as TTI, or in a related
business or industry, but certain of TTI's current officers act as officers
and directors of WCCI, and Paul Gadzinski worked for Cross Country prior to
his employment with TTI. In addition, as noted in the biographies of the TTI
officers and directors, certain of TTI's officers and directors act as
officers and directors of WHI and WHI's subsidiaries.
TTI--RELATED PARTY TRANSACTIONS
Carolina Transfer. Effective July 1, 1996, TTI transferred its interest in
Carolina to Mr. Crutchfield in redemption of 2,000,000 shares of Mr.
Crutchfield's TTI Common Stock. Carolina's business operations (the telephone
pay-per-call business) were previously classified by TTI as a discontinued
business operation. As a result of the July 1, 1996 transaction, Mr.
Crutchfield's beneficial ownership of the outstanding shares of TTI
62
<PAGE>
Common Stock was reduced from approximately 50.6% to 47.1% (in each case
assuming the exercise of all outstanding options and Warrants). The
transaction was conditioned upon TTI's receipt of an opinion of counsel that
the transaction will qualify for tax-free treatment under Section 355 of the
Internal Revenue Code.
In connection with the disposition of Carolina, TTI entered into a
management agreement with Carolina under which it will provide certain
management services, equipment and assets to Carolina for the four month
period from July through October of 1996, in exchange for a management fee of
$100,000 per month during each of those four months. After the conclusion of
the four month management period, Carolina may, at its election, continue to
use TTI's management services, assets and equipment (assuming TTI is not yet
liquidated) on terms mutually acceptable to TTI and Carolina.
Prior to its transfer to Mr. Crutchfield, Carolina provided TTI with all of
its operating cash flow.
Teleworld Management Fees. During fiscal 1995, TTI paid Teleworld $389,500
for management services it provided to Carolina. Teleworld is owned by Mr.
Crutchfield. The amounts paid to Teleworld were not determined by competitive
bid.
Group Insurance Plan Services, Inc. During fiscal 1995, TTI paid $71,304 to
an entity in which a former director of TTI acts as President and is the sole
shareholder, for office space, office equipment, secretarial services,
bookkeeping services, and insurance, risk coverage and investment advice to
TTI and Carolina. The amounts payable to this company were not determined by
competitive bid.
Notes Payable and Commitment Fees. TTI borrowed $150,000 from a company of
which the father of the president of TTI is a major stockholder. The note was
unsecured, bore interest at twelve percent (12%) and was originally due on
March 31, 1995. Subsequent to TTI's 1995 fiscal year end, the note payment
date was further extended to January 1, 1997. TTI delivered a promissory note
to that company to evidence its obligation to repay those amounts. The note
and all accrued interest (totalling $179,885) was paid in full on July 8,
1996.
TTI-COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act")
requires TTI's executive officers and directors, and persons who own ten
percent (10%) or more of a registered class of TTI's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Those persons are also required by the Securities and
Exchange Commission regulations to furnish TTI with copies of all Section
16(a) forms they file.
On the basis of reports and representations submitted by the directors,
executive officers and ten percent (10%) or more shareholders of TTI, all
Forms 3, 4 and 5 showing ownership of and changes of ownership in TTI's equity
securities during TTI's fiscal year ended October 31, 1995 were timely filed
with the Securities and Exchange Commission and the Boston Stock Exchange
(when TTI's equity securities were listed on such exchange) as required by
Section 16(a), except as follows: (i) Maitland Wells, a director and officer
of TTI acquired 4,000 shares of TTI's common stock, (ii) Wallace Boyack, an
outside director of TTI, acquired 3,600 shares of TTI Common Stock from R.
Bret Jenkins, also an outside director of TTI, and (iii) George Sorenson, an
outside director of TTI, acquired 2,500 shares of TTI Common Stock. Each of
these transactions was a transaction exempt from reporting on Form 4 under
Rule 16a-6 of the Exchange Act, but were required to be reported on Form 5.
None of the Forms 5 was timely filed. Also, a corporation in which Mr.
Sorenson is a noncontrolling shareholder was issued 80,000 shares of TTI
Common Stock in exchange for a loan guarantee. TTI accrued a liability
relating to its obligation to issue the shares to the corporation, but the
issuance of the shares was not effected until TTI's fiscal year ended October
31, 1994. Mr. Sorenson disclaims beneficial ownership over the shares held by
the corporation. The transfer of the shares to the corporation was not timely
reported on Form 5.
As a result of TTI's voluntary delisting of its stock on the Boston Stock
Exchange, TTI's officers, directors and 10% or more stockholders are no longer
subject to the reporting requirements of Section 16(a). TTI's stock was
delisted from the Boston Stock Exchange effective April 11, 1996.
63
<PAGE>
INFORMATION CONCERNING WHI
WHI--BUSINESS
WHI was incorporated on November 9, 1993 under the laws of the State of
Delaware. WHI is 50% owned by Videotron USA, whose ultimate parent is
Videotron Canada, and 50% owned by TTI. WHI was formed to acquire, develop and
operate wireless cable and SMATV systems in the United States. At
September 30, 1996, WHI operated SMATV systems in the San Francisco Bay Area
and a wireless cable system in Spokane and held channel lease rights for
wireless cable systems in Greenville, South Carolina; Seattle, Washington;
Victorville, San Francisco, San Jose, Santa Rosa, Gilroy and San Diego,
California that have not yet begun operations. FCC and other approvals are
needed to integrate all of these channels into a wireless cable system. There
can be no assurance that any or all of these approvals will be obtained. The
majority of WHI revenue in 1995 and 1994 was provided by certain SMATV systems
operating in the San Francisco Bay Area and wireless cable system in Spokane,
Washington. Some wireless cable channels are presently used to provide
programming to SMATV systems in the San Francisco Bay Area.
WHI's operations include the following systems and channel right groupings:
TWTV SPOKANE OPERATIONS. In February 1994, WHI's wholly-owned subsidiary,
TWTV Spokane, acquired the Spokane system from Skyline Entertainment
Network (Spokane) Limited Partnership for $10 million cash. As of June 30,
1996, the system had approximately 8,800 subscribers (including
approximately 950 subscribers served by assets subsequently sold in the
Spin-Off) and offered 31 channels which are leased by the system. There are
no competitive wireless cable systems in the market area, although five
traditional hard-wire cable operators operate in the area, of which Cox
Cable is the largest. The Spokane system's subscribers included single
households, multiple-dwelling units and commercial buildings.
TWTV Spokane currently transmits using a 50 watt transmitter (from a
transmission tower on Krell Mountain). It has programming contracts with
Turner Classic Movies, Arts & Entertainment, Cable News Network, Cinemax,
the Discovery Channel, Disney Channel, ESPN, the Family Channel, Home Box
Office, Lifetime Television, Prime Sports Network, Sci-Fi, the Nashville
Network, Turner Network TV, USA Network, WGN/UVI, Showtime, the Movie
Channel and other programmers.
The typical wireless cable service provided by TWTV Spokane to a single-
family home is approximately $19.95. In comparison, Cox Cable charges a
monthly service rate (for 50 channels) of approximately $25.00.
The Spokane system previously included certain franchised cable and
related operations which TWTV Spokane sold to an indirect subsidiary of
Videotron Canada for approximately $500,000 and the assumption of related
obligations as part of the Spin-Off. See "The Acquisition and Related
Transactions--The Spin-Off."
BAC OPERATIONS. In February 1994, WHI acquired a SMATV system and certain
wireless cable channel rights in San Francisco and San Jose, California.
These operations were acquired by WHI's 94% owned subsidiary, BAC, from
Gulf American Cable Group II, a Louisiana general partnership. BAC was
formed solely for the purpose of acquiring the San Francisco Bay Area
assets. The remaining 6% of BAC is owned by the Minority Shareholders.
Under the terms of the Acquisition Agreement, TTI and Videotron USA are
required to acquire the 6% interest of BAC owned by the Minority
Shareholders parties prior to the Closing, with the result that BAC will be
a wholly-owned subsidiary of WHI at Closing. See "The Acquisition and
Related Transactions--Minority Buyback of BAC Shares."
BAC sold the SMATV system to an indirect subsidiary of Videotron Canada
for approximately $3,300,000 and the assumption of related liabilities as
part of the Spin-Off. See "The Acquisition and Related Transactions--The
Spin-Off".
As part of the BAC transaction, the BAC system leased a total of 58
channels virtually all of which are expected to be co-located at two tower
sites (consisting of approximately 32 channels at one tower site and
approximately 26 channels at the other), and is seeking permission to add
additional channels to its
64
<PAGE>
wireless cable groupings in the market. Because of the unique makeup of the
San Francisco Bay area, BAC's wireless cable network configuration will
involve the construction of two separate transmission sites, one on
Monument Peak, and the other on Mount San Bruno. FCC and other approvals
are needed to integrate all of these channels into a wireless cable system.
There can be no assurance that any or all of these approvals will be
obtained. BAC also has some channel leases in Santa Rosa and Gilroy,
California.
VICTORVILLE AND GREENVILLE CHANNEL AGREEMENTS. In June 1994, WHI, through
its wholly owned subsidiary, TTI Acquisition Corp., acquired lease rights
for 20 channels in Victorville, California and 25 channels in Greenville,
South Carolina. Neither the Victorville nor Greenville system is currently
being marketed or offered to subscribers. FCC and other approvals are
needed to integrate all of the channels into the wireless cable system.
There can be no assurance that any or all such approvals will be obtained.
Some channel capacity must be dedicated for educational programming.
SAN DIEGO CHANNEL AGREEMENTS. In May 1994, WHI, through its wholly-owned
subsidiary, WHI San Diego, Inc., entered into an agreement which ultimately
resulted in the acquisition of lease rights for 10 channels in the San
Diego market. The partnership which leases four of the channels to WHI San
Diego, Inc. pursuant to a channel lease/put option agreement is presently
controlled by a receiver, who will decide how to proceed under the channel
lease/put option agreement. WHI San Diego, Inc. has demanded that the
receiver perform the partnership's obligations under the channel lease/put
option agreement. The receiver has not yet issued any report to the court
concerning the channels. FCC and other approvals are needed to integrate
all of these channels into a wireless cable system. There can be no
assurance that any or all of these approvals will be obtained. Some channel
capacity must be dedicated for educational programming. The San Diego
system is not currently being marketed or offered to subscribers.
SEATTLE CHANNEL AGREEMENTS. In July 1995, WHI entered into an agreement
to acquire lease rights to 12 ITFS channels in the Seattle, Washington
market. In September, 1995, WHI entered into an agreement to acquire lease
rights to four additional ITFS channels. WHI is not currently utilizing
excess airtime on these channels and is not currently marketing the Seattle
system to subscribers. FCC and other approvals are needed to integrate all
of these channels into a wireless cable system. There can be no assurance
that any or all of these approvals will be obtained. Some channel capacity
must be dedicated for educational programming.
WHI--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview. Any forward looking statements contained in the following
discussion or elsewhere in this document involve risks and uncertainties which
may cause actual results to differ materially from those discussed. A wide
range of factors could contribute to those differences, including those
discussed in this document. Also, WHI operates in a developing industry and is
subject to all the risks and expenses inherent with the establishment of a new
business enterprise based upon innovative technology. There can be no
assurance that WHI's operations will become profitable or will produce
positive cash flows.
Certain private cable (primarily the SMATV operations in the San Francisco
Bay Area) and wireline (primarily in Spokane) systems held by WHI are not
included in the proposed sale to Pacific Telesis. Such systems and the related
liabilities of WHI (which comprise less than 10% of the total assets of WHI
and whose operations represent approximately 50% of WHI's revenues) were sold
on July 31, 1996 in the Spin-Off to indirect subsidiaries of Videotron Canada
for approximately $3,800,000. The discussion that follows includes the
financial condition and results of operations of the WHI assets and
liabilities that were sold. See also "The Acquisition and Related
Transactions--The Spin-Off" and Pro Forma Financial Information of WHI."
Results of Operations--Nine Months Ended May 31, 1996 Compared to Nine
Months Ended May 31, 1995. Revenues increased to $3,599,000 in the nine months
ended May 31, 1996, compared to $3,210,000 in the nine months ended May 31,
1995. Revenues increased primarily as a result of increases in the numbers of
subscribers served by WHI and its subsidiaries. Costs of revenues, which
consist primarily of programming and channel fees, decreased to 46% of
revenues in the 1996 period, compared to 50% in the 1995 period. Operating
loss was $4,909,000 in the 1996 period, compared to $4,283,000 in the 1995
period, due primarily to increased
65
<PAGE>
operating expenses as a result of increased revenues and increased
depreciation and amortization. Interest expense for the same period in 1996
increased to $3,650,000, compared with $3,051,000 in the same period in 1995,
due to increases in debt payable to shareholders (which funds were used to
acquire fixed assets and licenses and fund operating losses). As a result of
the items discussed above, net loss for the nine months ended May 31, 1996 was
$8,383,000, compared with a net loss for the nine months ended May 31, 1995 of
$7,146,000.
Results of Operations--Fiscal Year Ended August 31, 1995 Compared to Fiscal
Period Ended August 31, 1994. Revenues increased to $4,146,000 in the fiscal
year ended August 31, 1995 compared to $2,266,000 in the fiscal period ended
August 31, 1994. Revenues increased primarily because the fiscal 1994 period
consisted of approximately seven months of operations, compared to twelve
months of operations in fiscal 1995. In addition, there was a small increase
in the number of subscribers in fiscal 1995. Costs of revenues, which consists
primarily of programming and channel fees, increased to 51% of revenues in
fiscal 1995 from 39% of revenues in fiscal 1994 due to increased offerings of
quality channels. During the same period in 1995, operating loss increased to
$7,072,000, compared to an operating loss of $1,253,000 in fiscal 1994. The
increase was due to increases in employee salaries, depreciation and
amortization of fixed assets and licenses, certain selling and marketing
expenses and other expenditures relating to the establishment of wireless
cable systems in the San Francisco Bay Area and Spokane, and activities
relating to license rights for wireless cable networks in other locations that
have not begun operations. Interest expense increased to $4,083,000 in fiscal
1995 compared to $1,293,000 in fiscal 1994 due to the increase in debt payable
to shareholders. The proceeds from this debt were used to acquire fixed assets
and licenses and to fund operating losses. As a result of the items discussed
above, net loss for the fiscal year ended August 31, 1995 was $10,862,000,
compared with a net loss for the fiscal period ended August 31, 1994 of
$2,492,000.
Liquidity and Capital Resources. Cash used by operating activities and
investing activities in the nine months ended May 31, 1996 was $2,484,000 and
$3,300,000, respectively. Net loss for the nine months ended May 31, 1996 was
$8,383,000. Cash used by operating activities and investing activities in the
year ended August 31, 1995 was $5,097,000 and $12,904,000, respectively. Net
loss for the year ended August 31, 1995 was $10,862,000. Since its inception,
WHI has been substantially dependent upon Videotron USA and its ultimate
parent Videotron Canada to fund WHI's day-to-day operations and capital
infrastructure spending requirements. There can be no assurance that WHI's
operations will become profitable or will produce positive cash flows.
Pursuant to the Supplemental Agreement Videotron USA will continue to fund
WHI's day-to day operations and provide funds to enable WHI to fulfill its
financial obligations as long as Pacific Telesis remains obligated to
consummate the Acquisition. Management of WHI believes it is probable that the
Acquisition Agreement will be consummated. Under the Supplemental Agreement,
Videotron USA is obligated to fund WHI's day-to-day operations as long as
Pacific Telesis is obligated to consummate the Acquisition pursuant to the
Acquisition Agreement. If the Acquisition is not consummated, WHI, in
conjunction with its shareholders, intends to fund WHI's day-to-day operations
through December 31, 1996, reschedule or restructure the debt payable to such
shareholders as necessary and potentially sell or lease some of WHI's
licenses, to allow WHI to fulfill its other financial obligations, while
maintaining its capital expenditures at a level sufficient to sustain
operations through December 31, 1996.
Under the Settlement Agreement, if the Acquisition is not consummated, then
within 10 days after the Acquisition is abandoned, Videotron USA may elect to
purchase TTI's 50% interest in WHI and Outstanding Indebtedness of WHI to TTI.
If Videotron USA does not elect such purchase, then TTI will be obligated to
purchase Videotron's 50% interest in WHI and Outstanding Indebtedness of WHI
to Videotron USA. The total purchase price of the equity interest to be
purchased by Videotron USA or TTI would be the "True Value" of such interest
as determined under the Settlement Agreement.
The consolidated financial statements of WHI as of and for the nine months
ended May 31, 1996 and 1995 and as of and for the fiscal periods ended August
31, 1995 and 1994 have been prepared on the going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The matters discussed in the notes to such
consolidated financial statements may indicate that WHI will be unable to
continue as a going concern for a reasonable period of time.
66
<PAGE>
The consolidated financial statements of WHI as of and for the nine months
ended May 31, 1996 and 1995 and as of and for the fiscal periods ended August
31, 1995 and 1994 do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should WHI be unable to
continue as a going concern. WHI's continuation as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional financing or refinancing,
and ultimately to attain successful operations.
WHI--LEGAL PROCEEDINGS
The shareholders of WHI, Videotron USA and TTI have been involved in various
disputes, litigation and arbitration. See "Certain Legal Proceedings."
WHI--PROPERTIES
TWTV-SPOKANE. TWTV Spokane's operations are conducted from an approximately
15,000-square-foot office located in Spokane, Washington. The lease for the
office space commenced September 1, 1994, has a term of 10 years, and is
subject to one renewal for ten years. The monthly rental is $6,750. TWTV
Spokane owns its transmitter tower facilities, but pays a ground lease amount
of $696 per month for the property on which its tower is located.
BAC. BAC's operations are conducted from an approximately 25,000-square-foot
office located in San Jose, California. The lease for the office was entered
into on March 1, 1995 and terminates on October 31, 1996. The monthly base
rent under the lease is $17,815. WHI occupies a portion of this office space.
BAC pays monthly rent of $14,907 for its Monument Peak and Mount San Bruno
tower rights.
LEASES AND EQUIPMENT. Each of TWTV Spokane and BAC has entered into and
maintains numerous operating leases for its respective broadcasting equipment,
channel licenses, programming agreements and office equipment. Some of the
leases have renewal options and purchase options at the end of the lease term.
SUBSCRIBER EQUIPMENT. WHI's wireless cable systems utilize fully addressable
subscriber equipment. While the systems' equipment offers attractive features,
it has been selected to maintain a cost advantage over other pay television
providers. Subscriber equipment includes receiving antenna, down converter,
set-top converter and hand-held wireless remote control units.
As a general rule, WHI is not dependent on any one supplier for equipment
needs. However, with respect to the set-top converters, there are currently
only two manufacturers in the marketplace. These entities manufacture all of
the set-top converters used by both traditional cable systems and wireless
cable systems. Historically, demand for these converters has exceeded supply,
and back orders are common.
67
<PAGE>
INFORMATION CONCERNING VBAI
VBAI--BUSINESS
VBAI owns an existing wireless cable system located in the Tampa Bay,
Florida area. As of June 30, 1996, it had approximately 10,700 subscribers.
FCC and other approvals are needed in order to upgrade the wireless cable
system. There is no certainty that these approvals will be obtained.
VBAI transmits its wireless cable programming from a 650-foot tower. VBAI
has applied to the FCC to increase its transmission power from ten watts to
100 watts and has commenced legal action against ATI, an adjacent wireless
operator, to enforce VBAI's rights against ATI with respect to certain of its
applications, particularly two that have been dismissed by the FCC. See
"Certain Legal Proceedings."
The programming which VBAI currently offers includes WFLA (NBC), WTSP (CBS),
WFTS (ABC), WTVT (FOX), WGN, WTBS, WOR, Discovery, American Movie Classics,
CNBC, Nickelodeon, Nashville, USA, CNN, Lifetime, ESPN, MTV, Cinemax, Spice,
A&E, PBS, WTDG, TWC, TNT and HBO.
VBAI's primary competitors are traditional hard-wire cable operators. In the
Tampa Bay metropolitan area, there are approximately five such providers.
Because each community grants a "traditional" hard-wire cable franchise to a
single operator, however, each traditional hard-wire cable operator's market
potential is limited to the territory within the community for which it has
been granted the franchise. Wireless cable system operators such as VBAI are
not subject to this restriction, and therefore may compete with hard-wire
cable operators in areas in which franchises have been previously granted.
However, many of these competitors are larger, have greater financial
resources, have more experienced marketing and operating personnel and have
greater name recognition than VBAI. For these reasons VBAI may be at a
competitive disadvantage with these providers.
VBAI also previously owned or managed a franchised cable television system
in Hernando County, Florida and certain SMATV-related assets which served
approximately 1,200 subscribers. The system and assets were sold to an
indirect subsidiary of Videotron Canada for approximately $500,000 and the
assumption of related obligations as part of the Spin-Off. See "The
Acquisition and Related Transactions--The Spin-Off."
VBAI--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview. Any forward looking statements contained in the following
discussion or elsewhere in this document involve risks and uncertainties which
may cause actual results to differ materially from those discussed. A wide
range of factors could contribute to those differences, including those
discussed in this document. As VBAI operates in a developing industry, VBAI is
subject to all the risks and expenses inherent with the establishment of a new
business enterprise based upon innovative technology. There can be no
assurance that VBAI's operations will become profitable or will produce
positive cash flows.
Results of Operations--Nine Months Ended May 31, 1996 Compared to Nine
Months Ended May 31, 1995. Revenues increased to $1,964,000 in the nine months
ended May 31, 1996 compared to $664,000 in the nine months ended May 31, 1995.
Revenues increased primarily because of increased subscribers. Costs of
revenues, which consists of programming and channel fees, was 50% of revenues
in both periods. Operating loss was $2,579,000 in the 1996 period compared to
$1,732,000 in the 1995 period due to the increase in selling, general and
administrative costs and depreciation and amortization. Interest expense
increased to $1,184,000 in the 1996 period compared with $436,000 in the 1995
period due to increases in debt payable to Videotron USA which funds were used
to acquire fixed assets and licenses and fund operating losses. As a result of
the items discussed above, net loss for the nine months ended May 31, 1996 was
$3,269,000 compared with a net loss for the nine months ended May 31, 1995 of
$1,231,000.
Results of Operations--Fiscal Year Ended August 31, 1995 Compared to Fiscal
Period Ended August 31, 1994. Revenues increased to $942,000 in the fiscal
year ended August 31, 1995 compared to $700,000 in the
68
<PAGE>
fiscal period ended August 31, 1994. Revenues increased primarily because the
fiscal 1994 period consisted of approximately nine months of operations,
compared to twelve months of operations in fiscal 1995. Cost of revenues,
which consists of programming and channel fees, increased to 52% of revenues
in fiscal 1995 compared with 41% of revenues in fiscal 1994 due to increased
offering of quality channels. Operating loss increased to $2,994,000 in fiscal
1995 compared with an operating loss of $1,172,000 in fiscal 1994 due to
increases in employees, salaries, technical, marketing and sales expense,
depreciation and amortization of fixed assets and licenses and other
expenditures relating to the establishment of wireless cable systems in the
Tampa Bay, Florida metropolitan area. Interest expense increased to $709,000
in fiscal 1995 compared to $164,000 in fiscal 1994 due to the increase in debt
payable to Videotron USA which funds were used to acquire fixed assets and
licenses and fund operating losses. As a result of the items discussed above,
net loss for the fiscal year ended August 31, 1995 was $2,174,000 compared
with a net loss for the fiscal period ended August 31, 1994 of $816,000.
Liquidity and Capital Resources. Cash used by operating and investing
activities in the nine months ended May 31, 1996 was $1,761,000 and
$3,577,000, respectively. Net loss for the nine months ended May 31, 1996 was
$3,269,000. Cash used by operating and investing activities in the year ended
August 31, 1995 was $2,028,000 and $3,855,000, respectively. Net loss for the
year ended August 31, 1995 was $2,174,000. Since November 1993, VBAI has been
substantially dependent upon Videotron USA and Videotron Canada, its ultimate
parent, to fund VBAI's day-to-day operations and capital infrastructure
spending requirements. There can be no assurance that VBAI's operations will
become profitable or will produce positive cash flows.
VBAI has entered into the Acquisition Agreement with Pacific Telesis for the
proposed sale of VBAI. Pursuant to the Supplemental Agreement and the
Acquisition Agreement, Videotron USA and Videotron Canada will continue to
fund VBAI's day-to-day operations and fulfill VBAI's financial obligations as
long as Pacific Telesis remains obligated to consummate the Acquisition.
Management of VBAI believes it is probable that the proposed transaction with
Pacific Telesis will be consummated. If the Acquisition is not consummated,
Videotron USA and Videotron Canada intend to fund VBAI's day-to-day operations
through December 31, 1996 and reschedule or restructure the debt payable to
Videotron USA as necessary and potentially sell or lease some of VBAI's
licenses to allow VBAI to fulfill its other financial obligations, while
maintaining its capital expenditures at a level sufficient to sustain its
operations through December 31, 1996.
The financial statements of VBAI as of and for the nine months ended May 31,
1996 and 1995 and as of and for the fiscal periods ended August 31, 1995 and
1994 have been prepared on the going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. The matters discussed in the notes to such financial statements may
indicate that VBAI will be unable to continue as a going concern for a
reasonable period of time.
The financial statements of VBAI as of and for the nine months ended May 31,
1996 and 1995 and as of and for the fiscal periods ended August 31, 1995 and
1994 do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should VBAI be unable to continue as a
going concern. VBAI's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing or refinancing, and ultimately to attain
successful operations.
VBAI--LEGAL PROCEEDINGS
The shareholders of VBAI, Videotron USA and TTI have been involved in
various disputes, litigation and arbitration. See "Certain Legal Proceedings."
VBAI--PROPERTIES
VBAI's operations are conducted from an approximately 25,000 square-foot
office located in Clearwater, Florida. The lease for the office space
commenced on May 1, 1994 and expires September 30, 2004, subject to two
renewal terms of five (5) years each. The monthly rental is $13,021.
69
<PAGE>
VBAI pays monthly rent of $5,566 for its Oldsmar Tower rights, which
commenced on June 1, 1994 and expire on May 31, 1999, subject to renewal for
ten consecutive five-year terms.
Lease and Equipment -- VBAI has entered into and maintains numerous
operating leases for its respective broadcasting equipment, channel licenses,
programming agreements and office equipment. Some of the leases have renewal
options and purchase options at the end of the lease term.
Subscriber Equipment -- VBAI's wireless cable systems utilize fully
addressable subscriber equipment. While the systems' equipment offers
attractive features, it has been selected to maintain a cost advantage over
other pay television providers. Subscriber equipment includes receiving
antennae, down converters, set-top converters and hand-held wireless remote
control units.
As a general rule, VBAI is not dependent on any one supplier for equipment
needs. However, with respect to the set-top converters, there are currently
only two (2) manufacturers in the marketplace. These entities manufacture all
of the set-top converters used by both traditional cable systems and wireless
cable systems. Historically, demand for these converters has exceeded supply,
and back orders are common.
70
<PAGE>
INFORMATION CONCERNING VIDEOTRON USA
VIDEOTRON USA--BUSINESS
Videotron USA was incorporated on September 3, 1993 under the laws of the
State of Delaware. It is wholly-owned by Videoway. Videotron USA owns 50% of
WHI and 80% of VBAI. TTI owns the remaining 20% of VBAI and 50% of WHI.
Since its inception, Videotron USA has functioned exclusively as a holding
company whose only material activities have been (i) to acquire, develop and
operate wireless cable television systems in the United States, (ii) organize
WHI as a joint venture with TTI in November 1993, and subsequently obtain
ownership of 50% and 80%, respectively, of the voting securities of WHI and
VBAI, and (iii) provide financing to WHI and VBAI out of funds provided to
Videotron USA as loans or equity investments by other affiliates of Videotron
Canada. In connection with these activities, Videotron USA and TTI, as the
sole shareholders of WHI and VBAI, have periodically negotiated with each
other, entered into various agreements, and engaged in disputes, including
litigation which led to their joint determination to dispose of their
interests in WHI and VBAI. See "Certain Legal Proceedings."
As of September 30, 1996, Videotron USA (prior to any consolidating
eliminations) had loans receivable in principal amounts from WHI and VBAI
aggregating $60,077,479, including $44,455,940 from WHI and $15,621,539 from
VBAI. At the same date, Outstanding Indebtedness of Videotron USA to other
affiliates of Videotron Canada totalled $45,045,545. Upon the Closing of the
Acquisition, the "Videotron Cash Amount" will be the excess of Videotron USA's
loans receivable from WHI and VBAI over Videotron USA's Outstanding
Indebtedness to other affiliates of Videotron Canada. This amount will be
payable by Pacific Telesis in cash as part of the consideration for the
purchase of the outstanding stock of Videotron USA.
See "Information Concerning VBAI--VBAI-Business" and "Information Concerning
WHI--WHI- Business" for further discussion of such operations.
VIDEOTRON USA--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview. Videotron USA is an indirect wholly-owned subsidiary of Videotron
Canada. Videotron USA is effectively a holding company which holds interests
in WHI and VBAI and has no other operating activities. Videotron USA has
provided a majority of the funding for WHI and VBAI. Videotron USA owns 50% of
WHI, which operates wireless cable systems in the San Francisco Bay Area and
Spokane and holds license rights for wireless cable networks in Greenville,
South Carolina, Seattle, Washington, and Victorville, San Francisco, San Jose,
Santa Rosa, Gilroy and San Diego, California that are not currently marketed
to subscribers. Videotron USA also owns 80% of VBAI, which operates wireless
cable television systems in metropolitan Tampa Bay, Florida. TTI owns the
remaining 20% of VBAI and 50% of WHI. Videotron USA's assets primarily consist
of the investment in and advances to WHI and VBAI's fixed assets and licenses.
Videotron USA's liabilities consist of the note payable to Videotron Canada.
Any forward looking statements contained in the following discussion or
elsewhere in this document involve risks and uncertainties which may cause
actual results to differ materially from those discussed. A wide range of
factors could contribute to those differences, including those discussed in
this document. Videotron USA operates in a developing industry, and is subject
to all the risks and expenses inherent with the establishment of a new
business enterprise based upon innovative technology. There can be no
assurance that Videotron USA's operations will become profitable or will
produce positive cash flows.
Results of Operations--Nine Months Ended May 31, 1996 Compared to Nine
Months Ended May 31, 1995. Revenues increased to $1,964,000 in the nine months
ended May 31, 1996 compared to $664,000 in the nine months ended May 31, 1995.
Revenues increased primarily because of increased subscribers. Costs of
revenues, which consists of programming and channel fees, decreased to 36% of
revenues in the 1996 period
71
<PAGE>
compared to 50% in the 1995 period due to increased offerings of quality
channels. Operating loss was $10,760,000 in the 1996 period compared to
$5,842,000 in the 1995 period due to the substantial increase in the equity
loss in WHI and increased legal fees and other items related to the proposed
Acquisition. Interest income increased to $3,465,000 in the 1996 period
compared with $2,790,000 in the 1995 period due to increased advances to WHI
to fund WHI's capital plans and operating losses. As a result of the items
discussed above, net loss for the nine months ended May 31, 1996 was
$8,758,000 compared with a net loss for the nine months ended May 31, 1995 to
$3,047,000.
Results of Operations--Fiscal Year Ended August 31, 1995 Compared to Fiscal
Period Ended August 31, 1994. Revenues increased to $942,000 in the fiscal
year ended August 31, 1995 compared to $699,000 in the fiscal period ended
August 31, 1994. Revenues increased primarily because the fiscal 1994 period
consisted of approximately nine months of operations, compared to twelve
months of operations in fiscal 1995. Cost of revenues, which consists of
programming and channel fees, increased to 52% of revenues in fiscal 1995
compared with 40% of revenues in fiscal 1994 due to increased offering of
quality channels. Operating loss increased to $10,988,000 in fiscal 1995
compared to $2,634,000 in fiscal 1994 due to two principal reasons. First,
selling, general and administrative expenses and depreciation and amortization
of fixed assets and licenses increased $2,164,000 primarily relating to the
establishment of wireless cable systems in the Tampa Bay, Florida metropolitan
area. Second, Videotron USA, Inc.'s equity loss related to its 50% interest in
WHI increased $6,224,000 due to continuing operating losses incurred by WHI
and because since March 31, 1995 Videotron USA, Inc. has provided for and
funded 100% of WHI's losses for accounting purposes. This additional equity
loss was $2,034,000 in fiscal 1995. Interest income increased to $3,796,000 in
fiscal 1995 compared to $1,268,000 in fiscal 1994 due to increased advances to
WHI to fund WHI's capital plans and operating losses. As a result of the items
discussed above, net loss for the fiscal year ended August 31, 1995 was
$7,211,000 compared with a net loss for the fiscal period ended August 31,
1994 of $752,000.
Liquidity and Capital Resources. Cash used by operating and investing
activities in the nine months ended May 31, 1996 was $4,695,000 and
$9,355,000, respectively. Net loss for the nine months ended May 31, 1996 was
$8,758,000. Cash used by investing activities in the year ended August 31,
1995 was $22,257,000. Net loss for the year ended August 31, 1995 was
$7,211,000. Since its inception, Videotron USA has been substantially
dependent upon its ultimate parent, Videotron Canada, to fund Videotron USA's
day-to-day operations and capital infrastructure spending requirements. There
can be no assurance that Videotron USA's operations will become profitable or
will produce positive cash flows.
Pursuant to the Acquisition Agreement, Videotron Canada will continue to
fund Videotron USA's day-to-day operations and fulfill Videotron USA's
financial obligations as long as Pacific Telesis remains obligated to
consummate the Acquisition Purchase Agreement. Management of Videotron USA
believes it is probable that the proposed transaction with Pacific Telesis
will be consummated. If the proposed transaction with Pacific Telesis is not
consummated, Videotron Canada intends to fund Videotron USA's day-to-day
operations through December 31, 1996, reschedule or restructure the debt
payable to its shareholder as necessary and potentially sell or lease some of
Videotron USA's licenses, to allow Videotron USA to fulfill its other
financial obligations, while maintaining its capital expenditures at a level
sufficient to sustain operations through December 31, 1996.
The consolidated financial statements of Videotron USA as of and for the
nine months ended May 31, 1996 and 1995 and as of and for the fiscal periods
ended August 31, 1995 and 1994 have been prepared on the going concern basis,
which contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. The matters discussed in the notes to such
consolidated financial statements may indicate that Videotron USA will be
unable to continue as a going concern for a reasonable period of time.
The consolidated financial statements of Videotron USA as of and for the
nine months ended May 31, 1996 and 1995 and as of and for the fiscal periods
ended August 31, 1995 and 1994 do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should Videotron USA be
unable to continue as a going concern. Videotron USA's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to obtain additional financing or
refinancing, and ultimately to attain successful operations.
72
<PAGE>
VIDEOTRON USA--LEGAL PROCEEDINGS
The shareholders of WHI, Videotron USA and TTI have been involved in various
disputes, litigation and arbitration. See "Certain Legal Proceedings."
VIDEOTRON USA--PROPERTIES
VBAI's operations are conducted from an approximately 25,000 square-foot
office located in Clearwater, Florida. The lease for the office space
commenced on May 1, 1994 and expires September 30, 2004, subject to two
renewal terms of five (5) years each. The monthly rental is $13,021.
VBAI pays monthly rent of $5,566 for its Oldsmar Tower rights.
Lease and Equipment -- VBAI has entered into and maintains numerous
operating leases for its respective broadcasting equipment, channel licenses,
programming agreements and office equipment. Some of the leases have renewal
options and purchase options at the end of the lease term.
Subscriber Equipment -- VBAI's wireless cable systems utilize fully
addressable subscriber equipment. While the systems' equipment offers
attractive features, it has been selected to maintain a cost advantage over
other pay television providers. Subscriber equipment includes receiving
antennae, down converters, set-top converters and hand-held wireless remote
control units.
As a general rule, VBAI is not dependent on any one supplier for equipment
needs. However, with respect to the set-top converters, there are currently
only two (2) manufacturers in the marketplace. These entities manufacture all
of the set-top converters used by both traditional cable systems and wireless
cable systems. Historically, demand for these converters has exceeded supply,
and back orders are common.
73
<PAGE>
SELECTED FINANCIAL DATA OF WIRELESS HOLDINGS, INC.,
VIDEOTRON USA, INC. AND VIDEOTRON (BAY AREA) INC.
The following selected historical financial data as of and for the fiscal
periods ended August 31, 1995 and 1994 have been derived from the audited
consolidated financial statements of WHI, Videotron USA and VBAI appearing
elsewhere herein. The selected historical financial data as of and for the
nine months ended May 31, 1996 and 1995, respectively, have been derived from
the unaudited consolidated financial statements as of May 31, 1996 and for the
nine months ended May 31, 1996 and 1995, respectively, appearing elsewhere
herein. The unaudited consolidated financial statements, in the opinion of
management of WHI, Videotron USA and VBAI, include all adjustments, consisting
of normal recurring accruals, which WHI, Videotron USA and VBAI consider
necessary for a fair presentation of the results of operations for that
period. Operating results for the nine months ended May 31, 1996 are not
necessarily indicative of the results that may be expected for the entire
fiscal year ending August 31, 1996. The selected financial data are qualified
in their entirety, and should be read in conjunction with WHI, Videotron USA
and VBAI's financial statements, including the notes thereto appearing
elsewhere herein, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of WHI, Videotron USA and VBAI.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
WIRELESS HOLDINGS, INC.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED MAY 31, AUGUST 31,
--------------------- --------------------
1996 1995 1995 1994(1)
------------- ------- -------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 3,559 $ 3,210 $ 4,146 $ 2,266
Operating loss................... $ (4,909) $(4,283) $ (7,072) $(1,253)
Net loss......................... $ (8,383) $(7,146) $(10,862) $(2,492)
Net loss per share............... $ (903) $ (770) $ (1,170) $ (268)
<CAPTION>
AS OF AUGUST 31,
--------------------
AS OF MAY 31,
1996 1995 1994
------------- -------- -------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................... $ 42,044 $ 42,107 $31,259
Debt payable to shareholders..... $ 48,176 $ 42,397 $21,814
Shareholders' equity (deficit)... $(12,450) $ (4,068) $ 6,794
VIDEOTRON USA, INC.
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED MAY 31, AUGUST 31,
--------------------- --------------------
1996 1995 1995 1994(2)
------------- ------- -------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 1,964 $ 664 $ 942 $ 699
Operating loss................... $(10,760) $(5,842) $(10,988) $(2,634)
Net loss......................... $ (8,758) $(3,047) $ (7,211)(4) $ (752)
Net loss per share............... $ (2,920) $(1,016) $ (2,404)(4) $ (251)
<CAPTION>
AS OF AUGUST 31,
--------------------
AS OF MAY 31,
1996 1995 1994
------------- -------- -------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................... $60,820 $56,807 $41,504
Note payable to shareholder...... $44,454 $30,467 $ 7,209
Shareholder's equity............. $13,279 $22,037 $29,248
</TABLE>
74
<PAGE>
VIDEOTRON (BAY AREA), INC.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED MAY 31, AUGUST 31,
--------------------- -------------------
1996 1995 1995 1994(3)
------------- ------- ------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 1,964 $ 664 $ 942 $ 700
Operating loss................ $(2,579) $(1,732) $(2,994) $(1,172)
Net loss...................... $(3,269) $(1,231)(5) $(2,174)(5) $ (816)
Net loss per share............ $(3,269) $(1,231)(5) $(2,174)(5) $ (816)
<CAPTION>
AS OF AUGUST
31,
-------------------
AS OF MAY 31,
1996 1995 1994
------------- ------- -------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.................. $20,296 $18,058 $14,071
Debt payable to shareholders.. $14,601 $ 9,331 $ 3,507
Shareholders' equity.......... $ 2,881 $ 6,150 $ 8,324
</TABLE>
- --------
(1) Represents results for the fiscal period from November 9, 1993 (date of
inception) through August 31, 1994.
(2) Represents results for the fiscal period from September 3, 1993 (date of
inception) through August 31, 1994.
(3) Represents results for the fiscal period from November 19, 1993 (date of
inception) through August 31, 1994.
(4) Includes an extraordinary gain of $101,000 or $34 per share on
extinguishment of debt.
(5) Includes an extraordinary gain of $101,000 or $101 per share on
extinguishment of debt.
75
<PAGE>
DESCRIPTION OF PACIFIC TELESIS CAPITAL STOCK
Pacific Telesis is authorized to issue 1,100,000,000 shares of Pacific
Telesis Common Stock, $0.10 par value, of which 428,324,798 shares were
outstanding on September 30, 1996, and 50,000,000 shares of Preferred Stock,
$0.10 par value, none of which are outstanding as of the date hereof.
RIGHTS OF PACIFIC TELESIS COMMON STOCK
Voting Rights. Holders of Pacific Telesis Common Stock are entitled to one
vote per share in the election of directors and on all other matters submitted
to a vote at a meeting of stockholders.
Dividend Rights. The Pacific Telesis Common Stock is entitled to dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. All shares of Pacific Telesis Common Stock are entitled to
participate equally in dividends, if any.
Liquidation Rights. In the event of liquidation of Pacific Telesis, the
holders of the Pacific Telesis Common Stock will be entitled to share ratably
in any assets remaining after payment of all debts and other liabilities.
No Preemptive or Conversion Rights. The Pacific Telesis Common Stock has no
preemptive or conversion rights and is not entitled to the benefits of any
redemption or sinking fund provision. The outstanding shares of Pacific
Telesis Common Stock are, and the shares of Pacific Telesis Common Stock
offered hereby will be, fully paid and non-assessable.
ARTICLES OF INCORPORATION AND BYLAWS
Articles of Incorporation. Pacific Telesis' Articles of Incorporation
provide that directors are to be divided into three classes, each class to be
as nearly equal as possible in number, elected for terms of three years.
Vacancies on the Board (including any directorship to be filled by reason of
an increase in the number of directors) may be filled by election at a meeting
of stockholders or (subject to certain restrictions in the case of
directorships resulting from an increase in the number of directors) by the
remaining directors. A director elected to fill a vacancy would serve for the
unexpired term of his predecessor. All directors serve until their terms of
office expire and their successors are elected and qualified, or until their
earlier resignation, removal from office, death or incapacity. The Articles of
Incorporation also provide that no director may be removed from office before
the end of the term for which such director has been elected without the
affirmative vote of 66 2/3% of the voting power of the shares of Pacific
Telesis then entitled to vote for election of directors. This provision of the
Articles of Incorporation may be altered, amended or repealed only by the
affirmative vote of not less than 66 2/3% of the voting power of the capital
stock of Pacific Telesis entitled to vote with respect thereto.
The Articles of Incorporation provide that no officer or director of Pacific
Telesis shall be personally liable to Pacific Telesis or its stockholders for
monetary damages for an act or omission in the officer's or director's
capacity as a director except for (i) an act or omission that involves
intentional misconduct or a knowing violation of the law or (ii) an act
related to an unlawful stock repurchase or payment of a dividend or some other
improper payment.
Preferred Shares. The Articles of Incorporation include a provision for the
issuance of up to 50,000,000 shares of Preferred Stock, par value $.10 per
share, in one or more series with full or limited voting powers or without
voting powers and with such designations, preferences and rights as the Board
of Directors may determine.
Amendment of By-Laws. The By-Laws provide that such By-Laws may be amended
or repealed at any time by action of the Board of Directors and that they may
also be amended or repealed at a meeting of the stockholders by a vote of at
least 66% of the voting power of the shares entitled to vote in the election
of directors.
76
<PAGE>
PREFERRED STOCK PURCHASE RIGHTS
On September 22, 1989, the Board of Directors of Pacific Telesis declared a
dividend distribution of one right ("Right") for each outstanding share of
Pacific Telesis' Common Stock, par value $0.10 per share, to shareowners of
record at the close of business on October 10, 1989 (the "Record Date").
Except as set forth below, each Right, when exercisable, entitles the
registered holder to purchase from Pacific Telesis one one-hundredth of a
share of a new series of preferred stock, designated as Series A Participating
Preferred Stock, par value $0.10 per share (the "Preferred Stock"), at a
Purchase Price of $150 per share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between Pacific Telesis and Bank of Boston,
in care of Boston EquiServe LP, as successor Rights Agent.
Initially, the Rights were attached to all Pacific Telesis Common Stock
certificates representing shares outstanding, and no separate Rights
Certificates were distributed. The Rights will separate from the Pacific
Telesis Common Stock upon the earliest of any of the following events, which
is the "Distribution Date": (i) a public announcement that, except pursuant to
a tender offer or exchange offer approved by Pacific Telesis, a person or
group of affiliated or associated persons has acquired, or obtained the right
to acquire (the "Stock Acquisition Date"), beneficial ownership of 20% or more
of the voting power of all outstanding voting securities of Pacific Telesis
(such person or group of persons is referred to hereafter as an "Acquiring
Person"); (ii) 10 days (unless such date is extended by the Board of
Directors) following the commencement of a tender offer or exchange offer
which would result in any person or group becoming an Acquiring Person; (iii)
the date on which the Board of Directors determines that any person, alone or
together with its affiliates and associates, has become the beneficial owner
of an amount of Pacific Telesis Common Stock which the Board of Directors
determines to be substantial (which amount shall in no event be less than 10%
of the shares of Common Stock then outstanding) and at least a majority of the
Board of Directors who are not officers of Pacific Telesis and are not
Acquiring or Adverse Persons (as defined below) or affiliates thereof, after
reasonable inquiry and investigation, including consultation with such persons
as the directors shall deem appropriate, determines that (i) beneficial
ownership by such person is intended to cause Pacific Telesis to repurchase
the Pacific Telesis Common Stock beneficially owned by such person or to cause
pressure on Pacific Telesis to take action or enter into one or more
transactions intended to provide such person with short-term financial gain
under circumstances where the Board of Directors determines that the best
long-term interests of Pacific Telesis and its shareowners would not be served
by taking such action or entering into such transactions or series of
transactions at that time or (ii) beneficial ownership by such person is
causing or is reasonably likely to cause a material adverse impact (including,
but not limited to, impairment of relationships with customers or regulators
or impairment of Pacific Telesis' ability to maintain its competitive
position) on the business or prospects of Pacific Telesis (such person being
referred to herein and in the Rights Agreement as an "Adverse Person").
Until the Distribution Date, the Rights will be evidenced, with respect to
any of the Pacific Telesis Common Stock certificates outstanding as of the
Record Date, by such Pacific Telesis Common Stock certificate together with a
Summary of Rights. The Rights Agreement provides that, until the Distribution
Date, the Rights will be transferred with and only with Pacific Telesis Common
Stock certificates. From as soon as practicable after the Record Date and
until the Distribution Date (or earlier redemption or expiration of the
Rights), (i) new Pacific Telesis Common Stock certificates issued upon
transfer or new issuances of Pacific Telesis Common Stock will contain a
notation incorporating the Rights Agreement by reference, and (ii) the
surrender for transfer of any certificates for Pacific Telesis Common Stock
outstanding as of or after the Record Date (with or without the Summary of
Rights attached) will also constitute the transfer of the Rights associated
with the Pacific Telesis Common Stock represented by such certificate. As soon
as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to holders of
record of the Pacific Telesis Common Stock as of the close of business on the
Distribution Date, and the separate Rights Certificates alone will evidence
the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on the earliest of (i) October 10, 1999, (ii) consummation of a merger
transaction with a person or group who acquired Pacific
77
<PAGE>
Telesis Common Stock pursuant to a Permitted Offer (as defined below), and who
is offering in the merger the same price per share and form of consideration
paid in the Permitted Offer or (ii) redemption by Pacific Telesis as described
below.
The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a
stock dividend on, or a subdivision, combination or reclassification of the
Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of
certain rights or warrants to subscribe for Preferred Stock, certain
convertible securities or securities having the same or more favorable rights,
privileges and preferences as the Preferred Stock at less than the current
market price of the Preferred Stock, or (iii) upon the distribution to holders
of the Preferred Stock of evidences of indebtedness or assets (excluding
regular quarterly cash dividends out of earnings or retained earnings) or
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractions of shares smaller than one one-hundredth of
a share will be issued and, in lieu thereof, an adjustment in cash will be
made based on the market price of the Pacific Telesis Common Stock on the last
trading date prior to the date of exercise.
In the event that either of the following "Triggering Events" occurs: (i)
the Board of Directors determines that a Person is an Adverse Person, or (ii)
a Person acquires or obtains the right to acquire securities having 20% or
more of the voting power of all the outstanding voting securities of Pacific
Telesis (unless pursuant to a tender offer or exchange offer for all
outstanding shares of Pacific Telesis Common Stock at a price and on terms
determined prior to the date of the first acceptance of payment for any of
such shares by at least a majority of the members of the Board of Directors
who are not officers of Pacific Telesis or Acquiring Persons, Adverse Persons
or Affiliates thereof to be both adequate and otherwise in the best interests
of Pacific Telesis and its stockholders (a "Permitted Offer"), then provision
shall be made so that each holder of a Right other than an Acquiring Person or
Adverse Person (or certain related parties) will for a 60-day period (subject
to extension under certain circumstances) thereafter have the right to receive
upon exercise that number of shares of Pacific Telesis Common Stock (or, in
certain circumstances, cash, property or other securities of Pacific Telesis)
having a market value of two times the exercise price of the Right (such right
being called the "Subscription Right").
For example, at a Purchase Price of $160 per Right, each Right not owned by
an Acquiring Person or by an Adverse Person (or by certain related parties)
following a Triggering Event would entitle its holder to purchase $320 worth
of Pacific Telesis (or other consideration, as noted above) for $160. Assuming
that the Pacific Telesis Common Stock had a per share value of $40 at such
time, the holders of each valid Right would be entitled to purchase 8 shares
of Pacific Telesis Common Stock for $160.
In the event that, after the earlier of (i) a public announcement by Pacific
Telesis or an Acquiring Person that a person has become an Acquiring Person or
(ii) the date on which a person becomes an Adverse Person, Pacific Telesis is
involved in a merger or other business combination transaction (whether or not
Pacific Telesis is the surviving corporation), or 50% or more of Pacific
Telesis' assets or earning power is sold in one or more transactions
(collectively called "Acquisition Events"), provision shall be made so that
each holder of a Right other than an Acquiring Person or Adverse Person (or by
certain related parties) shall thereafter have the right to receive, upon the
exercise thereof at the then current exercise price of the Right, that number
of shares of common stock of either (i) Pacific Telesis, in the event that it
is the surviving corporation of a merger or consolidation, or (ii) the
acquiring company (or, in the event there is more than one acquiring company,
the acquiring company receiving the greatest portion of the assets or earning
power transferred), which at the time of such transaction would have a market
value of two times the exercise price of the Right (such right being called
the "Acquisition Right").
For example, at a Purchase Price of $160 per Right, each Right not owned by
an Acquiring Person or by an Adverse Person (or by certain related parties)
following a Acquisition Event would entitle its holder to purchase $320 worth
of the common stock of the Acquiring Person (or other consideration, as noted
above) for $160.
78
<PAGE>
Assuming that the common stock of the Acquiring Person had a per share value
of $30 at such time, the holder of each valid Right would be entitled to
purchase 10 2/3 shares of such Common Stock for $160.
Upon the occurrence of any of the Triggering Events or the Acquisition
Events, any Rights that are or were at any time after the Distribution Date
owned by an Acquiring Person or Adverse Person shall immediately become null
and void. However, the holder of a Right other than an Acquiring Person or an
Adverse Person will have both the Acquisition and the Subscription Right, and
will continue to have the Acquisition Right whether or not such holder
exercises the Subscription Right.
Subject to applicable law, the Board of Directors, at its option, may at any
time after a Person becomes an Acquiring Person or an Adverse Person (but not
after the acquisition by such Person of 50% or more of the outstanding Pacific
Telesis Common Stock), exchange all or part of the then outstanding and
exercisable Rights (except for Rights which have become void) for shares of
Common Stock or equivalent preferred stock, in each case equivalent to one
share of Pacific Telesis Common Stock per Right.
At any time prior to the earlier to occur of (i) a Person becoming an
Acquiring Person or Adverse Person or (ii) the expiration of the Rights,
Pacific Telesis may redeem the Rights in whole, but not in part, at a price of
$0.01 per Right (the "Redemption Price"), which redemption shall be effective
upon the action of the Board of Directors. Additionally, Pacific Telesis may
thereafter redeem the then outstanding Rights in whole, but not in part, at
the redemption Price (i) if such redemption is incidental to a merger or other
business combination involving Pacific Telesis but not involving an Acquiring
Person or Adverse Person or certain related Persons or (ii) following a
Triggering Event and the expiration of the exercise period for the
Subscription Right, if and for as long as an Acquiring Person beneficially
owns securities representing less than 20% of the voting power of Pacific
Telesis' voting securities. The redemption of Rights described in the
preceding sentence shall be effective only as of such time when the
Subscription Right is not exercisable, and in any event, only after 10
business days' prior notice. Upon the effective date of the redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
The Preferred Stock purchasable upon exercise of the Rights will be
nonredeemable and junior to any other series of preferred stock Pacific
Telesis may issue (unless otherwise provided in the terms of such stock). Each
share of Preferred Stock will have a preferential quarterly dividend in an
amount equal to 100 times the dividend declared on each share of Common Stock,
but in no event less than $25. In the event of liquidation, the holders of
Preferred Stock will receive a preferred liquidation payment equal to the
greater of 100 times $150 or 100 times the payment made per each share of
Pacific Telesis Common Stock. Each share of Preferred Stock will have 100
votes, voting together with the shares of Pacific Telesis Common Stock. In the
event of any merger, consolidation or other transaction in which shares of
Common Stock are exchanged, each share of Preferred Stock will be entitled to
receive 100 times the amount and type of consideration received per share of
Pacific Telesis Common Stock. The rights of the Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions. Fractional
shares of Preferred Stock will be issuable; however, Pacific Telesis may elect
to distribute depositary receipts in lieu of such fractional shares. In lieu
of fractional shares other than fractions that are multiples of one one-
hundredth of a share, an adjustment in cash will be made based on the market
price of the Preferred Stock on the last trading date prior to the date of
exercise.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of Pacific Telesis, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareowners or to Pacific Telesis, shareowners may, depending
upon the circumstances, recognize taxable income in the event that the Rights
become exercisable for Common Stock of Pacific Telesis (or for other
consideration) or for common stock of the acquiring company as set forth
above. Any of the provisions of the Rights Agreement may be amended by the
Board of Directors of Pacific Telesis prior to the Distribution Date to change
or supplement any provision in any manner which Pacific Telesis may deem
necessary or desirable. Following the Distribution Date, any provision of the
Rights Agreement may be amended,
79
<PAGE>
changed or supplemented in any manner which Pacific Telesis may deem necessary
or desirable so long as it does not adversely affect the interests of holders
of Rights Certificates.
A copy of the Rights Agreement is available free of charge from Pacific
Telesis. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights
Agreement, which is incorporated herein by reference.
Each share of Pacific Telesis Common Stock issued in connection with the
Acquisition will have one right under the Pacific Telesis Preferred Stock
Purchase Plan attached to it.
NEVADA BUSINESS COMBINATION ACT
This statute prohibits a corporation from a broad variety of business
combination transactions (mergers, stock acquisitions, asset sales, etc.) with
any owner of 10% or more of its voting power (an "interested stockholder") or
any related party, for a period of [three] years after the date on which the
person became an interested stockholder, unless the board of directors has
approved either the business combination or the transaction in which the
stockholder became an interested stockholder prior to the date on which the
stockholder became an interested stockholder. The Nevada statute does not
allow an interested stockholder to avoid the restrictions of the statute by
acquiring a supermajority (such as 85%) of the corporation's shares or by
obtaining the approval of a supermajority of the outstanding shares not owned
by the interested stockholder. In addition, even after this five-year period
during which business combinations with the target are absolutely barred, the
interested stockholder remains prohibited from consummating a business
combination unless (1) either the business combination or 10% acquisition was
approved by the corporation's board of directors before the interested
stockholder reached the 10% level, (2) the business combination is approved by
holders of a majority of the corporation's voting power, excluding the
interested stockholder and related parties or (3) the business combination
satisfies certain "fair price" standards outlined in the statute.
The business combination statute provides that a corporation may "opt out"
of the statute only by (1) electing to do so in its original articles of
incorporation, (2) an amendment to the corporation's bylaws adopted within 30
days after October 1, 1991, or (3) an amendment to the corporation's articles
of incorporation approved by holders of a majority of the corporation's voting
power, excluding the interested stockholder and related parties. However,
opting out via amendment of the articles is not effective until 18 months
after stockholder approval of the amendment, and will not affect a business
combination with an interested stockholder who crossed the 10% threshold
before the effective date of the amendment.
The business combination statute applies only to "resident domestic
corporations" (Nevada corporations with 200 or more stockholders of record),
and does not apply to corporations with no voting shares registered under the
Securities Exchange Act of 1934 unless the corporation's articles of
incorporation so provide. Persons who own 10% or more of a Nevada corporation
on January 1, 1991 are "grandfathered" under the statute and will not be
deemed interested stockholders.
Pacific Telesis is subject to the Nevada Business Combination Act and has
not opted out thereof.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain of the above-described provisions (including the Preferred Stock
Purchase Rights) may have the effect, either alone or in combination with each
other, of making more difficult or discouraging an acquisition of Pacific
Telesis deemed undesirable by the Board of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Pacific Telesis Common Stock is
Bank of Boston in care of Boston EquiServe LP, P.O. Box 9146, Boston, MA
02209-9146.
80
<PAGE>
COMPARATIVE RIGHTS OF STOCKHOLDERS
Upon consummation of the Acquisition, the stockholders of WHI, a Delaware
corporation, Videotron USA, a Delaware corporation, and VBAI, a Florida
corporation, will become stockholders of Pacific Telesis, a Nevada
corporation. In addition, after the Liquidation, the shareholders of TTI, a
Pennsylvania corporation, will become stockholders of Pacific Telesis. The
rights of all such stockholders will then be governed by the general
corporation law of the State of Nevada (the "Nevada Law") and by the Pacific
Telesis Articles of Incorporation and Bylaws. The following is a summary of
the material differences between the rights of stockholders of Pacific Telesis
under Pacific Telesis' Articles of Incorporation and Bylaws and the Nevada
Law, the rights of TTI shareholders under TTI's Articles of Incorporation (the
"TTI Articles of Incorporation") and Bylaws (the "TTI Bylaws") and the
Pennsylvania Corporation Law and Pennsylvania Business Corporation Law
(collectively, the "Pennsylvania Law"), the rights of WHI stockholders under
the WHI Certificate of Incorporation (the "WHI Certificate of Incorporation")
and Bylaws (the "WHI Bylaws") and the Delaware General Corporation Law (the
"Delaware Law"), the rights of Videotron USA stockholders under Videotron
USA's Certificate of Incorporation (the "Videotron USA Certificate of
Incorporation") and Bylaws (the "Videotron USA Bylaws") and Delaware Law, and
the rights of VBAI stockholders under VBAI's Articles of Incorporation (the
"VBAI Articles of Incorporation") and Bylaws (the "VBAI Bylaws") and the
Florida General Corporation Act and Florida Business Corporation Act
(collectively, the "Florida Law"). This summary does not purport to constitute
a detailed comparison of the provisions of the Nevada Law, the Pennsylvania
Law, the Delaware Law or the Florida Law, and the identification of certain
specific differences is not meant to indicate that other differences do not
exist. This summary is qualified in its entirety by the Nevada Law, the
Pennsylvania Law, the Delaware Law and the Florida Law, and the respective
charters, articles and bylaws of Pacific Telesis, TTI, WHI, Videotron USA and
VBAI, to which the TTI, WHI, Videotron USA and VBAI stockholders are referred
for a definitive treatment of the subject.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Pacific Telesis consists of 1,100,000,000
shares of Pacific Telesis Common Stock, par value $0.10 and 50,000,000 shares
of Pacific Telesis Preferred Stock, par value $0.10. As of , 1996,
shares of Pacific Telesis Common Stock were issued and outstanding and no
shares of Pacific Telesis Preferred Stock were outstanding.
The authorized capital stock of TTI consists of 200,000,000 shares of TTI
Common Stock, par value $.001, 1,000,000 shares of TTI Class "A" Series "A"
Preferred Stock and 2,000,000 shares of TTI Class "A" Series "B" Preferred
Stock. As of , 1996, shares of TTI Common Stock were outstanding, no
shares of TTI Class "A" Series "A" Preferred Stock were outstanding and no
shares of TTI Class "A" Series "B" Preferred Stock were outstanding.
The authorized capital stock of WHI consists of 50,000 shares of WHI Common
Stock, par value $0.001. As of June 30, 1996, 9,284 shares of WHI Common Stock
were outstanding.
The authorized capital stock of Videotron USA consists of 5,000 shares of
Videotron USA Common Stock, par value $0.01, and 5,000 shares of Videotron USA
Class A Common Stock, par value $0.01. As of June 30, 1996, no shares of
Videotron USA Common Stock were outstanding, and 3,000 shares of Videotron USA
Class A Common Stock were outstanding.
The authorized capital stock of VBAI consists of 1,000 shares of VBAI Common
Stock, par value $0.01. As of June 30, 1996, 1,000 shares of VBAI Common Stock
were outstanding.
NUMBER OF DIRECTORS
Under Nevada Law, a corporation's board must consist of one or more members,
with the number fixed by the bylaws or the articles of incorporation. Under
Pacific Telesis Articles of Incorporation, the number of
81
<PAGE>
directors is determined from time to time by the board of directors but may
not be reduced to less than three. Pacific Telesis currently has ten
directors.
Under Pennsylvania Law, a corporation's board must consist of one or more
members, with the number fixed by, or in the manner provided in, the articles
or bylaws. If not so fixed, the number of directions shall be as stated in the
articles, or three if no number is so stated. The TTI Bylaws provide that the
board shall be composed of not less than three and not more than nine
directors, and that the original board shall be composed of three directors.
TTI currently has eight directors.
Under Delaware Law, a corporation's board must consist of one or more
members, with the number fixed by the bylaws or the certificate of
incorporation. Both the WHI Bylaws and the Videotron USA Bylaws provide that
the number of directors shall initially be fixed by the incorporator of the
applicable corporation, and thereafter from time to time by the applicable
corporation's board of directors. WHI currently has six directors and
Videotron USA currently has three (3) directors.
Under Florida Law, a corporation's board must consist of one or more
members, with the number fixed by, or in the manner provided in, the articles
or bylaws, except as to the number constituting the initial board of
directors, which is fixed by the articles. In the absence of a bylaw providing
for the number of directors, the number shall be as provided for by the
articles. The VBAI Articles of Incorporation provide for one director
initially, and the VBAI Bylaws provide that VBAI shall have at least one
director, with the minimum number to be increased or decreased from time to
time by amendment to the VBAI Bylaws. VBAI currently has four (4) directors.
ELECTION OF DIRECTORS
The Board of Directors of Pacific Telesis is divided into three classes. At
each annual meeting of stockholders, one class of directors is elected to
serve for a three-year term. Currently, there are ten directors of Pacific
Telesis.
Under Pennsylvania Law, at a corporation's annual meeting the shareholders
elect directors to hold office until the next succeeding annual meeting,
unless the corporation's articles or bylaws provide that the directors be
divided into not more than four classes, in which case the terms of office of
directors of different classes will expire at different times. Neither the TTI
Articles of Incorporation nor the TTI Bylaws provide for a classified board of
directors.
Under Delaware Law, at a corporation's annual meeting the stockholders elect
directors to hold office until the next succeeding annual meeting, unless the
corporation's articles or bylaws provide that the directors be divided into
not more than three classes, in which case the terms of office of directors of
different classes will expire at different times. Neither the WHI Certificate
of Incorporation or WHI Bylaws, nor the Videotron USA Certificate of
Incorporation or Videotron USA Bylaws, provide for a classified board of
directors.
Under Florida Law, at a corporation's annual meeting the stockholders elect
directors to hold office until the next succeeding annual meeting, unless the
corporation's articles or bylaws provide that the directors be divided into
not more than four classes, in which case the terms of office of directors of
different classes will expire at different times. Neither the VBAI Articles of
Incorporation nor the VBAI Bylaws provide for a classified board of directors.
REMOVAL OF DIRECTORS
Under Nevada Law, any director or the entire board may be removed, with or
without cause, by a vote of at least two-thirds of the outstanding shares then
entitled to vote at an election of directors. The Pacific Telesis Articles of
Incorporation provide for removal of directors by vote of the holders of at
least two-thirds of the outstanding shares.
82
<PAGE>
Under Pennsylvania Law, unless otherwise provided in a bylaw adopted by the
shareholders, a director or the entire board may be removed, without assigning
any cause, by a vote of the holders of a majority of the outstanding shares
then entitled to vote at an election of directors. Under Pennsylvania Law,
unless otherwise provided in the articles, any director or the entire board of
a corporation having a board of directors with classes may be removed, but
only for cause, by a vote of at least a majority of the outstanding shares
then entitled to vote at an election of directors. The board of directors may
be removed at any time with or without cause by the unanimous vote or consent
of shareholders entitled to vote thereon. The TTI Articles of Incorporation
and TTI Bylaws provide for removal of directors, with or without cause, by
vote of the holders of at least a majority of the outstanding shares then
entitled to vote, at a special meeting called for the express purpose of
removing directors.
Under Delaware Law, any director or the entire board of directors may be
removed, with or without cause, by a vote of at least a majority of the
outstanding shares then entitled to vote at an election of directors. Neither
the WHI Certificate of Incorporation or WHI Bylaws, nor the Videotron USA
Certificate of Incorporation or Videotron USA Bylaws, address this subject.
Under Florida Law, unless otherwise provided in the articles, any director
or the entire board may be removed, with or without cause, by a vote of at
least a majority of the outstanding shares then entitled to vote at an
election of directors. The VBAI Articles of Incorporation and VBAI Bylaws do
not provide otherwise.
VACANCIES IN BOARD OF DIRECTORS
Under Nevada Law, vacancies and newly-created directorships that result from
an increase in the authorized number of directors may be filled by a majority
vote of the directors then in office (even if less than a quorum).
Under Pennsylvania Law, vacancies that result from an increase in the
authorized number of directors may be filled by a majority vote of the
directors then in office (even if less than a quorum), or by a sole remaining
director. Each person so elected shall serve for the balance of the unexpired
term unless otherwise restricted in the articles or bylaws. The TTI Articles
of Incorporation and TTI Bylaws do not contain such a restriction.
Under Delaware Law, unless otherwise provided in a corporation's certificate
of incorporation or bylaws, vacancies and newly-created directorships that
result from an increase in the authorized number of directors may be filled by
a majority vote of the directors then in office (even if less than a quorum),
or by a sole remaining director. Neither the WHI Certificate of Incorporation
or WHI Bylaws nor the Videotron USA Certificate of Incorporation or Videotron
USA Bylaws, provide otherwise, and the WHI Bylaws and Videotron USA Bylaws
each contain a provision consistent with the Delaware Law.
Under Florida Law, vacancies and newly created directorships that result
from an increase in the number of directors may be filled by a majority vote
of the directors then in office (even if less than a quorum). Each person so
elected shall hold office only until the next election of directors by the
stockholders. Neither the VBAI Articles of Incorporation nor the VBAI Bylaws
provide otherwise.
LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS
Nevada Law provides that the articles of incorporation may limit or
eliminate the liability of a director and an officer for monetary damages for
an act or omission in the director's or officer's capacity as a director or
officer, except liability for (1) an act or omission that involves intentional
misconduct or a knowing violation of the law or (2) payment of improper
distributions. The Pacific Telesis Articles of Incorporation contain a
provision to that effect.
Pennsylvania Law provides that if the articles or bylaws of a corporation so
state, a director shall not be personally liable, as such, for monetary
damages for any action taken unless (1) the director has breached or failed to
perform the duties of a director as described in the Pennsylvania Law, or (2)
the breach or failure to
83
<PAGE>
perform constitutes self-dealing, willful misconduct or recklessness. The
foregoing limitation on liability does not apply to (1) criminal acts by the
director, and (2) liability for the payment of taxes. The TTI Articles of
Incorporation and TTI Bylaws do not address this subject.
Delaware Law provides that the liabilities of a director may be limited to a
certain extent if so provided in the corporation's certificate of
incorporation. The WHI Certificate of Incorporation and the Videotron USA
Certificate of Incorporation each provides that no director of the applicable
corporation will be liable for monetary damages for breach of a fiduciary
duty, or failure to exercise any applicable standard of care, to the full
extent permitted by the Delaware Law. The WHI Bylaws and the Videotron USA
Bylaws each provide that no director of the applicable corporation shall be
personally liable to such corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director except (1) for breach of the
director's duty of loyalty to such corporation or its stockholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (3) under Section 174 of the General Corporation Law
of the State of Delaware, or (4) for any transaction from which the director
derived an improper personal benefit.
Florida Law provides that a director shall not be personally liable for
monetary damages to the corporation or any other person for such director's
statement, vote, decision, or failure to act regarding corporate management or
policy, unless (1) the director breached or failed to perform the duties of a
director, and (2) such breach or failure to perform constitutes (a) a
violation of the criminal law, unless the director had reasonable cause to
believe the conduct was lawful or had no reasonable cause to believe the
conduct was unlawful, (b) a transaction from which the director derived an
improper personal benefit, (c) a transaction involving payment of an improper
dividend, improper purchase of the corporation's own shares or improper
distribution of assets upon liquidation, (d) conscious disregard for the best
interest of the corporation, or willful misconduct, in a transaction by or in
the right of the corporation or by or in the right of a stockholder, or (e)
recklessness, an act or omission committed in bad faith, with a malicious
purpose or with wanton and willful disregard of human rights, safety or
property, in a proceeding by or in the right of someone other than the
corporation or a stockholder. The VBAI Bylaws provide that a person who
performs the duties of a director in good faith, in a manner reasonably
believed to be in the best interest of VBAI, and with such care as an
ordinarily prudent person in a like position would use under similar
circumstances, shall have no liability by reason of being or having been a
director of VBAI.
INDEMNIFICATION
Nevada Law permits a corporation to indemnify any current or former
director, officer, employee and agent if the person acted in good faith and in
a manner in which he or she reasonably believed to be in or not opposed to the
best interests of the corporation. In the case of a criminal proceeding, the
indemnified person must also have had no reasonable cause to believe that such
person's conduct was unlawful.
The Pacific Telesis Articles of Incorporation provide for indemnification to
the extent not prohibited by law and permits advances for expenses upon
receipt of a written undertaking to repay if the person is ultimately
determined not to have met such standard or not to be entitled to
indemnification. The Pacific Telesis Articles of Incorporation also provide
that the Board of Directors may authorize Pacific Telesis to enter into
indemnification agreements with officers and directors which provide that
Pacific Telesis has the burden to show the indemnification is prohibited and
shall exclude from indemnification a judgment that established that an
indemnitee's acts were committed in bad faith or as a result of deliberate
dishonesty or to gain a financial advantage to which he or she was not legally
entitled.
Under Pennsylvania Law, unless otherwise provided in its articles or bylaws,
a corporation may indemnify any person who was or is a party or is threatened
to be made a party to any action (other than an action by or in the right of
the corporation) by reason of the fact that such person was a representative
of the corporation, or was serving as a representative of another corporation,
partnership, joint venture, trust or other enterprise (an "indemnifiable
person"). Under Pennsylvania Law, unless otherwise provided in its articles or
bylaws, a corporation may indemnify such person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement that are
actually and reasonably incurred by that person in connection with such
84
<PAGE>
action, provided, however, that such person must have acted in good faith and
in a manner that was reasonably believed to be in (or not opposed to) the
corporation's best interests. In respect of any criminal action or proceeding,
an indemnifiable person must have had no reasonable cause to believe such
conduct to be unlawful. The termination of any such action by judgment, order,
settlement, conviction or plea of nolo contendere shall not of itself create a
presumption that the indemnifiable person did not act in good faith and in a
manner that was reasonably believed to be in (or not opposed to) the
corporation's best interests or, in any criminal action or proceeding, that
the person had reasonable cause to believe such conduct to be unlawful.
Pennsylvania Law provides that unless otherwise restricted in its articles or
bylaws, a corporation may indemnify an indemnifiable person who is a party to
action by or in the right of the corporation, if such person acted in good
faith and in a manner reasonably believed to be in (or not opposed to) the
corporation's best interests. Pennsylvania Law permits no indemnification in
any action by or in the right of the corporation where the person has been
adjudged liable to the corporation, unless, and only to the extent that, a
court determines that such person is reasonably entitled to indemnity in spite
of the liability adjudication. Pennsylvania Law provides for mandatory
indemnification (including attorney fees) of an indemnifiable person to the
extent such person has been successful on the merits or otherwise.
Pennsylvania Law also permits advances for expenses incurred by an
indemnifiable person in defending an action upon receipt of an undertaking to
repay if it is ultimately determined that such person is not entitled to
indemnification. In addition, Pennsylvania Law provides that the
indemnification statutes described in this paragraph are not exclusive of any
additional rights of a person to indemnification to the extent that additional
rights are authorized in the corporation's articles, bylaws, agreement,
stockholder vote or otherwise; provided, however, that indemnification may not
be made where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful
misconduct or recklessness.
The TTI Bylaws do not modify the general provisions of Pennsylvania Law
regarding indemnification.
Under Delaware Law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action by reason of the
person's service as a director, officer, employee or agent of the corporation
or his service, at the corporation's request, as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise. Under Delaware Law, a corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement that are actually and reasonably incurred by that person in
connection with such action. Delaware Law provides, however, that such person
must have acted in good faith and in a manner that was reasonably believed to
be in (or not opposed to) the corporation's best interests. In respect of any
criminal action or proceeding, an indemnified person must have had no
reasonable cause to believe such conduct to be unlawful. Additionally,
Delaware Law permits no indemnification in any action by or in the right of
the Corporation where such person has been adjudged liable to the corporation,
unless, and only to the extent that, a court determines that such person is
reasonably entitled to indemnity in spite of the liability adjudication.
Delaware Law provides for mandatory indemnification of such person to the
extent he has been successful on the merits or otherwise. Delaware Law also
permits advances for expenses incurred by such person in defending an action
upon receipt of an undertaking to repay if it is ultimately determined that he
is not entitled to indemnification. In addition, Delaware Law provides that
the indemnification statute is not exclusive of any additional rights of such
person to indemnification to the extent that additional rights are authorized
in the corporation's certificates of incorporation, bylaws, agreement,
stockholder vote or otherwise.
The WHI Certificate of Incorporation and Videotron USA Certificate of
Incorporation each provides for indemnification of all persons whom such
corporation may indemnify pursuant to Delaware Law, to the full extent
permissible by Delaware Law. The WHI Bylaws and Videotron USA Bylaws each
provide for indemnification of directors and officers of the applicable
corporation to the full extent permitted by Delaware Law.
Under Florida Law, a corporation shall have the power to indemnify any
person who was or is a party to any proceeding (other than an action by or in
the right of the corporation) by reason of the fact that such person was a
director, officer, employee or agent of the corporation, or was serving at the
request of the corporation in
85
<PAGE>
such a capacity for another corporation, partnership, joint venture, trust or
other enterprise (an "indemnitee"). Under Florida Law, a corporation shall
have the power to indemnify such person against liability incurred by that
person in connection with such proceeding, including any appeal thereof,
provided, however, that such person must have acted in good faith and in a
manner that was reasonably believed to be in (or not opposed to) the
corporation's best interests. In respect of any criminal action or proceeding,
such person must have had no reasonable cause to believe the conduct to be
unlawful. The termination of any such proceeding by judgment, order,
settlement, conviction or plea of nolo contendere shall not of itself create a
presumption that the person did not act in good faith and in a manner that was
reasonably believed to be in (or not opposed to) the corporation's best
interests or, in any criminal action or proceeding, that the person had
reasonable cause to believe such conduct to be unlawful. Florida Law provides
that a corporation shall have the power to indemnify an indemnitee who is a
party to a proceeding by or in the right of the corporation against expenses
and reasonable amounts paid in settlement, if such person acted in good faith
and in a manner reasonably believed to be in (or not opposed to) the
corporation's best interests. Florida Law permits no indemnification in any
action by or in the right of the corporation where the person has been
adjudged liable to the corporation, unless, and only to the extent that, a
court determines that such person is reasonably entitled to indemnity in spite
of the liability adjudication. Florida Law provides for mandatory
indemnification of expenses of an indemnitee to the extent such person has
been successful on the merits or otherwise. Florida Law provides that any
indemnification described above shall be made on a case-by-case basis, upon
vote of disinterested directors, a committee of disinterested directors,
independent legal counsel or disinterested stockholders. Florida Law also
permits advances for expenses incurred by an officer or director in defending
a proceeding upon receipt of an undertaking to repay if it is ultimately
determined that such person is not entitled to indemnification, and advances
for such expenses incurred by other indemnitees may be made on such terms as
the corporation's board of directors finds appropriate. In addition, Florida
Law provides that the indemnification statutes described in this paragraph are
not exclusive of any additional rights of a person to indemnification to the
extent that additional rights are authorized in the corporation's bylaws,
agreement, vote of stockholders or disinterested directors or otherwise;
provided, however, that indemnification may not be made where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted a violation of criminal law, self-dealing, a
transaction involving an improper distribution, repurchase of the
corporation's shares or distribution of assets on liquidation or willful
misconduct or conscious disregard for the best interests of the corporation in
a proceeding by or in the right of the corporation or a stockholder. Unless
the corporation's articles provide otherwise, a court may direct a corporation
to provide indemnification in certain circumstances, notwithstanding any
contrary finding by the corporation's board or stockholders.
The VBAI Articles of Incorporation provide that VBAI will indemnify any
present or former officer or director to the full extent permitted by law.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Nevada Law provides that any action required to be taken at a meeting of
stockholders may be taken without a meeting if either the articles or bylaws
so provide or a majority of the stockholders entitled to vote with respect to
the action consent in writing to such action, unless the articles of
incorporation or bylaws state that no action may be taken without a meeting of
the stockholders. The Bylaws of Pacific Telesis provide that action may be
taken by the stockholders of Pacific Telesis only by a meeting of the
stockholders.
Pennsylvania Law states that, unless a corporation's articles or bylaws
provide otherwise, any action required or permitted to be taken at a meeting
of shareholders may be taken without a meeting if, prior to or subsequent to
the action, a consent or consents thereto by all of the shareholders who would
be entitled to vote at a meeting for such purpose shall be filed with the
corporation's secretary. Pennsylvania Law states that, if the corporation's
articles or bylaws so provide, any action otherwise required to be taken at a
shareholders meeting may be taken without a meeting if holders of outstanding
stock with not less than the minimum number of votes necessary to take or
authorize such action at a meeting consent in writing to the action; provided,
however, that notice of any action so authorized shall be promptly
communicated to each shareholder who has not consented
86
<PAGE>
thereto. The TTI Bylaws do not permit approval of actions by shareholders
without a meeting without the consent of all shareholders entitled to vote at
a meeting on such actions.
Delaware Law states that, unless a corporation's certificate of
incorporation provides otherwise, any action otherwise required to be taken at
a stockholders meeting may be taken without a meeting if holders of
outstanding stock with not less than the minimum number of votes necessary to
take or authorize such action at a meeting consent in writing to the action.
Neither the WHI Certificate of Incorporation nor the Videotron USA Certificate
of Incorporation addresses this subject, and each of the WHI Bylaws and
Videotron USA Bylaws contains a provision to the effect of the foregoing.
Florida Law states that, unless a corporation's articles provide otherwise,
any action required or permitted to be taken at a meeting of the stockholders
may be taken without a meeting if holders of outstanding stock with not less
than the minimum number of votes necessary to take or authorize such action at
a meeting consent in writing to the action. Any action so authorized shall be
described in a written notice of the action given to each stockholder entitled
to vote thereon who has not consented thereto, within ten days of the action.
The VBAI Bylaws contain a provision to the effect of the foregoing.
SPECIAL MEETING OF STOCKHOLDERS
Under Nevada Law, special meetings may be called by the persons authorized
in the articles of incorporation and bylaws. The Pacific Telesis Bylaws
provide that special meetings may be called by the Chairman of the Board of
Directors, the President or the Secretary at the request in writing of the
majority of the Board of Directors or the holders of at least 66% of all
shares entitled to vote at such proposed meeting.
Pennsylvania Law authorizes special meetings of shareholders to be called by
(1) the board of directors, (2) unless otherwise provided in the articles,
shareholders entitled to cast at least 20% of the votes that all shareholders
are entitled to cast at the meeting to be called, or (3) such officers or
other persons as may be provided in the articles or bylaws. The TTI Bylaws
provide that special meetings of the shareholders may be called only by the
Board, the President (or in such person's absence by a vice-president) or the
holders of the number of shares entitled to vote at such proposed meeting
which is required by law.
Delaware Law authorizes the board of directors, or such persons as the by-
laws or certificate of incorporation may designate, to call special
stockholders meetings. Neither the WHI Certificate of Incorporation nor the
Videotron USA Certificate of Incorporation addresses this subject, and each of
the WHI Bylaws and Videotron USA Bylaws provides that special meetings of the
stockholders may be called only by the Chairman, the President, any Executive
Vice President, any Vice President, the Secretary or any Assistant Secretary,
at the request in writing of a majority of the Board of Directors, or by any
such officer, upon the written request of the holders of at least a majority
of the shares entitled to vote at such proposed meeting.
Florida Law authorizes special meetings of stockholders to be called by (i)
the board of directors or other persons as may be provided in the articles or
bylaws, or (ii) stockholders entitled to cast at least 10% (or such greater
percentage not to exceed 50%, as provided in the articles) of the votes that
all stockholders are entitled to cast at the meeting to be called. The VBAI
Bylaws provide that special meetings of the stockholders may be called by the
Board of Directors or stockholders entitled to vote at least 10% of the
outstanding shares entitled to vote at the meeting to be called.
STOCKHOLDERS' APPROVAL OF EXTRAORDINARY TRANSACTIONS
Nevada Law provides that an agreement providing for the merger,
consolidation or the sale of all or substantially all of the assets be
approved by the holders of at least a majority of the outstanding shares of
the corporation unless a different vote is provided in the articles of
incorporation. Pacific Telesis' Articles of Incorporation do not provide for
any super-majority voting requirements in these cases.
87
<PAGE>
Pennsylvania Law requires the affirmative vote of the holders of a majority
of the shares entitled to vote on any plan of merger or consolidation, share
exchange or disposition of all or substantially all of the corporation's
assets, for such transaction to be approved; however, unless otherwise
required by a corporation's articles or bylaws, certain such transactions
specified in Pennsylvania Law do not require such consent. Neither the TTI
Articles of Incorporation nor the TTI Bylaws address this subject.
Under Delaware Law, a corporation is required to receive approval of a
majority of the outstanding shares entitled to vote to authorize a merger,
consolidation or sale of all or substantially all of the assets of the
corporation.
Florida Law requires the affirmative vote of the holders of a majority of
the shares entitled to vote on any plan of merger or consolidation, or sale of
assets other than in the ordinary course of business, for such plan or sale to
be approved.
DISSENTERS' RIGHTS
Nevada Law gives appraisal rights for certain mergers, plans of exchange and
for the sale of all or substantially all the assets of a corporation. Under
Nevada Law, a stockholder does not have the right to dissent with respect to
(a) a sale of assets or reorganization or (b) any plan of merger or any plan
of exchange, if (1) the shares held by the stockholder are part of a class of
shares which are listed on a national securities exchange or the Nasdaq
National Market System, or are held of record by not less than 2,000 holders,
and (2) the stockholder is not required to accept for his shares any
consideration other than shares of a corporation that, immediately after the
effective time of the merger or exchange, will be part of a class of shares
which are (A) listed on a national securities exchange or the Nasdaq National
Market System, or (B) held of record by not less than 2,000 holders.
Pennsylvania Law gives appraisal rights to dissenting shareholders for
certain statutory mergers or consolidations, share exchange asset transfer
corporate division and conversion and sales of all or substantially all of the
corporation's assets other than in the usual course of its business.
Dissenters' rights of appraisal are not required with respect to a merger or
consolidation, a share exchange, a sale of assets or a division, if the shares
of the applicable corporation are either listed on a national securities
exchange or held of record by more than 2,000 shareholders. Notwithstanding
the preceding sentence, dissenters' rights of appraisal are required if (1)
shares are not converted solely into shares of the acquiring, surviving, new
or other corporation or solely into such shares and cash in lieu of fractional
shares, (2) the shares are preferred or of a special class, unless the
affirmative vote of the majority of the shareholders of such class are
required for the consummation of the transactions, or (3) the plan contains a
provision for special treatment without requiring for the adoption of the plan
the affirmative vote of the class group which will receive special treatment.
Pennsylvania Law provides that no dissenters' rights shall be required if a
corporation acquires all of the shares, property or other assets of another
corporation by the issuance of shares, regardless of whether the issued shares
permit the holders thereof to elect a majority of the corporation's directors.
Pennsylvania Law also provides that no dissenters' rights are required in
connection with any sale of all or substantially all of the assets of a
corporation outside of the normal course of the corporation's business and if
the sale takes place in connection with the liquidation of the corporation.
Pennsylvania Law permits a corporation's articles or bylaws or a resolution of
the board of directors to grant dissenters' rights in situations in which
dissenters would not otherwise be entitled to receive dissenters' rights.
Neither the TTI Articles of Incorporation nor the TTI Bylaws addresses the
subject of dissenters' rights.
Delaware Law gives appraisal rights to dissenting shareholders only for
certain statutory mergers or consolidations. Dissenters' rights of appraisal
are not required with respect to (1) a sale of assets or reorganization, (2) a
merger by a corporation, the shares of which are either listed on a national
securities exchange or widely held (by more than 2,000 shareholders), if such
stockholders continue to hold shares of the surviving corporation, or (3)
shareholders of a corporation surviving a merger if the number of shares to be
issued in the merger does not exceed 20% of the shares of the surviving
corporation outstanding immediately prior to such issuance and if certain
other conditions are met.
88
<PAGE>
Florida Law gives appraisal rights to dissenting stockholders for plans of
merger or consolidation, sales or exchange of all or substantially all of the
corporation's assets, including sales in dissolution, and control-share
acquisitions. Florida Law provides that unless otherwise specified in the
corporation's articles, dissenters' rights of appraisal are not required with
respect to (1) holders of shares of a surviving corporation in a merger, if
the approval of the class of which such shares are a part were not required
for consummation of the merger, (2) holders of shares a class which are either
listed on a national securities exchange or held of record by more than 2,000
stockholders, (3) a sale or exchange over which a court has jurisdiction, or
(4) sales for cash requiring that all of the net proceeds be distributed to
stockholders. The VBAI Articles of Incorporation do not address this subject.
CHARTER AND BYLAW AMENDMENTS
Under Nevada Law, a proposed amendment to the articles of incorporation
requires the affirmative vote of a majority of the outstanding shares entitled
to vote thereon unless otherwise specified in the articles of incorporation.
The Pacific Telesis Articles of Incorporation provide that a majority of the
stockholders, together with a majority of the Directors, may amend such
Articles of Incorporation, except that the amendment of the provisions
relating to the classified board of directors and indemnification require the
affirmative vote of not less than 66% of the then outstanding shares of
capital stock of Pacific Telesis entitled to vote with respect thereto. Under
Nevada Law, unless otherwise provided in the articles of incorporation or the
bylaws adopted by the stockholders, a corporation's stockholders may amend,
repeal or adopt the corporation's bylaws. Unless otherwise provided in the
articles of incorporation the board of directors may amend, repeal or adopt
the corporation's bylaws. The Pacific Telesis Bylaws may be altered, amended
or repealed by the board of directors. Pacific Telesis stockholders may adopt,
alter, amend or repeal provisions of the Bylaws only by the affirmative vote
of not less than 66 2/3% of the then outstanding shares of capital stock of
Pacific Telesis entitled to vote with respect thereto.
The Pennsylvania Law provides that amendments to the articles may be
proposed by the board of directors or, unless otherwise provided in the
corporation's articles, petition of shareholders entitled to cast at least 10%
of the votes entitled to be cast thereon. Pennsylvania Law requires the
approval of the board of directors and provides that unless the articles
require a greater vote, a proposed amendment to the articles requires a
majority vote of the shares entitled to be voted and, if any class or series
of shares is entitled to vote thereon as a class, the majority of the votes
cast in each such class vote. Notwithstanding the foregoing, certain minor
amendments to the articles do not require the vote of the corporation's
shareholders, according to the Pennsylvania Law. Pennsylvania Law provides
that the shareholders entitled to vote shall have the power to amend the
bylaws of a corporation, unless the bylaws vest such power in the board of
directors, subject to the power of the shareholders to change such action.
Pennsylvania Law specifies certain subjects with respect to which the board of
directors may not amend the bylaws. The TTI Articles of Incorporation do not
address the subject of amendment thereof, and the TTI Bylaws provide that they
may be altered, amended or repealed at the annual meeting of the Board of
Directors or at any special meeting of the Board called for that purpose,
subject to repeal or change by action of the shareholders.
Delaware Law allows corporations to amend their certificates of
incorporation as often as and in whatever fashion desired. The amended
certificate, however, may contain only provisions that would be legal in an
original certificate at the time of amendment. To take effect, amendments to a
certificate of incorporation approved by a board of directors must then be
approved by the affirmative vote of the holders of the majority of the shares
entitled to vote, and in certain instances, of each class of shares entitled
to vote. Delaware Law empowers stockholders entitled to vote to amend bylaws.
Each of the WHI Certificate of Incorporation and the Videotron USA Certificate
of Incorporation provides that the corporation reserves the right to amend,
alter, change or repeal any provisions contained therein, and any right
conferred upon stockholders, directors or officers is subject to such
reservation. Each of the WHI Bylaws and the Videotron USA Bylaws provides that
such bylaws may be altered, amended or repealed, in whole or in part, or new
bylaws may be adopted, by the stockholders or the board of directors, and that
all such amendments must be approved by either the holders of a majority of
the outstanding stock entitled to vote thereon or by a majority of the board
of directors.
89
<PAGE>
Florida Law provides that amendments to the articles shall be recommended to
the stockholders by the board of directors (unless a conflict or other special
circumstances precludes the board from making any recommendation) and provides
that unless Florida Law, the articles or the board require a greater vote, a
proposed amendment to the articles requires a majority vote of the shares
entitled to be voted and, if any class or series of shares is entitled to vote
thereon as a class, the majority of the votes cast in each such class vote.
Notwithstanding the foregoing, certain minor amendments to the articles do not
require the vote of the corporation's stockholders, according to Florida Law.
Florida Law provides that unless otherwise provided in the corporation's
articles, the stockholders of a corporation having 35 or fewer stockholders
may amend the articles without an act of the directors. Florida Law provides
that a corporation's board of directors may amend or repeal the bylaws of the
corporation, unless (1) the bylaws vest such power in the stockholders, or (2)
the stockholders, in amending or repealing the bylaws generally or a
particular bylaw provision, provide expressly that the board of directors may
not repeal the bylaws or that bylaw provision. Florida Law provides that in
any event, the stockholders may amend or repeal any bylaw. The VBAI Articles
of Incorporation provide that VBAI reserves the right to amend or repeal any
provisions contained therein, or in any amendment thereto, and any right
conferred upon the stockholders is subject to such reservation. The VBAI
Bylaws provide that the board of directors may amend or repeal such Bylaws or
adopt new bylaws.
PAYMENT OF DIVIDENDS
Subject to any restrictions contained in the articles of incorporation,
Nevada Law permits a corporation to pay dividends unless, after giving effect
to such dividends, the corporation would not be able to pay its debts as they
become due in the usual course of business. The Pacific Telesis Articles of
Incorporation do not restrict the payment of dividends.
Subject to any restrictions contained in the articles or bylaws,
Pennsylvania Law permits a corporation to pay dividends unless, after giving
effect to such dividends, the corporation would not be able to pay its debts
as they become due in the usual course of business or the total assets of the
corporation would be less than the sum of its total liabilities plus (unless
otherwise provided in the articles) the amount that would be needed, if the
corporation were to be dissolved at the time as of which the distribution is
measured, to satisfy the preferential rights upon dissolution of shareholders
whose preferential rights are superior to those receiving the dividend.
Neither the TTI Articles of Incorporation nor the TTI Bylaws restricts the
payment of dividends.
Delaware Law permits the payment of dividends out of surplus or, if there is
no surplus, out of net profits for the current and/or the preceding fiscal
year, provided, that no dividend may be declared and paid out of net profits
if the capital of the corporation is less than the aggregate amount of the
capital represented by the issued and outstanding stock of all classes having
a preference upon the distribution of assets.
Subject to any restrictions contained in the articles, Florida Law permits a
corporation to pay dividends unless (1) the corporation is insolvent, (2)
after giving effect to such dividend the corporation would be insolvent, (3)
after giving effect to such dividend, the corporation would not be able to pay
its debts as they become due in the usual course of business or (4) the total
assets of the corporation would be less than the sum of its total liabilities
plus (unless otherwise permitted in the articles) the amount that would be
needed, if the corporation were to be dissolved at the time as of which the
distribution is measured, to satisfy the preferential rights upon dissolutions
of stockholders whose preferential rights are superior to those receiving the
dividend. The VBAI Bylaws provide that the Board of Directors may declare
dividends from time to time, except when the declaration or payment thereof
would be contrary to any restrictions in the VBAI Articles of Incorporation or
Florida Law. The VBAI Articles of Incorporation contain no such restrictions.
INSPECTION OF BOOKS AND RECORDS
Under the Nevada Law, any person who has been a stockholder for at least six
months or who holds or is authorized in writing by persons holding at least
five percent (5%) of all outstanding shares of a corporation,
90
<PAGE>
upon written demand, has the right to inspect and make extracts, in person or
by agent or attorney, at any reasonable time or times during usual hours for
business, for any proper purpose, of the corporation's stock ledger.
Under Pennsylvania Law, any shareholder, upon written verified demand
stating the purpose thereof, in person or by attorney or other agent, has the
right during usual hours for business to inspect for any proper purpose the
corporation's share register, books and records of account, and records of
proceedings of the incorporators, directors and stockholders, and to make
copies or extracts therefrom.
Under Delaware Law, any stockholder of record, in person or by attorney or
other agent, upon written demand under oath stating the purpose thereof, has
the right during usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other
books and records and to make copies or extracts therefrom.
Under Florida Law, any stockholder is entitled to inspect and copy, during
regular business hours at the corporation's principal office upon five
business days' written demand, the following documents: the corporation's
articles and bylaws, resolutions of the board relating to adoption of classes
of shares, minutes of stockholders meetings, written communications to
stockholders, including financial statements furnished therewith, names and
business addresses of officers and directors, and the corporation's most
recent annual report furnished to the state of Florida. Under Florida Law, any
stockholder who makes a demand in good faith and for a proper purpose,
describing with reasonable particularity such shareholder's purpose and the
records such stockholder desires to inspect, is entitled to inspect and copy,
during regular business hours at a reasonable location specified by the
corporation, upon five business days' written demand, the following documents:
excerpts from minutes of any meeting of the board of directors, records of a
committee of the board of directors acting in place of the board of directors,
minutes of any meeting of the stockholders, and records of actions of the
board or stockholders taken without meeting; accounting records; the record of
stockholders; and other books and records. The VBAI Bylaws provide that any
person who shall have been a stockholder of record for at least six months
immediately preceding his demand, or is stockholder of record of at least 5%
of any class of VBAI's shares, shall have the right to examine, in person or
by agent or attorney, at any reasonable times, for any proper purpose, VBAI's
relevant books and records of account, minutes and records of stockholders and
make extracts therefrom.
STATE ANTITAKEOVER STATUTES
The Nevada Private Corporate Law ("NPCL") has three provisions designed to
deter takeover attempts.
(i) Control Share Acquisition Provision. Under the NPCL, once a person has
acquired or offers to acquire one-fifth, one-third or a majority of the stock
of a corporation, a stockholder's meeting must be held after delivery of the
"offeror's statements," at offeror's expense, so the stockholders can vote on
whether the shares proposed to be acquired (the "control shares") may exercise
voting rights. Except as otherwise provided in a company's articles of
incorporation, the approval of a majority of the outstanding stock not held by
the offeror is required so that the stock held by the offeror will have voting
rights. The Control Share Acquisition Provisions are applicable to any
acquisition of a controlling interest unless the articles of incorporation or
bylaws of a corporation in effect on the tenth day following the acquisition
of a controlling interest by an acquiring person provide that the Control
Share Acquisition Provisions do not apply.
(ii) Combination Moratorium Provision. The NPCL provides that a corporation
may not engage in any "combination" (broadly defined to include mergers, sales
and leases of assets, issuances of securities, and similar transactions) with
an "interested stockholder" (defined as the beneficial owner of 10 percent or
more of the voting power of the company) and certain affiliates and associates
for three years after the interested stockholder's date of acquiring the
shares, unless the combination or the purchase of shares by the interested
stockholder is approved by the board of directors before the date the
interested stockholder acquires the shares. After the initial three year
period, any combination must still be approved by a majority of the voting
power not beneficially owned by the interested stockholder or the interested
stockholder's affiliates or associates, unless the
91
<PAGE>
aggregate amount of cash and the market value of consideration other than cash
to be received by stockholders as a result of the combination meets certain
minimum requirements set forth in the NPCL. Those minimum requirements are met
if the consideration received by the stockholders is at least equal to the
highest of the following: (i) the highest price per share paid by the
interested stockholder within the three year period immediately preceding the
date of announcement of the combination or in the transaction in which he
became an interested stockholder; (ii) the market value per share of each
class or series of shares, including the common shares, on the date of the
announcement of the combination or on the date the interested stockholder
acquired his shares; or (iii) for holders of preferred stock, the highest
liquidation value of the preferred stock.
(iii) Other Constituencies. Under the NPCL, the selection of a period for
the achievement of corporate goals is the responsibility of the directors. In
addition, the directors and officers, in exercising their respective powers
with a view to the interests of the corporation, may consider (i) the
interests of the corporation's employees, suppliers, creditors and customers,
(ii) the economy of the state and nation, (iii) the interests of the community
and of society and (iv) the long-term as well as short-term interests of the
corporation and its stockholders, including the possibility that these
interests may be best served by the continued independence of the corporation.
The directors also may resist a change or potential change in control of the
corporation if the directors by a majority vote of a quorum determine that the
change or potential change is opposed to or not in the best interests of the
corporation "upon consideration of the interests of the corporation's
stockholders" or for one of the other reasons described above. Finally, the
directors may take action to protect the interests of the corporation and its
stockholders by adopting or executing plans that deny rights, privileges,
power or authority to a holder of a specified number of shares or percentage
of share ownership or voting power.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets as of December 31, 1995 and 1994, and the
consolidated statements of income, retained earnings and cash flows for each
of the three years in the period ended December 31, 1995, and the financial
statement schedule included in Pacific Telesis Group's Annual Report on Form
10-K for the year ended December 31, 1995, incorporated by reference in this
Prospectus/Proxy Statement, have been incorporated by reference in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in auditing and accounting.
The (i) consolidated financial statements of WHI and its subsidiaries, (ii)
consolidated financial statements of Videotron USA and (iii) financial
statements of VBAI, as of and for the fiscal periods ended August 31, 1995 and
1994 included in this Prospectus/Proxy Statement have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing
herein (which reports on the consolidated financial statements of WHI and
Videotron USA and on the financial statements of VBAI, express unqualified
opinions and include explanatory paragraphs referring to the proposed sale and
substantial doubt about WHI's, Videotron USA's and VBAI's ability to continue
as a going concern), and are so included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The consolidated balance sheets, the consolidated statements of operations,
shareholders' equity and cash flows of TTI and its subsidiaries as of and for
the years ended October 31, 1995 and 1994, included in this Prospectus/Proxy
Statement have been audited by KPMG Peat Marwick LLP, independent auditors, as
stated in the reports contained herein, given on the authority of that firm as
experts in auditing and accounting.
92
<PAGE>
LEGAL MATTERS
The validity of the Pacific Telesis Common Stock offered hereby will be
passed upon for Pacific Telesis by Richard W. Odgers, Esq., Executive Vice
President-External Affairs and General Counsel for Pacific Telesis, who
beneficially owns, as of August 31, 1996, approximately 2,399 shares of
Pacific Telesis Common Stock pursuant to the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Salaried Employees and owns
options to purchase an aggregate of 124,000 shares of Pacific Telesis Common
Stock of which options to purchase 70,000 shares of Pacific Telesis Common
Stock are currently exercisable and options to purchase 18,000 shares of
Pacific Telesis Common Stock will be exercisable within a year. Mr. Odgers
owns no shares of TTI Common Stock. Parsons Behle and Latimer, counsel for
TTI, will deliver an opinion as to certain United States Federal income tax
consequences of the Acquisition with respect to TTI and its stockholders.
Parsons Behle & Latimer owns no shares of Pacific Telesis Common Stock or TTI
Common Stock.
93
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets as of October 31, 1995 and
July 31, 1996 (Unaudited).............................................. F-4
Consolidated Condensed Statements of Operations for the nine months
ended July 31, 1996 and 1995 (Unaudited)............................... F-5
Consolidated Condensed Statements of Cash Flow for the nine months ended
July 31, 1996 and 1995 (Unaudited)..................................... F-6
Notes to Consolidated Financial Statements (Unaudited).................. F-7
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-10
Consolidated Balance Sheets as of October 31, 1995 and 1994............. F-11
Consolidated Statements of Operations for the years ended October 31,
1995 and 1994.......................................................... F-12
Consolidated Statements of Shareholders' Equity for the years ended Oc-
tober 31, 1995 and 1994................................................ F-13
Consolidated Statements of Cash Flows for the years ended October 31,
1995 and 1994.......................................................... F-14
Notes to Consolidated Financial Statements.............................. F-15
WIRELESS HOLDINGS, INC.
Interim Financial Statements
Condensed Consolidated Balance Sheets as of May 31, 1996 and August 31,
1995 (Unaudited)....................................................... F-24
Consolidated Statements of Operations for the nine months ended May 31,
1996 and 1995 (Unaudited).............................................. F-25
Consolidated Statements of Cash Flows for the nine months ended May 31,
1996 and 1995 (Unaudited).............................................. F-26
Notes to Condensed Consolidated Financial Statements (Unaudited)........ F-27
Pro Forma Financial Statements
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of May 31,
1996 (Unaudited)....................................................... F-30
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended August 31, 1995 (Unaudited)............................. F-31
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended May 31, 1996 (Unaudited)......................... F-32
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(Unaudited)............................................................ F-33
Annual Financial Statements
Independent Auditors' Report............................................ F-34
Consolidated Balance Sheets as of August 31, 1995 and 1994.............. F-35
Consolidated Statements of Operations for the year ended August 31, 1995
and the period from November 9, 1993 through August 31, 1994........... F-36
Consolidated Statements of Shareholders' Equity for the year ended
August 31, 1995, and the period from November 9, 1993 through
August 31, 1994........................................................ F-37
Consolidated Statements of Cash Flows for the year ended August 31, 1995
and the period from November 9, 1993 through August 31, 1994........... F-38
Notes to Consolidated Financial Statements.............................. F-39
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
VIDEOTRON (BAY AREA) INC.
Interim Financial Statements
Condensed Balance Sheets as of May 31, 1996 and August 31, 1995
(Unaudited)............................................................ F-45
Condensed Statements of Operations for the nine months ended May 31,
1996 and 1995 (Unaudited).............................................. F-46
Condensed Statements of Cash Flows for the nine months ended May 31,
1996 and 1995 (Unaudited).............................................. F-47
Notes to Condensed Financial Statements (Unaudited)..................... F-48
Annual Financial Statements
Independent Auditors' Report............................................ F-50
Balance Sheets as of August 31, 1995 and 1994........................... F-51
Statements of Operations for the year ended August 31, 1995
and the period from November 19, 1993 through August 31, 1994.......... F-52
Statements of Shareholders' Equity for the year ended August 31, 1995,
and the period from November 19, 1993 through August 31, 1994.......... F-53
Statements of Cash Flows for the year ended August 31, 1995
and the period from November 19, 1993 through August 31, 1994.......... F-54
Notes to Financial Statements........................................... F-55
VIDEOTRON USA, INC.
Interim Financial Statements
Condensed Consolidated Balance Sheets as of May 31, 1996 and August 31,
1995 (Unaudited)....................................................... F-61
Condensed Consolidated Statements of Operations for the nine months
ended May 31, 1996 and 1995 (Unaudited)................................ F-62
Consolidated Statements of Cash Flows for the nine months ended May 31,
1996 and 1995 (Unaudited).............................................. F-63
Notes to Condensed Consolidated Financial Statements (Unaudited) ....... F-64
Annual Financial Statements
Independent Auditors' Report............................................ F-66
Consolidated Balance Sheets as of August 31, 1995 and 1994.............. F-67
Consolidated Statements of Operations for the year ended August 31, 1995
and the period from September 3, 1993 through August 31, 1994.......... F-68
Consolidated Statements of Shareholder's Equity for the year ended
August 31, 1995 and the period from September 3, 1993 through
August 31, 1994........................................................ F-69
Consolidated Statements of Cash Flows for the year ended August 31, 1995
and the period from September 3, 1993 through August 31, 1994.......... F-70
Notes to Consolidated Financial Statements.............................. F-71
</TABLE>
F-2
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JULY 31, 1996
The accompanying unaudited consolidated financial statements have been
prepared by Transworld Telecommunications, Inc. (the Company) pursuant to the
rules and regulations of the Securities and Exchange Commission. They do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring entries) necessary
for the fair presentation of the Company's results of operations, financial
position and changes therein for the periods presented have been included.
F-3
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash.............................................. $ 1,027,203 $ 94,391
Receivable from investee company.................. 14,711 3,672
Other current assets.............................. 161,048 15,215
----------- ------------
Total current assets............................ 1,202,962 113,278
Furniture and equipment, at cost, less accumulated
depreciation....................................... 26,325 33,259
Deposits and other assets........................... 6,198 7,666
Investment in and advances to investee companies.... 462,428 1,457,642
----------- ------------
Total Assets.................................... $ 1,697,913 $ 1,611,845
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities.......... $ 360,445 $ 584,487
Note payable--related party....................... -- 150,000
Net current liabilities of discontinued
operation........................................ -- 825,178
----------- ------------
Total current liabilities....................... 360,445 1,559,665
Note Payable...................................... 2,500,000 --
----------- ------------
Total liabilities............................... 2,860,445 1,559,665
Stockholders' Equity (Deficit):
Common stock...................................... 26,564 28,564
Additional paid-in capital........................ 13,853,881 12,964,990
Accumulated deficit............................... (15,042,977) (12,941,374)
----------- ------------
Total stockholders' equity (deficit)............ (1,162,532) 52,180
----------- ------------
Total Liabilities and Stockholders' Equity
(Deficit).................................... $ 1,697,913 $ 1,611,845
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1995
----------- -----------
<S> <C> <C>
Net revenue......................................... $ -- $ --
Operating expenses:
Administrative expenses........................... 370,688 298,489
Salaries and related benefits..................... 597,417 548,772
Professional fees and contract services........... 1,078,111 431,358
Channel rights and programming fees............... -- 173,187
Depreciation and amortization..................... 6,934 110,174
Other............................................. 23,304 10,037
----------- -----------
Total operating expense......................... 2,076,454 1,572,017
----------- -----------
Operating loss...................................... (2,076,454) (1,572,017)
Other income (expense):
Interest income................................... 3,614 207,852
Other income...................................... 172,023 12,568
Interest expense.................................. (43,358) (14,204)
Equity in net loss of investee companies.......... (995,214) (3,965,200)
----------- -----------
Total other income (expense).................... (862,935) (3,758,984)
----------- -----------
Loss from continuing operations................. (2,939,389) (5,331,001)
Income from discontinued operations, net of tax of
$53,476 in 1996 and $98,282 in 1995................ 837,786 1,539,746
----------- -----------
Net Loss............................................ (2,101,603) $(3,791,255)
=========== ===========
Loss per common share:
Continued operations.............................. $ (0.10) $ (0.19)
Discontinued operations........................... 0.03 0.05
----------- -----------
Net loss per common share......................... $ (0.07) $ (0.14)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from continuing operating activities:
Loss from continuing operations.................... $(2,939,389) $(5,331,001)
Adjustments to reconcile net loss to net cash used
in continuing operating activities:
Depreciation and amortization.................... 6,934 110,174
Equity in net loss of investee companies......... 995,214 3,965,200
Issuance of stock options........................ -- 7,500
Common stock issued for services................. -- 50,000
Interest income charged to notes receivable...... -- (207,852)
Changes in assets and liabilities:
Receivable from investee company............... (11,039) 69,559
Other current assets........................... (144,365) 51,179
Accounts payable and accrued liabilities....... (224,042) (284,272)
----------- -----------
Net cash used in continuing operating
activities.................................. (2,316,687) (1,569,513)
Cash flows from discontinued operating activities:
Income from discontinued operations................ 837,786 1,539,746
Change in net liabilities of discontinued
operations........................................ 61,713 (59,746)
----------- -----------
Net cash provided by discontinued operating
activities.................................. 899,499 1,480,000
Cash flows from financing activities:
Proceeds from note payable......................... 2,500,000 --
Payment of note payable-related party.............. (150,000) --
----------- -----------
Net cash provided by financing activities.... 2,350,000 --
Increase (decrease) in cash.......................... 932,812 (89,513)
Cash at beginning of the period...................... 94,391 265,462
----------- -----------
Cash at end of the period............................ $ 1,027,203 $ 175,949
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996
(UNAUDITED)
1. PRESENTATION
The consolidated financial statements include the accounts of Transworld
Telecommunications, Inc. (the Company) and its wholly owned subsidiaries,
including Carolina Communications, Inc. (CCI), a discontinued operation, which
was disposed of by the Company on July 1, 1996. All significant intercompany
accounts and transactions have been eliminated in consolidation. The Company
accounts for its 50 percent interest in Wireless Holdings, Inc. (WHI) and its
20 percent interest in Videotron (Bay Area), Inc. (Videotron Tampa Bay) on the
equity method.
2. INVESTMENTS IN AND ADVANCES TO INVESTEE COMPANIES
Summary financial information as of and for the periods indicated below for
the Company's investment in WHI and Videotron Tampa Bay is presented as
follows:
Videotron Tampa Bay:
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1995
------------ ------------
<S> <C> <C>
Current assets................................... $ 1,170,000 $ 1,272,000
Current liabilities.............................. (17,415,000) (11,414,000)
------------ ------------
Working capital.................................. (16,245,000) (10,142,000)
Fixed assets, net................................ 8,400,000 5,565,000
Intangible assets, net........................... 10,726,000 11,221,000
Deferred income taxes............................ -- (494,000)
Stockholders' equity............................. $ 2,881,000 $ 6,150,000
NINE MONTHS ENDED MAY 31, 1996 AND 1995
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Total revenues................................... $ 1,964,000 $ 664,000
Net loss......................................... (3,269,000) (1,231,000)
Company's equity in net loss................... (653,800) (392,200)
</TABLE>
F-7
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
WHI:
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1995
------------ -----------
<S> <C> <C>
Current assets................................... $ 611,000 $ 1,574,000
Current liabilities.............................. (54,618,000) (46,121,000)
------------ -----------
Working capital.................................. (54,007,000) (44,547,000)
Fixed assets, net................................ 12,527,000 11,113,000
Intangible assets, net........................... 28,906,000 29,420,000
Other............................................ 124,000 (54,000)
Stockholders' equity (deficit)................... $(12,450,000) $(4,068,000)
NINE MONTHS ENDED MAY 31, 1996 AND 1995
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Total revenues................................... $ 3,599,000 $ 3,210,000
Net loss......................................... (8,383,000) (7,146,000)
Company's equity in net loss................... (341,414) (3,573,000)
</TABLE>
The financial statements of WHI and Videotron Tampa Bay disclose certain
uncertainties related to the possible sale of the companies, a related
arbitration proceeding, and reliance on Videotron USA, Inc., the other
principal investor of these companies, and its ultimate parent, Le Groupe
Videotron Ltee, to fund the day to day operations of these companies. These
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should these investee
companies be unable to continue as going concerns. The financial statements of
WHI and Videotron Tampa Bay also disclose that continuation as going concerns
is dependent upon the ability of these companies to generate sufficient cash
flow to meet their obligations on a timely basis, to obtain additional
financing or refinancing, and ultimately to attain successful operations.
The Company recognizes equity in net loss of investee companies to the
extent of investment in and advances to investee companies. As of the
beginning of the fiscal year, the Company had $341,414 of investment in WHI
available for offsetting losses. During the nine months ended May 31, 1996,
the Company completely offset the remaining $341,414 of investment in WHI with
its portion of losses in WHI. Therefore, the Company has discontinued
reporting its share of future losses in WHI on its financial statements. The
Company's unrecognized cumulative portion of loss from its investment in WHI
totals $3,850,086 at May 31, 1996.
F-8
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. DISCONTINUED OPERATIONS
A summary of operating results for the nine months ended July 31, 1996 and
1995 and net liabilities of discontinued operations as of July 31, 1996 and
October 31, 1995 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY
31,
-----------------------
1996 1995
---------- -----------
<S> <C> <C>
Net sales.......................................... $1,716,528 $2,940,934
========== ==========
Income before income tax expense................... $ 891,262 $1,638,028
Income tax expense................................. (53,476) (98,282)
---------- ----------
Net income....................................... $ 837,786 $1,539,746
========== ==========
<CAPTION>
JULY 31, OCTOBER 31,
1996 1995
---------- -----------
<S> <C> <C>
Current assets..................................... $ -- $ 275,816
Other.............................................. -- 33,081
Accounts payable and accrued liabilities........... -- (758,282)
Accounts payable to related party.................. -- (336,146)
---------- ----------
Net current liabilities of discontinued
operation....................................... $ -- $ (785,531)
========== ==========
</TABLE>
The results for the nine months ended July 31, 1996 contain activity through
June 30, 1996 at which time these operations were transferred to the Company's
largest shareholder in redemption of 2,000,000 shares of the Company's common
stock.
4. NET LOSS PER SHARE
Net loss per share was computed based upon the weighted average number of
shares of common stock outstanding.
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Transworld Telecommunications, Inc.:
We have audited the accompanying consolidated balance sheets of Transworld
Telecommunications, Inc. and subsidiaries as of October 31, 1995 and 1994, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the years 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
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Transworld
Telecommunications, Inc. and subsidiaries as of October 31, 1995 and 1994, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
December 22, 1995, except for notes 2 and 10,
which are as of October 22, 1996.
F-10
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 94,391 265,462
Receivable from investee company (note 2)......... 3,672 88,620
Other receivables................................. 15,215 48,230
------------ ----------
Total current assets............................ 113,278 402,312
Furniture and equipment, at cost, less accumulated
depreciation of $12,965 in 1995 and $3,720 in
1994............................................... 33,259 55,503
Deposits and other assets........................... 7,666 8,414
Investment in and advances to investee companies
(notes 2 and 10)................................... 1,457,642 7,155,213
Channel rights/broadcast licenses, at cost, less
accumulated amortization of 56,250 in 1994 (notes 2
and 8)............................................. -- 1,443,750
------------ ----------
$ 1,611,845 9,065,192
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................ $ 261,442 357,670
Accrued liabilities............................... 323,045 538,053
Notes payable--related party (note 3)............. 150,000 150,000
Net current liabilities of discontinued operation
(note 4)......................................... 825,178 845,277
------------ ----------
Total current liabilities....................... 1,559,665 1,891,000
Shareholders' equity (notes 5, 6 and 10):
Common stock (par value $.001; 200,000,000 shares
authorized; issued and outstanding 28,564,228 in
1995 and 28,484,228 shares in 1994).............. 28,564 28,484
Additional paid-in capital........................ 12,964,990 13,912,573
Accumulated deficit............................... (12,941,374) (6,766,865)
------------ ----------
Net stockholders' equity........................ 52,180 7,174,192
Commitments and contingencies (notes 9 and 10)...... -- --
------------ ----------
$ 1,611,845 9,065,192
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Revenues.............................................. $ -- --
----------- ----------
Operating expenses:
Contract services................................... 100,565 1,295,579
Channel rights...................................... 173,187 95,934
Salaries and related benefits....................... 783,506 1,356,551
Professional fees................................... 767,518 734,127
Depreciation and amortization....................... 121,745 59,971
Other............................................... 521,845 641,108
----------- ----------
Total operating expenses.......................... 2,468,366 4,183,270
----------- ----------
Loss from operations.............................. (2,468,366) (4,183,270)
----------- ----------
Other income (expense):
Interest income..................................... 207,852 39,675
Interest expense.................................... (19,077) (304,258)
Equity in net loss of investee companies (note 2)... (5,865,766) (1,405,350)
Other............................................... 75,748 (124,564)
----------- ----------
Total other income (expense)...................... (5,601,243) (1,794,497)
----------- ----------
Loss from continuing operations....................... (8,069,609) (5,977,767)
Income from discontinued operations, net of income tax
expense of $120,964 in 1995 and $135,000 in 1994
(note 4)............................................. 1,895,100 2,351,248
----------- ----------
Net loss............................................ $(6,174,509) (3,626,519)
=========== ==========
Net loss per common share:
Continued operations................................ $ (.28) (.22)
Discontinued operations............................. .06 .09
----------- ----------
$ (.22) (.13)
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED NET
-------------------- PAID-IN EARNINGS SHAREHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
---------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances, October 31,
1993................... 27,308,853 $ 27,309 $ 4,090,610 $ (3,140,346) $ 977,573
Issuance of common stock
for cash............... 50,000 50 19,950 -- 20,000
Issuance of common stock
for services........... 833,000 833 1,101,917 -- 1,102,750
Adjustment for sale of
interest in TV-Tampa... -- -- 461,481 -- 461,481
Issuance of common stock
in connection with the
purchase of channel
leases & licenses...... 956,813 957 3,516,606 -- 3,517,563
Retirement of shares of
major stockholder...... (2,500,000) (2,500) 2,500 -- --
Issuance of options..... -- -- 693,750 -- 693,750
Conversion of preferred
stock and purchase of
debentures............. 1,835,562 1,835 4,025,759 -- 4,027,594
Net loss................ -- -- -- (3,626,519) (3,626,519)
---------- -------- ----------- ------------ -----------
Balances, October 31,
1994................... 28,484,228 $ 28,484 $13,912,573 $ (6,766,865) $ 7,174,192
Issuance of stock in
satisfaction of a
liability.............. 80,000 80 49,920 -- 50,000
Issuance of options..... -- -- 7,500 -- 7,500
Spinoff of assets....... -- -- (1,005,003) -- (1,005,003)
Net loss................ -- -- -- (6,174,509) (6,174,509)
---------- -------- ----------- ------------ -----------
Balances, October 31,
1995................... 28,564,228 $ 28,564 $12,964,990 $(12,941,374) $ 52,180
========== ======== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from continuing operating activities:
Loss from continuing operations.................... $(8,069,609) $(5,977,767)
Adjustments to reconcile net income to net cash
used in continuing operating activities:
Depreciation and amortization.................... 121,745 59,971
Equity in net loss in investee companies......... 5,865,766 1,405,350
Issuance of stock options........................ 7,500 693,750
Interest income issued in the form of additional
debt............................................ (207,852) --
Write-off of WCCI receivable..................... 339,246 --
Common stock issued for services................. -- 1,102,750
Loss on debentures............................... -- 172,393
Changes in assets and liabilities:
Receivables.................................... 117,963 16,999
Other assets................................... 40,405 (135,680)
Account payable and accrued liabilities........ (261,236) (470,569)
Notes payable--related party................... -- 105,000
----------- -----------
Net cash used in continuing operating
activities.................................... (2,046,072) (3,027,803)
----------- -----------
Cash flows from discontinued operating activities:
Income from discontinued operations................ 1,895,100 2,351,248
Change in net liabilities of discontinued
operations........................................ (20,099) 599,488
----------- -----------
Net cash provided by discontinued operating
activities...................................... 1,875,001 2,950,736
----------- -----------
Net cash used in operating activities.......... (171,071) (77,067)
----------- -----------
Cash flows used in investing activities:
Capital expenditures............................... -- (46,223)
Proceeds from sale of interest in subsidiary....... -- 4,632,193
Investment in Wireless Holdings, Inc............... -- (4,642,000)
----------- -----------
Net cash used in investing activities.......... -- (56,030)
----------- -----------
Cash flows from financing activities:
Redemption of preferred stock...................... -- (400,690)
Proceeds from payments on debentures............... -- 700,000
Proceeds from sale of preferred stock.............. -- 10,000
Proceeds from issuance of common stock............. -- 20,000
----------- -----------
Net cash provided by financing activities...... -- 329,310
----------- -----------
Increase (decrease) in cash.......................... (171,071) 196,213
Cash at beginning of year............................ 265,462 69,249
Cash at end of year.................................. $ 94,391 $ 265,462
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid........................................ $ -- $ 3,246
Preferred dividends paid............................. $ -- $ 282,711
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of common stock for:
Conversion of preferred stock and purchase of
debentures........................................ $ -- $ 4,027,594
Purchase of channel leases and licenses............ $ -- $ 3,667,563
Satisfaction of a liability........................ $ 50,000 $ --
Spinoff of assets.................................... $ 1,005,003 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Summary of Business
Transworld Telecommunications, Inc. (the Company) was incorporated under the
laws of the Commonwealth of Pennsylvania. The Company is involved in the
telecommunications industry with continuing operations in wireless cable
television systems. The Company also has "Pay-per-Call" services in the
entertainment and information markets, which are currently held for sale and
classified as discontinued operations.
(b) Principles of Consolidation and Equity Investments
The consolidated financial statements include the accounts of Transworld
Telecommunications, Inc. and its wholly owned subsidiaries, including Carolina
Communications, Inc. (Carolina), a discontinued operation. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company accounts for its 20 percent interest in Videotron Bay Area, Inc.
(Videotron Tampa Bay) and its 50 percent interest in Wireless Holdings, Inc.
(WHI) on the equity method, commencing November 19, 1993 through August 31,
1994 and the fiscal year ended August 31, 1995.
(c) Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid investments purchased with a maturity of three months or less to be
cash or cash equivalents.
(d) Furniture and Equipment
Furniture and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method on estimated useful
lives of five to fifteen years.
(e) Channel Rights and Broadcasting Licenses
Channel rights, licenses, and multiple-dwelling unit agreements are recorded
at cost and are amortized on a straight-line basis over the initial term of
underlying agreements, which range from seven to fifteen years.
(f) Income Taxes
The Company accounts for income taxes using the asset/liability method,
under which deferred tax assets and liabilities are established at the balance
sheet date in amounts that are expected to be recoverable or payable when the
differences in the tax and book basis of assets and liabilities (temporary
differences) reverse.
(g) Loss Per Share
Loss per share is based upon weighted average common shares outstanding
amounting to 28,544,448 and 27,485,673 shares for the two years ended October
31 1995 and 1994, respectively. Common equivalent shares from warrants and
convertible preferred stock are excluded from the computation as their effect
is antidilutive.
(h) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
F-15
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) EQUITY INVESTMENTS
On November 19, 1993, the Company contributed 800 of its 1,000 shares of
Transworld Wireless TV-Tampa Bay, Inc. (TWTV-Tampa) common stock to Videotron
Tampa Bay. Videotron Tampa Bay reissued the 800 shares to Videotron USA, Inc.
(Videotron) for $7 million in cash. Accordingly, effective October 31, 1993,
the accounts of Videotron Tampa Bay are not included in the consolidated
accounts of the Company. Concurrently with this sale, the Company sold
Videotron 1,000 shares of its Class A Series B convertible preferred stock for
$1.5 million in cash. As a result of these transactions, the Company
recognized a contribution to additional paid in capital of $461,481 and a
purchase of preferred stock of $10,000. In addition, the Company received the
right to put its remaining shares of Videotron Tampa Bay for a five year
period at anytime after December 31, 1994 to Videotron for the greater of $2.6
million or the then fair market value. Videotron also holds a right of first
refusal on any sale of the 200 shares of Videotron Tampa Bay held by the
Company.
On November 19, 1993, the Company invested $4,642,000 for a fifty percent
interest in WHI. Videotron invested the other fifty percent interest in WHI.
The business purpose of WHI is to invest in and develop wireless cable
television and private cable systems in the United States.
In February 1994, WHI acquired an existing wireless cable television system
in Spokane, Washington and wireless cable television licenses and lease rights
and a private cable system in San Francisco, California. The combined purchase
price for these assets was $22,500,000 comprised of $11,360,000 of cash and
$11,140,000 in debt and assumption of liabilities.
In May 1994, WHI, through a series of transactions to which the Company was
a party, acquired license and lease rights in Victorville and San Diego,
California, and Greenville, South Carolina. The combined purchase price for
these assets was $6,617,313, comprised of $3,814,750 in cash, liabilities of
$635,000 and 619,312 shares of the Company's common stock valued at
$2,167,563. The issuance of the Company's common stock for the license and
lease rights noted above has been accounted for as an exchange for promissory
notes from WHI.
The promissory notes are due January 15, 1999, at an interest rate equal to
the greater of 15 percent per year or prime plus six percent. In connection
with the transactions, the Company issued 800,000 shares of its common stock,
to a company of which the father of the president of the Company is a part
owner, for services and brokerage fees.
On March 31, 1995, the Company recorded accrued interest in the amount of
$207,852 as the promissory notes were reissued, including accrued interest for
a total of $2,375,415, as unsecured promissory notes with similar terms as the
previous notes except the interest rate was 10.625%. The Company has not
accrued any interest on the notes receivable from WHI after March 31, 1995.
In conjunction with the May 1994 transaction, the Company also acquired
lease and license rights in Auckland, New Zealand. The combined purchase price
for these license and lease rights was $1,500,000, comprised of 337,500 shares
of the Company's common stock and liabilities of $150,000.
A summary of the Company's investment in and advances to investee companies
at October 31 follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Notes receivable...................................... $2,375,415 $2,167,563
Equity investment..................................... (917,773) 4,987,650
---------- ----------
Total............................................... $1,457,642 $7,155,213
========== ==========
</TABLE>
F-16
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company accounts for its equity in investee companies based on the
investee companies' fiscal year which ends August 31. Summary financial
information for the investee companies as of and for the period from November
19, 1993 (the date of WHI's inception) through August 31, 1994 follows:
<TABLE>
<CAPTION>
VIDEOTRON
WHI TAMPA BAY
----------- -----------
<S> <C> <C>
Revenue........................................... $ 2,266,000 $ 700,000
Operating expenses................................ 3,519,000 (1,872,000)
----------- -----------
Operating loss, before interest expense........... (1,253,000) (1,172,000)
Net interest expense.............................. (1,278,000) (164,000)
Minority interest................................. 39,000 --
Income tax benefit................................ -- 520,000
----------- -----------
Net loss.......................................... $(2,492,000) $ (816,000)
=========== ===========
Assets:
Current assets.................................. $ 3,656,000 $ 269,000
Fixed assets.................................... 6,549,000 1,969,000
Licenses, net................................... 21,054,000 11,801,000
Other........................................... -- 32,000
----------- -----------
Total assets.................................. $31,259,000 $14,071,000
=========== ===========
Liabilities:
Current liabilities............................. $24,183,000 $ 3,885,000
Deferred income taxes........................... -- 1,862,000
----------- -----------
Total liabilities............................. 24,183,000 5,747,000
Minority interest................................. 282,000 --
Total stockholders' equity........................ 6,794,000 8,324,000
----------- -----------
Total liabilities and stockholders' equity.... $31,259,000 $14,071,000
=========== ===========
</TABLE>
F-17
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summary financial information for the investee companies as of and for the
fiscal year ended August 31, 1995 follows:
<TABLE>
<CAPTION>
VIDEOTRON
WHI TAMPA BAY
------------ -----------
<S> <C> <C>
Revenue.......................................... $ 4,146,000 $ 942,000
Operating expenses............................... 11,218,000 3,936,000
------------ -----------
Operating loss................................... (7,072,000) (2,994,000)
Net interest expense............................. (4,017,000) (709,000)
Minority interest................................ 227,000 --
Income tax benefit............................... -- 1,428,000
Extraordinary gain............................... -- 101,000
------------ -----------
Net loss......................................... $(10,862,000) $(2,174,000)
============ ===========
Assets:
Current assets................................. $ 1,574,000 $ 1,272,000
Fixed assets................................... 11,113,000 5,565,000
Licenses, net.................................. 29,420,000 11,187,000
Other.......................................... -- 34,000
------------ -----------
Total assets................................. $ 42,107,000 $18,058,000
============ ===========
Liabilities:
Current liabilities............................ $ 46,121,000 $11,414,000
Deferred income taxes.......................... -- 494,000
------------ -----------
Total liabilities.............................. 46,121,000 11,908,000
Minority interest................................ 54,000 --
Total stockholders' equity (deficit)............. (4,068,000) 6,150,000
------------ -----------
Total liabilities and stockholders' equity... $ 42,107,000 $18,058,000
============ ===========
</TABLE>
The financial statements of WHI and Videotron Tampa Bay disclose certain
uncertainties related to the possible sale of the companies, a related
arbitration proceeding, and reliance on Videotron USA, Inc., the other
principal investor of these companies, and its ultimate parent, Le Groupe
Videotron Ltee, to fund the day to day operations of these companies. These
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should these investee
companies be unable to continue as going concerns. The financial statements of
WHI and Videotron Tampa Bay also disclose that continuation as going concerns
is dependent upon the ability of these companies to generate sufficient cash
flow to meet their obligations on a timely basis, to obtain additional
financing or refinancing, and ultimately to attain successful operations.
(3) RELATED PARTY TRANSACTIONS
In addition to related party transactions disclosed elsewhere herein, other
significant related party transactions are summarized as follows:
During fiscal 1994, the Company awarded 15,000 shares of common stock to an
individual, who is the uncle of the Company's Chairman of the Board, for
serving as a director of Carolina. During fiscal 1995 and 1994, the Company
paid various companies owned by directors of the Company $71,304 and $72,739,
respectively, as reimbursement of travel and office expenses. At October 31,
1995 and 1994, the Company's accounts payable included $63,992 and $57,240,
respectively, of payables to officers, directors and companies owned by
officers
F-18
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and directors of the Company. Included in accrued liabilities is a facility
fee payable of $50,000 due to a company of which a director of the Company is
a principal owner. In January 1995, the Company issued 80,000 shares of the
Company's common stock in connection with this transaction. In addition, the
Company paid professional fees to a law firm in the amount of $33,283 in 1994.
A partner in the law firm (and another attorney who is of counsel) are
directors of the Company. During fiscal 1995 and 1994, the Company paid $5,166
and $3,771, respectively, to Videotron Tampa Bay for management fees.
The note payable to a related party is due to a company of which the father
of the president of the Company is a major stockholder. The note is unsecured,
bears interest at 12 percent and was originally due on March 31, 1994. On
February 28, 1995, the note payment date was extended to January 1, 1996 and
the Company paid an additional $15,000 extension fee.
(4) DISCONTINUED OPERATIONS
On February 28, 1994, the Board of Directors approved a plan to sell
Carolina, a wholly owned subsidiary involved in the pay-per-call industry.
Accordingly, Carolina is reported as a discontinued operation in the
consolidated financial statements for all periods presented. It is
management's opinion that the sale of Carolina will not result in a loss.
Accordingly, no provision for loss has been recorded.
A summary of operating results and the net liabilities of the discontinued
operation for the years ended October 31, 1995 and 1994 and the net
liabilities as of October 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Net sales......................................... $ 3,714,383 $5,810,419
=========== ==========
Income before income tax expense.................. $ 2,016,064 $2,486,248
Income tax expense................................ (120,964) (135,000)
----------- ----------
Net income...................................... $ 1,895,100 $2,351,248
=========== ==========
Current assets.................................... $ 222,179 $ 75,510
Property and equipment, net....................... 29,535 43,718
Accounts payable and accrued liabilities.......... (1,076,892) (964,505)
----------- ----------
Net current liabilities of discontinued
operations..................................... $ (825,178) $ (845,277)
=========== ==========
</TABLE>
Included in accrued liabilities are accrued management fees due to a company
owned by the Chairman of the Company's Board of Directors. This company
provides management services to Carolina and Carolina is dependent upon this
company for all operations. Management fees related to the company owned by
the Chairman amounted to $389,500 in 1995 and $390,000 in 1994.
(5) COMMON STOCK
In August 1994, the Company's Chairman of the Board contributed to the
Company 2.5 million shares of his common stock of the Company and options to
acquire 358,334 shares of the Company's common stock. In the opinion of
management, the retirement of these shares and options allowed the Company to
complete the conversion of the preferred stock described in note 6 and certain
stock option awards without materially diluting its other common shareholders'
equity positions.
During the year ended October 31, 1994, the Board of Directors canceled
1,383,335 option shares awarded to officers in 1993, none of which were
exercised, and replaced them with options in the aggregate of 925,000 shares
at $1.00 per share. The option price set forth was below fair market value,
resulting in a compensation
F-19
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
expense to the Company of $693,750. In June 1995, the Company awarded options
in the aggregate of 15,000 shares at $1.25 per share to the Company's three
outside directors. The option price set forth was below fair market value,
resulting in a compensation expense to the Company of $7,500. All of these
options vest at the date of grant and are exercisable for a five-year period.
In addition, during 1994 the Company reserved 3,000,000 shares for issuance
under a stock option plan. Options under this plan have an exercise price
which represent the estimated fair market value of the Company's common stock
at the date of grant, vest at the date of grant, and are exercisable for a
five-year period. The stock options are awarded by a committee appointed by
the Company's Board of Directors. Unoptioned shares available for granting
under the incentive stock option plan at October 31, 1995 are 2,660,000.
A summary of nonqualified stock option activity is set forth below:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
OPTIONS PER SHARE
---------- --------------
<S> <C> <C>
Outstanding at October 31, 1993................... 1,533,335 $2.00 to $3.00
Granted......................................... 1,135,000 $1.00 to $1.75
Canceled........................................ (1,383,335) $2.00 to $3.00
----------
Outstanding at October 31, 1994................... 1,285,000 $1.00 to $3.00
Granted......................................... 145,000 $1.25 to $1.75
----------
Outstanding at October 31, 1995................... 1,430,000 $1.00 to $3.00
==========
</TABLE>
Options exercisable at October 31, 1995 were 1,430,000.
The Company had 1,250,000 each of Class A and B warrants outstanding in
1993. The A warrant gave each warrant holder the right to purchase one share
of common stock at $.30 per share. The B warrant gave the warrantholder the
right to purchase one share of common stock at $.50 per share. The warrants
were not exercisable until the Company filed a registration statement with the
Securities and Exchange Commission and met other requirements. All warrants
expired unissued on February 28, 1994.
(6) CLASS A REDEEMABLE CONVERTIBLE CUMULATIVE PREFERRED STOCK
The Company has authorized 1,000,000 shares of Class A Series A Preferred
Stock, $0.01 par value. The rights and privileges of the Series A redeemable
convertible cumulative preferred stock are as follows: (1) they carry no
voting rights except as described in (5) below; (2) dividends are calculated
at an annual rate of eight percent, paid in semiannual installments and are
cumulative; (3) the stockholders may "put" shares back to the Company in
accordance with a predetermined schedule at a redemption value of $10 per
share; (4) at any time, the stockholders have the option to convert their
principal into the Company's common stock at a conversion price of $3.75 per
common share; (5) if dividend payments are in default, the preferred
stockholders have the right to elect one-half of the Board of Directors of the
Company until all payments in default have been paid; and (6) in the event of
liquidation, the preferred stockholders receive payment before any amounts are
paid to common stockholders. At October 31, 1995 and 1994, there were no
shares outstanding.
During the fiscal year ended October 31, 1994, the Company redeemed 40,069
shares for $400,690 of the Series A redeemable convertible cumulative
preferred stock. In addition, the entire amount remaining of Series A
redeemable convertible cumulative preferred stock was converted into the
Company's common stock in the year ended October 31, 1994 at a conversion
price of $2.75 per common share.
The Company has authorized 2,000,000 shares of Class A Series B Preferred
Stock, $0.01 par value. The rights and privileges of the Series B stockholders
are as follows: (1) the stockholders have voting rights, one
F-20
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
vote per share; (2) dividends are noncumulative and are payable at $100 per
annum per share, when declared; (3) in the event of liquidation, the preferred
stockholders shall receive payment before any amounts are paid to common
stockholders; (4) the Company has the right to redeem in whole or part, at any
time, the Series B preferred stock at a price of $10 per share, plus declared
and unpaid dividends.
In November 1993, the Company issued Videotron, the Company's co-shareholder
in WHI, 1,000 shares of preferred Class A Series B stock. In September 1994,
the Company converted the 1,000 preferred shares into 1,000 shares of the
Company's common stock. At October 31, 1995 and 1994, there were no shares
outstanding.
(7) INCOME TAXES
Due to net operating losses the Company has reported no income tax expense
or benefit attributable to continuing operations for the years ended October
31, 1995 and 1994. The following schedule reconciles the computed "expected"
tax benefit based on U.S. federal corporate tax rates in effect for the year,
to the tax benefit reflected in the accompanying consolidated financial
statements based on loss from continuing operations:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Computed "expected" tax benefit................... $(2,744,000) $(2,032,000)
Discontinued operations........................... 680,000 845,000
Nondeductible dividends........................... -- 96,000
TWTV-Tampa disaffiliation......................... -- 404,000
Change in beginning-of-year valuation allowance... 2,064,000 670,000
Other............................................. -- 17,000
----------- -----------
Total tax benefit............................... $ -- $ --
=========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October
31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Deferred tax assets:
Deferred compensation, due to accrual for financial
reporting purposes.................................. $ 275,000 $274,000
Accrued liabilities not deductible until paid for tax
reporting purposes.................................. 175,000 204,000
Fixed assets, due to differences in depreciation
methods............................................. -- 5,000
Net operating loss carryforward...................... 410,000 288,000
Investment in investee companies..................... 2,070,000 152,000
---------- --------
Total gross deferred tax assets.................... 2,930,000 923,000
Less valuation allowance............................... 2,930,000 923,000
---------- --------
Net deferred tax asset............................... $ -- $ --
========== ========
</TABLE>
The valuation allowance for deferred tax assets as of November 1, 1994 was
$923,000. The net change in the total valuation allowance for the year ended
October 31, 1995 was an increase of $2,007,000. Ensuing recognized tax
benefits, if any, relating to the valuation allowance for deferred tax assets
will be recognized as an income tax benefit in the consolidated statement of
operations.
The Company and its subsidiaries have domestic net operating loss
carryforwards for tax purposes of approximately $1,095,000 expiring between
the years 2007 and 2008. These losses are subject to various federal and state
limitations.
(8) CAROLINA TRANSACTION
On July 26, 1995, the Board of Directors of the Company voted to spinoff to
its shareholders two of its subsidiaries into Wireless Cable & Communications,
Inc. ("WCCI"), a Nevada corporation. On August 1, 1995,
F-21
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Company and WCCI effected the spinoff by the Company contributing its
interest in the subsidiaries (whose primary assets were channel
rights/broadcast licenses in Auckland, New Zealand and Park City, Utah) to
WCCI in exchange for WCCI's issuance to the Company of 3,500,000 shares of its
common stock. The Company then transferred these shares to an escrow agent to
be held for the benefit of the Company's shareholders. The distribution of the
3,500,000 shares from the escrow agent will be delayed until the Company and
WCCI have complied with certain requirements of the securities laws. At that
time, the 3,500,000 shares will be distributed to the Company's shareholders
of record as of August 1, 1995, on a non-pro rata basis, with the management
and principal shareholder relinquishing a portion of their shares in favor of
the public shareholders. The public shareholders as of record on August 1,
1995 will receive approximately 1.6 shares of WCCI's common stock for each 10
shares of the Company's common stock.
In connection with the spin-off, the Company committed to loan up to
$1,000,000 to WCCI through the one year period following the spin-off for
purposes of funding WCCI's ongoing business operations. The commitment is
subject to a number of conditions including the Company having available
resources to fund its other obligations and commitments. In addition, the
Company retained a receivable from WCCI for approximately $340,000 which was
subsequently written off.
(9) COMMITMENTS AND CONTINGENCIES
The Company leases office space and office equipment under noncancelable
operating lease agreements.
As of October 31, 1995, the Company was involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect upon the Company's consolidated financial position, results of
operations or liquidity.
In addition, an action was brought in a Texas State Court in January 1995
against former officers and directors of Euripides Development Corporation,
the predecessor to the Company, alleging fraudulent actions in connection with
the plaintiff's inability to exercise Class A and Class B warrants initially
sold by the Company as part of its 1989 registration statement. The suit asks
for damages and a punitive award of $400,000. Under the expressed terms of the
Company's registration statement on Form S-18, the Company had no obligation
to register the warrants, the warrants were not exercisable unless they were
registered, and, in any event, the plaintiff acquired the warrants in the
secondary market. Management believes the chances of a successful recovery by
the plaintiff are remote.
At October 31, 1995, the Company's working capital deficit totaled
$1,446,387. However, the Company has an option to require Videotron to
purchase the Company's 20 percent interest in Videotron Tampa Bay at the
greater of $2.6 million cash or its fair market value. However, in
management's opinion, the Company expects to satisfy these current liabilities
in the future through a sale of its investment in equity companies, a sale of
its discontinued operations or cash from the sale of the 20 percent interest
in Videotron Tampa Bay, if needed, will provide sufficient cash allowing it to
meet obligations as they are due.
(10) SUBSEQUENT EVENTS
PTG Agreement. On November 9, 1995, the Company entered into an agreement
with Videotron, Le Groupe Videotron Ltee, Videoway Technologies, Ltd.
(Videoway), WHI, Videotron Tampa Bay, certain other affiliates, and Pacific
Telesis Group and a number of its affiliates (collectively, "PTG"), pursuant
to which PTG agreed to acquire, subject to the approval of the Company's
shareholders, the Company's entire interest in WHI and Videotron Tampa Bay
(the "PTG Agreement"). Under the PTG Agreement, PTG would also acquire all of
the stock of Videotron, which holds the stock WHI and Videotron Tampa Bay not
held by the Company. The discussion contained herein regarding the terms of
the PTG Agreement is qualified by reference to the actual terms of the PTG
Agreement.
F-22
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The PTG Agreement provides that PTG would pay the Company and Videoway a
total of approximately $175 million. The consideration would be paid by the
delivery of approximately $120 million of PTG common stock and the assumption
by PTG of approximately $52.5 million of debt currently payable to Videotron
and $2.4 million of debt owed to the Company (which would be paid at closing
in PTG common stock). PTG would also reimburse the Company and Videoway for
certain expenses associated with subscriber additions and certain other
expenses. The purchase price is subject to a number of adjustments (which may
reduce the consideration ultimately received by the Company) and other
conditions. The PTG Agreement requires that the PTG shares be delivered to the
Company for distribution to its shareholders pursuant to a registration
statement under the Securities Act of 1933, as amended. The Company will seek
the approval of its shareholders for the transactions contemplated by the PTG
Agreement.
PTG would not acquire any private cable or wireline systems held by WHI or
Videotron Tampa Bay, which would be disposed of by WHI and/or Videotron prior
to the closing of the PTG Agreement. WHI and Videotron Tampa Bay would
distribute the proceeds from any sale of the excluded assets to the Company
and Videoway.
Under a plan of liquidation to be adopted upon successful completion of the
exchange, the Company would distribute shares of PTG common stock to the
Company's shareholders, except for $6 million of such shares which the Company
would be required to deliver into an escrow for 11 months to secure the
Company's indemnification obligation regarding representations and warranties
to PTG set forth in the PTG Agreement. At the termination of the escrow, the
escrow agent would distribute such $6 million of PTG common stock pro rata to
the Company's shareholders (less any amount retained to cover claims made by
PTG). Other assets and liabilities of the Company would be disposed of or
distributed to the Company's shareholders.
The Company has previously entered into employment agreements with certain
key officers and employees of the Company which, among other provisions,
contains provisions that commit the Company to severance payments under
certain circumstances, including termination within 60 days of a change of
control, as defined. The transactions contemplated by the PTG Agreement would
constitute a change of control for purposes of the employment agreements.
Arbitration Proceeding. On September 24, 1996, PTG filed a demand for
arbitration (Arbitration Demand) naming the Company, Le Groupe Videotron Ltee,
Videoway, WHI, Videotron and Videotron Tampa Bay and alleging breach of the
obligations under the PTG Agreement. The Arbitration Demand requests a
declaration that the Company, Le Groupe Videotron Ltee, Videoway, WHI,
Videotron and Videotron Tampa Bay complete the transaction contemplated by the
PTG Agreement. In addition, the Arbitration Demand requests damages, interest
and attorney fees. The Company is contesting PTG's claims and intends to
defend the action vigorously. Management believes that the ultimate resolution
of the above Arbitration Demand will not have a material adverse effect on the
Company's financial position, results of operations, and cash flows or on the
likelihood that the proposed transaction with PTG will be consummated.
Supplemental Agreement. On January 23, 1996 (effective November 9, 1995),
the Company signed an agreement with Videotron and other affiliated parties to
define procedures to completing the PTG Agreement, amend the Settlement
Agreement to conform with the terms of the PTG Agreement, and provide WHI and
Videotron Tampa Bay with operational funding until the transaction
contemplated under the PTG Agreement closes.
As part of this agreement, Videotron agreed to provide funding to WHI and
Videotron Tampa Bay to enable them to perform their respective obligations
under the PTG Agreement until the transactions contemplated under the PTG
Agreement are consummated.
Note Extension. On January 1, 1996, the Company signed an agreement to
extend the payment date of the note due to the father of the president of the
Company to January 1, 1997. The note and accrued interest will continue to
bear interest at 12 percent.
F-23
<PAGE>
WIRELESS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 1996 AND AUGUST 31, 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1995
-------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash equivalents........................................ $ 73 $ 78
Accounts receivable..................................... 155 488
Inventories............................................. 242 874
Prepaid expenses........................................ 141 134
-------- --------
Total current assets.................................. 611 1,574
FIXED ASSETS, NET......................................... 12,527 11,113
LICENSES, NET............................................. 28,906 29,420
-------- --------
TOTAL ASSETS.............................................. $ 42,044 $ 42,107
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt payable to shareholders............................ $ 48,176 $ 42,397
Accounts payable and accrued liabilities................ 1,091 2,022
Interest payable to shareholders........................ 5,351 1,702
-------- --------
Total current liabilities............................. 54,618 46,121
-------- --------
MINORITY INTEREST......................................... (124) 54
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 1, 2 and 3)..........
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock (par value of $0.001 per share; 50,000
shares authorized,
9,284 shares issued and outstanding)................... 2 1
Additional paid-in capital.............................. 9,285 9,285
Accumulated deficit..................................... (21,737) (13,354)
-------- --------
Total................................................. (12,450) (4,068)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)...... $ 42,044 $ 42,107
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-24
<PAGE>
WIRELESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
REVENUES.................................................. $ 3,599 $ 3,210
COST OF REVENUES--PROGRAMMING AND CHANNEL FEES............ 1,651 1,601
-------- --------
GROSS PROFIT.............................................. 1,948 1,609
OPERATING AND ADMINISTRATIVE EXPENSES..................... 4,457 4,530
-------- --------
LOSS FROM OPERATIONS BEFORE DEPRECIATION AND
AMORTIZATION............................................. (2,509) (2,921)
DEPRECIATION AND AMORTIZATION............................. 2,400 1,362
-------- --------
OPERATING LOSS............................................ (4,909) (4,283)
-------- --------
INTEREST EXPENSE (INCOME):
Interest expense on debt to shareholders................ 3,650 3,051
Interest income......................................... -- (32)
-------- --------
Total interest expense (income)....................... 3,650 3,019
-------- --------
LOSS BEFORE MINORITY INTEREST............................. (8,559) (7,302)
MINORITY INTEREST......................................... 176 156
-------- --------
NET LOSS.................................................. $ (8,383) $ (7,146)
======== ========
NET LOSS PER SHARE........................................ $(902.95) $(769.71)
======== ========
SHARES USED IN COMPUTING NET LOSS PER SHARE............... 9,284 9,284
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-25
<PAGE>
WIRELESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(8,383) $ (7,146)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization........................... 2,400 1,362
Interest payable on debt to shareholders................ 3,649
Minority interest....................................... (176) (156)
Changes in assets and liabilities:
Accounts receivable................................... 333 (181)
Inventories........................................... 632 (575)
Prepaid expenses...................................... (7) (22)
Accounts payable and accrued liabilities.............. (932) 97
------- --------
Net cash used by operating activities............... (2,484) (6,621)
------- --------
INVESTING ACTIVITIES:
Acquisition of wireless cable businesses.................. -- (1,212)
Acquisition of fixed assets............................... (3,300) (5,585)
Acquisition of licenses................................... -- (6,107)
------- --------
Net cash used by investing activities............... (3,300) (12,904)
------- --------
FINANCING ACTIVITIES:
Issuance of debt payable to shareholders.................. 5,779 16,312
------- --------
Net cash provided by financing activities........... 5,779 16,312
------- --------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS................. (5) (3,213)
CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 78 3,338
------- --------
CASH EQUIVALENTS AT END OF PERIOD........................... $ 73 $ 125
======= ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-26
<PAGE>
WIRELESS HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(UNAUDITED)
1. BASIS OF PRESENTATION AND ORGANIZATION
Wireless Holdings, Inc. (the "Company" or "WHI") was incorporated on
November 9, 1993 under the laws of the State of Delaware. The Company is 50%
owned by Videotron USA, Inc. ("Videotron USA") whose ultimate parent is Le
Groupe Videotron Ltee and 50% owned by Transworld Telecommunications, Inc.
("TTI").
The Company was formed to acquire, develop and operate wireless cable
television systems in the United States. Wireless cable television, a
developing industry, provides television programming by transmitting a signal
via microwave frequencies licensed by the Federal Communications Commission
("FCC") to antennas located at the subscribers' premises. At May 31, 1996 the
Company operated wireless cable systems in the San Francisco Bay Area and
Spokane, Washington and held license rights for wireless cable networks in
Greenville, South Carolina, Seattle, Washington, Victorville and San Diego,
California that are not currently being marketed to subscribers. The majority
of the revenue in the nine month period ended May 31, 1996 and in fiscal 1995
was provided by the Satellite Master Antenna Television ("SMATV") systems and
equipment operating in the San Francisco Bay Area and Multi Channel and Multi
Point Distribution Systems ("MMDS") in Spokane.
As the Company operates in a developing industry, the Company is subject to
all the risks and expenses inherent with the establishment of a new business
enterprise based upon innovative technology. There can be no assurance that
the Company's operations will become profitable or will produce positive cash
flows.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and include all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
presentation of the financial position, operating results and cash flows for
those periods. Results for the interim periods are not necessarily indicative
of the results for the entire year. These condensed consolidated financial
statements, and notes thereto, should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended August 31,
1995 appearing in this Registration Statement of Pacific Telesis Group on Form
S-4.
2. PROPOSED SALE TO PACIFIC TELESIS GROUP
Effective November 9, 1995, Le Groupe Videotron Ltee, TTI, WHI, Videotron
USA, and Videotron (Bay Area) Inc. entered into a Stock Purchase Agreement to
sell WHI, Videotron USA and Videotron (Bay Area) Inc. to Pacific Telesis Group
for approximately $175 million. The purchase price is comprised of
approximately $125 million of Pacific Telesis Group's common stock and cash of
approximately $50 million, and is subject to certain pre-closing and post-
closing adjustments.
The proposed transaction is contingent upon among other things, FCC and
other regulatory approvals and approval of TTI's shareholders. Certain private
cable (primarily the SMATV operations in the San Francisco Bay Area) and
wireline (primarily in Spokane) systems held by WHI are not included in the
proposed sale to Pacific Telesis Group. Such systems and the related
liabilities of WHI (which comprise less than 10% of the total assets of WHI
and whose operations represent approximately 50% of WHI's revenues) were sold
on July 31, 1996 to affiliates of Le Groupe Videotron Ltee for approximately
$3,800,000 and the assumption of related liabilities.
F-27
<PAGE>
WIRELESS HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On September 24, 1996, Pacific Telesis Group filed a demand for arbitration
("Arbitration Demand") naming TTI, Le Groupe Videotron Ltee, Videoway
Technologies Ltd. (an affiliate of Le Groupe Videotron Ltee), WHI, Videotron
USA and Videotron (Bay Area) Inc. and alleging breach of the obligations under
the Stock Purchase Agreement. The Arbitration Demand requests a declaration
that TTI, Le Groupe Videotron Ltee, Videoway Technologies Ltd., WHI, Videotron
USA and Videotron (Bay Area) Inc. complete the transaction contemplated by the
Stock Purchase Agreement. In addition, the Arbitration Demand requests
damages, interest and attorney fees. The Arbitration Demand does not contain
any specific allegations of wrongdoing by WHI although relief is sought
against all named parties. WHI is contesting Pacific Telesis Group's claims
and intends to defend the action vigorously. Management believes that the
ultimate resolution of the above Arbitration Demand will not have a material
adverse effect on WHI's financial position, results of operations, and cash
flows or on the likelihood that the proposed transaction with Pacific Telesis
Group will be consummated.
3. GOING CONCERN UNCERTAINTY
Cash used by operating activities and investing activities in the nine
months ended May 31, 1996 was $2,484,000 and $3,300,000, respectively. Net
loss for the nine months ended May 31, 1996 and 1995 was $8,383,000 and
$7,146,000. Since its inception, the Company has been substantially dependent
upon Videotron USA, to fund the Company's day-to-day operations and capital
infrastructure spending requirements. There can be no assurance that the
Company's operations will become profitable or will produce positive cash
flows.
As discussed in Note 2, the Company has entered into a Stock Purchase
Agreement effective November 9, 1995 with Pacific Telesis Group for the
proposed sale of the Company. Pursuant to a supplemental settlement agreement
effective November 9, 1995 among the shareholders and certain of their related
parties and pursuant to the Stock Purchase Agreement, Videotron USA and its
ultimate parent Le Groupe Videotron Ltee will continue to fund the Company's
day-to-day operations and fulfill the Company's financial obligations as long
as Pacific Telesis Group remains obligated to consummate the acquisition under
the Stock Purchase Agreement. Management of the Company believes it is
probable that the proposed transaction with the Pacific Telesis Group will be
consummated. If the proposed transaction with Pacific Telesis Group is not
consummated, the Company in conjunction with its shareholders, intends to fund
the Company's day-to-day operations through December 31, 1996, reschedule or
restructure the debt payable to such shareholders as necessary and potentially
sell or lease some of the Company's licenses, to allow the Company to fulfill
its other financial obligations, while maintaining its capital expenditures at
a level sufficient to sustain operations through December 31, 1996.
The accompanying condensed consolidated financial statements have been
prepared on the going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. The
matters discussed above, and in Note 2, may indicate that the Company will be
unable to continue as a going concern for a reasonable period of time.
The condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain additional financing or refinancing, and ultimately to attain
successful operations.
F-28
<PAGE>
PRO FORMA FINANCIAL INFORMATION OF WHI
The following unaudited pro forma condensed consolidated financial
information consists of an unaudited pro forma condensed consolidated balance
sheet as of May 31, 1996 and unaudited pro forma condensed consolidated
statements of operations for the year ended August 31, 1995 and the nine
months ended May 31, 1996 (collectively the "Pro Forma Statements"). The
unaudited pro forma condensed consolidated balance sheet as of May 31, 1996
gives effect to the July 31, 1996 sale of certain private cable operations of
WHI (consisting of SMATV systems in San Francisco and a franchised cable and
related systems in Spokane) to affiliates of Le Groupe Videotron Ltee (the
"Spin-Off") for approximately $3,800,000 as if it had occurred on May 31,
1996. The unaudited pro forma condensed consolidated statements of operations
give effect to the Spin-Off as if it had occurred as of the beginning of those
respective periods.
Unaudited pro forma adjustments are based upon historical information,
preliminary estimates and certain assumptions that WHI deems appropriate. The
unaudited pro forma condensed financial information presented herein is not
necessarily indicative of the results of WHI that would have been obtained had
such events occurred at the beginning of the period, or of the future results
of WHI. The Pro Forma Statements should be read in conjunction with the other
financial statements of WHI and notes thereto appearing elsewhere in this
Prospectus/Proxy Statement.
F-29
<PAGE>
WIRELESS HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MAY 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MAY 31, PRO FORMA MAY 31,
1996 ADJUSTMENTS 1996
-------- ----------- ---------
<S> <C> <C> <C>
CURRENT ASSETS........................... $ 611 $ (363)(1) $ 248
FIXED ASSETS, NET........................ 12,527 (2,354)(1) 10,173
LICENSES, NET............................ 28,906 (2,275) 26,631
-------- ------- --------
TOTAL ASSETS............................. $ 42,044 $(4,992) $ 37,052
======== ======= ========
CURRENT LIABILITIES...................... $ 54,618 $(4,140)(1)(2) $ 50,478
MINORITY INTEREST........................ (124) (124)
SHAREHOLDERS' EQUITY (DEFICIT)........... (12,450) (852)(3) (13,302)
-------- ------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)........................ $ 42,044 $(4,992) $ 37,052
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-30
<PAGE>
WIRELESS HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED YEAR ENDED
AUGUST 31, PRO FORMA AUGUST 31,
1995 ADJUSTMENTS 1995
---------- ----------- ----------
<S> <C> <C> <C>
REVENUES................................. $ 4,146 $(2,614)(4) $ 1,532
COST OF REVENUES--PROGRAMMING AND CHANNEL
FEES.................................... 2,126 (1,201)(4) 925
---------- ------- --------
GROSS PROFIT............................. 2,020 1,413 607
OPERATING AND ADMINISTRATIVE EXPENSES.... 6,650 (2,500)(4) 4,150
DEPRECIATION AND AMORTIZATION............ 2,442 (399)(4) 2,043
---------- ------- --------
OPERATING LOSS........................... (7,072) (1,486) (5,586)
INTEREST EXPENSE, NET.................... 4,017 (434)(5) 3,583
---------- ------- --------
LOSS BEFORE MINORITY INTEREST............ (11,089) (1,920) (9,169)
MINORITY INTEREST........................ 227 227
---------- ------- --------
NET LOSS................................. $ (10,862) $(1,920) $ (8,942)
========== ======= ========
NET LOSS PER SHARE....................... $(1,169.97) $(963.16)
========== ========
SHARES USED IN COMPUTING NET LOSS PER
SHARE................................... 9,284 9,284
========== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-31
<PAGE>
WIRELESS HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MAY 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
NINE MONTHS NINE MONTHS
ENDED ENDED
MAY 31, PRO FORMA MAY 31,
1996 ADJUSTMENTS 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES................................ $ 3,599 $(1,876)(4) $ 1,723
COST OF REVENUES--PROGRAMMING AND
CHANNEL FEES........................... 1,651 (735)(4) 916
-------- ------- --------
GROSS PROFIT............................ 1,948 1,141 807
OPERATING AND ADMINISTRATIVE EXPENSES... 4,457 (1,387)(4) 3,070
DEPRECIATION AND AMORTIZATION........... 2,400 (395)(4) 2,005
-------- ------- --------
OPERATING LOSS.......................... (4,909) (641) (4,268)
INTEREST EXPENSE, NET................... 3,650 (325)(5) 3,325
-------- ------- --------
LOSS BEFORE MINORITY INTEREST........... (8,559) (966) (7,593)
MINORITY INTEREST....................... 176 176
-------- ------- --------
NET LOSS................................ $ (8,383) $ (966) $ (7,417)
======== ======= ========
NET LOSS PER SHARE...................... $(902.95) $(798.90)
======== ========
SHARES USED IN COMPUTING NET LOSS PER
SHARE.................................. 9,284 9,284
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-32
<PAGE>
WIRELESS HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated balance sheet
presents the financial condition of WHI as if the Spin-Off had occurred as of
May 31, 1996. The accompanying unaudited pro forma condensed consolidated
statements of operations present the results of operations for the fiscal year
ended August 31, 1995 and the nine months ended May 31, 1996 as if the Spin-
Off had occurred at the beginning of the respective periods.
The accompanying unaudited pro forma condensed consolidated financial
statements have been prepared on the going concern basis, which contemplates
the realization of assets and satisfaction of liabilities in the normal course
of business. The matters discussed in the consolidated financial statement of
WHI for the years ended August 31, 1995 and 1994 appearing elsewhere in this
Prospectus/Proxy Statement may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.
The unaudited pro forma condensed consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should WHI be unable to continue as a going concern. WHI's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to obtain
additional financing or refinancing, and ultimately to attain successful
operations.
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1) To reflect the elimination of the assets and liabilities subject to the
Spin-Off as follows:
<TABLE>
<S> <C>
Current assets................................................ $ 363,000
Fixed assets (consisting primarily of all fixed assets except
certain wireless cable television electronic equipment (head-
ends))....................................................... 2,354,000
Licenses...................................................... 2,275,000
Current liabilities........................................... 320,000
</TABLE>
(2) To reflect application of proceeds to debt payable to shareholders of
approximately $3,820,000 from an affiliate of Le Groupe Videotron Ltee
received upon consummation of the Spin-Off.
(3) To reflect loss on Spin-Off comprised of $3,820,000 proceeds less
$4,672,000 net book value of assets and liabilities subject to the Spin-
Off. See (1) and (2) above.
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(4) To reflect the elimination of the operating results of the SMATV
operations in the San Francisco Bay Area and wireline systems in Spokane
sold to VPC Corporation and County Cable Corp., affiliates of Le Groupe
Videotron Ltee.
(5) To reflect decrease in interest expense as a result of the application of
the proceeds of approximately $3,820,000 to debt payable to shareholders.
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Wireless Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Wireless
Holdings, Inc. and its subsidiaries (the "Company") as of August 31, 1995 and
1994, and the related consolidated statements of operations, shareholders'
equity and cash flows for the year ended August 31, 1995 and the period from
November 9, 1993 (date of inception) to August 31, 1994. These consolidated
financial statements are the responsibility of the Company's management and
its shareholders. Our responsibility is to express an opinion on these
consolidated 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 consolidated 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at August 31,
1995 and 1994, and the results of its operations and its cash flows for the
above-stated periods in conformity with generally accepted accounting
principles.
We have not audited any consolidated financial statements of the Company for
any period subsequent to August 31, 1995. The accompanying consolidated
financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 13 to the consolidated
financial statements, since its inception, the Company has been substantially
dependent on Videotron USA, Inc., one of its shareholders, and that
shareholder's ultimate parent, Le Groupe Videotron Ltee, to fund the Company's
day-to-day operations and capital infrastructure spending requirements. As
discussed in Note 11 to the consolidated financial statements, the Company has
entered into a Stock Purchase Agreement effective November 9, 1995 with
Pacific Telesis Group for the proposed sale of the Company. As discussed in
Notes 11 and 13 to the consolidated financial statements, pursuant to a
supplemental settlement agreement effective November 9, 1995 among the
shareholders and certain of their related parties and pursuant to the Stock
Purchase Agreement, Videotron USA, Inc. and its ultimate parent Le Group
Videotron Ltee will continue to fund the Company's day-to-day operations and
fulfill the Company's financial obligations for as long as Pacific Telesis
Group remains obligated to consummate the Stock Purchase Agreement. As
discussed in Note 14 to the consolidated financial statements, on September
24, 1996 Pacific Telesis Group filed an arbitration proceeding against the
Company and other related parties regarding the Stock Purchase Agreement. If
the proposed transaction with Pacific Telesis Group is not consummated, the
Company in conjunction with its shareholders, intends to fund the Company's
day-to-day operations through December 31, 1996, reschedule or restructure the
debt payable to such shareholders as necessary and potentially sell or lease
some of the Company's licenses, to allow the Company to fulfill its other
financial obligations, while maintaining its capital expenditures at a level
sufficient to sustain operations through December 31, 1996. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
San Francisco, California
April 2, 1996 (October 21, 1996 as to Notes 11, 12, 13 and 14)
F-34
<PAGE>
WIRELESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash equivalents.......................................... $ 78 $ 3,338
Accounts receivable, net of allowance for doubtful
accounts of $10 and
$23, respectively........................................ 488 121
Inventories............................................... 874 81
Prepaid expenses.......................................... 134 116
-------- -------
Total current assets.................................... 1,574 3,656
FIXED ASSETS, NET........................................... 11,113 6,549
LICENSES, NET............................................... 29,420 21,054
-------- -------
TOTAL ASSETS................................................ $ 42,107 $31,259
======== =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Debt payable to shareholders.............................. $ 42,397 $21,814
Accounts payable and accrued liabilities.................. 2,022 1,069
Interest payable to shareholders.......................... 1,702 1,300
-------- -------
Total current liabilities............................... 46,121 24,183
-------- -------
MINORITY INTEREST........................................... 54 282
-------- -------
COMMITMENTS AND CONTINGENCIES (Notes 1, 9, 11, 12, 13 and
14)........................................................
SHAREHOLDERS' EQUITY:
Common stock (par value of $0.001 per share; 50,000 shares
authorized,
9,284 shares issued and outstanding)..................... 1 1
Additional paid-in capital................................ 9,285 9,285
Accumulated deficit....................................... (13,354) (2,492)
-------- -------
Total................................................... (4,068) 6,794
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 42,107 $31,259
======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-35
<PAGE>
WIRELESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED AUGUST 31, 1995 AND PERIOD FROM
NOVEMBER 9, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
REVENUES................................................ $ 4,146 $ 2,266
COST OF REVENUES--PROGRAMMING AND CHANNEL FEES.......... 2,126 878
---------- --------
GROSS PROFIT............................................ 2,020 1,388
OPERATING AND ADMINISTRATIVE EXPENSES:
Selling, general and administration................... 6,259 1,660
Technical............................................. 391 148
---------- --------
Total............................................... 6,650 1,808
---------- --------
LOSS FROM OPERATIONS BEFORE DEPRECIATION AND
AMORTIZATION........................................... (4,630) (420)
DEPRECIATION AND AMORTIZATION........................... 2,442 833
---------- --------
OPERATING LOSS.......................................... (7,072) (1,253)
---------- --------
INTEREST EXPENSE (INCOME):
Interest expense on debt to shareholders.............. 4,083 1,293
Interest income....................................... (66) (15)
---------- --------
Total interest expense (income)..................... 4,017 1,278
---------- --------
LOSS BEFORE MINORITY INTEREST........................... (11,089) (2,531)
MINORITY INTEREST....................................... 227 39
---------- --------
NET LOSS................................................ $ (10,862) $ (2,492)
========== ========
NET LOSS PER SHARE...................................... $(1,169.97) $(268.42)
========== ========
SHARES USED IN COMPUTING NET LOSS PER SHARE............. 9,284 9,284
========== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-36
<PAGE>
WIRELESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED AUGUST 31, 1995 AND PERIOD FROM
NOVEMBER 9, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK TO AND
ADDITIONAL CAPITAL CONTRIBUTION
FROM TTI AND VIDEOTRON USA,
INC. .......................... 9,284 $ 1 $9,285 -- $ 9,286
NET LOSS........................ -- -- -- $ (2,492) (2,492)
----- ---- ------ -------- --------
BALANCE, AUGUST 31, 1994........ 9,284 1 9,285 (2,492) 6,794
NET LOSS........................ -- -- -- (10,862) (10,862)
----- ---- ------ -------- --------
BALANCE, AUGUST 31, 1995........ 9,284 $ 1 $9,285 $(13,354) $ (4,068)
===== ==== ====== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-37
<PAGE>
WIRELESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED AUGUST 31, 1995 AND PERIOD FROM
NOVEMBER 9, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................. $(10,862) $ (2,492)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization.......................... 2,442 833
Interest payable on debt to shareholders............... 4,076 1,298
Minority interest...................................... (227) (39)
Changes in assets and liabilities:
Accounts receivable.................................. (367) 55
Inventories.......................................... (793) (42)
Prepaid expenses..................................... (19) (91)
Accounts payable and accrued liabilities............. 653 340
-------- --------
Net cash used by operating activities.............. (5,097) (138)
-------- --------
INVESTING ACTIVITIES:
Acquisition of wireless cable businesses................. (1,212) (25,537)
Acquisition of fixed assets.............................. (5,585) (1,647)
Acquisition of licenses.................................. (6,107) (440)
-------- --------
Net cash used by investing activities.............. (12,904) (27,624)
-------- --------
FINANCING ACTIVITIES:
Issuance of common shares................................ -- 9,286
Issuance of debt payable to shareholders................. 14,741 21,814
-------- --------
Net cash provided by financing activities.......... 14,741 31,100
-------- --------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS................ (3,260) 3,338
CASH EQUIVALENTS AT BEGINNING OF PERIOD.................... 3,338 --
-------- --------
CASH EQUIVALENTS AT END OF PERIOD.......................... $ 78 $ 3,338
======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Assumed liabilities from acquisition of wireless cable
businesses.............................................. $ 300 $ 732
======== ========
Promissory note to TTI for acquisition of wireless cable
business................................................ $ 2,168 $ --
======== ========
Conversion of interest payable to shareholders to debt
payable to shareholders................................. $ 3,674 $ --
======== ========
Issuance of common stock of a subsidiary to a minority
interest in connection with acquisition of wireless
cable business.......................................... $ -- $ 366
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-38
<PAGE>
WIRELESS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED AUGUST 31, 1995 AND PERIOD FROM
NOVEMBER 9, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
1. ORGANIZATION
Wireless Holdings, Inc. (the "Company" or "WHI") was incorporated on
November 9, 1993 under the laws of the State of Delaware. The Company is 50%
owned by Videotron USA, Inc. ("Videotron USA") whose ultimate parent is Le
Groupe Videotron Ltee and 50% owned by Transworld Telecommunications, Inc.
("TTI").
The Company was formed to acquire, develop and operate wireless cable
television systems in the United States. Wireless cable television, a
developing industry, provides television programming by transmitting a signal
via microwave frequencies licensed by the Federal Communications Commission
("FCC") to antennas located at the subscribers' premises. At August 31, 1995
the Company operated wireless cable systems in the San Francisco Bay Area and
Spokane and held license rights for wireless cable networks in Greenville,
South Carolina, Seattle, Washington, Victorville and San Diego, California
that have not begun operations. The majority of the revenue in 1995 and 1994
was provided by the Satellite Master Antenna Television ("SMATV") systems and
equipment operating in the San Francisco Bay Area and Multi Channel and Multi
Point Distribution Systems ("MMDS") in Spokane.
As the Company operates in a developing industry, the Company is subject to
all the risks and expenses inherent with the establishment of a new business
enterprise based upon innovative technology. There can be no assurance that
the Company's operations will become profitable or will produce positive cash
flows. See Note 13.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation--The consolidated financial statements include the accounts of
the Company and all its subsidiaries. The subsidiaries and the percentages of
ownership are as follows:
<TABLE>
<S> <C>
Bay Area Cablevision, Inc. ........................................... 94%
Transworld Wireless TV--Spokane, Inc. ................................ 100%
WHI--San Diego, Inc. ................................................. 100%
TTI Acquisition Corp. ................................................ 100%
</TABLE>
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 Equivalents--The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Inventories are recorded at the lower of cost or market. Cost is determined
according to the first-in, first-out method.
Fixed assets are recorded at cost. Expenditures for additions, improvements
and replacements are capitalized, whereas expenses for maintenance and repairs
are charged to operating and administrative expenses.
F-39
<PAGE>
WIRELESS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation is calculated using the straight-line method as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Wireless cable television electronic equipment...................... 15
Cable wiring and equipment.......................................... 10
Installation labor.................................................. 3
SMATV systems and equipment......................................... 10
Furniture and equipment............................................. 5
</TABLE>
Licenses represent the acquisition cost of rights to operate wireless cable
networks. The Company amortizes licenses using the straight-line method over
20 years. The Company evaluates the carrying value of licenses annually based
upon its estimates of future net revenues or fair market value of such
licenses.
Revenue Recognition--Subscription revenues are recognized in the period of
service.
Income Taxes--The Company accounts for income taxes using the asset and
liability method under Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes.
Net Loss Per Share--Net loss per share is calculated based upon shares of
common stock outstanding.
Fair Value of Financial Instruments--Management of the Company believes it
is not practicable to estimate the fair value of the debt payable to
shareholders described in Note 7 because of the related party nature of such
obligations. Management believes that the Company's other financial
instruments' carrying amounts are a reasonable estimate of their fair values.
New Accounting Standard--In 1995, the Financial Accounting Standards Board
issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. The Company's adoption of this
standard as of August 31, 1995 had no impact on the consolidated financial
statements.
3. DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the fiscal year and period ended August
31, 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1994
------ ----
(IN
THOUSANDS)
<S> <C> <C>
Depreciation of fixed assets.................................. $1,021 $348
Amortization of licenses...................................... 1,421 485
------ ----
Total..................................................... $2,442 $833
====== ====
</TABLE>
4. FIXED ASSETS
Fixed assets at August 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Wireless cable television electronic equipment........... $ 6,212 $2,932
Cable wiring and installation............................ 2,011 1,348
SMATV systems and equipment.............................. 2,377 2,215
Furniture and equipment.................................. 1,882 402
------- ------
Total................................................ 12,482 6,897
Accumulated depreciation................................. (1,369) (348)
------- ------
Fixed assets--net........................................ $11,113 $6,549
======= ======
</TABLE>
F-40
<PAGE>
WIRELESS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LICENSES
Licenses at August 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Licenses................................................ $31,326 $21,539
Accumulated amortization................................ (1,906) (485)
------- -------
Licenses--net........................................... $29,420 $21,054
======= =======
</TABLE>
6. ACQUISITION OF WIRELESS CABLE BUSINESSES
In February 1994, the Company acquired the net assets of wireless cable
businesses located in Spokane, Washington and San Francisco, California.
Operations of such businesses prior to February 1994 were not significant. In
May 1994, through a series of transactions ending in 1995, the Company
acquired the license rights for wireless cable networks that have not begun
operations in Greenville, South Carolina, Seattle, Washington, and Victorville
and San Diego, California. The cost of these acquisitions through August 31,
1994 was $25,537,000. In the year ended August 31, 1995, the Company issued a
$2,168,000 promissory note to TTI (see Note 7), assumed liabilities of
$300,000 and paid additional cash of $1,212,000 to complete such acquisitions.
The acquisitions were accounted for using the purchase method and the fair
market values of the net assets acquired were as follows:
<TABLE>
<CAPTION>
1995 1994
------ -------
(IN THOUSANDS)
<S> <C> <C>
Net working capital...................................... $ (300) $ (492)
Fixed assets............................................. -- 5,250
Licenses................................................. 3,680 21,145
Minority interest........................................ -- (366)
------ -------
Total................................................ $3,380 $25,537
====== =======
</TABLE>
7. DEBT PAYABLE TO SHAREHOLDERS AND SHAREHOLDER SETTLEMENT AGREEMENT
Debt payable to shareholders consisted of the following at August 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Note payable to Videotron USA, bearing interest at 10
5/8%.................................................... $40,021 $18,574
Promissory note to TTI, bearing interest at 10 5/8%...... 2,376 --
Convertible note to Videotron USA, bearing interest at
the greater of 2.5% over the prime rate or 18.0%,
convertible at the option of Videotron USA upon certain
conditions at the price of $1,000 per Common Share,
maturing in 1995........................................ -- 1,858
Promissory notes (50% to Videotron USA and 50% to TTI)
bearing interest at the greater of 6.0% over the prime
rate or 15.0%........................................... -- 1,382
------- -------
Total................................................ $42,397 $21,814
======= =======
</TABLE>
F-41
<PAGE>
WIRELESS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The shareholders of WHI, Videotron USA and TTI (the "Shareholders") have
been involved in various disputes, litigation and arbitration (the
"Litigation") related to WHI and the conduct of the Shareholders with respect
to the WHI Shareholders agreement.
Pursuant to a settlement agreement effective March 31, 1995 (the
"Agreement"), among WHI, Videotron USA, TTI and Videotron (Bay Area) Inc., the
Shareholders agreed to terminate the Litigation and retained an investment
banking firm to evaluate, identify and negotiate the possible disposition of
WHI by a sale or other appropriate transaction as provided in the Agreement.
Pursuant to the Agreement, all debt payable to Videotron USA and TTI,
including accrued interest, was converted on March 31, 1995 to unsecured
promissory notes. The notes are due on (i) the earlier of December 31, 1999,
(ii) the closing of the sale of the Company or (iii) the availability of funds
in connection with the dissolution or liquidation of WHI. Upon closing of the
sale of the Company, all notes will be paid prior to any distributions to the
Shareholders of WHI. The Company has classified debt and interest payable to
shareholders as current liabilities as of August 31, 1995 and 1994 because
management of the Company believes it is probable that the proposed
transaction with Pacific Telesis Group will be consummated (see Notes 11 and
13).
8. INCOME TAXES
No income tax benefit has been recorded in the consolidated statements of
operations. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
At August 31, 1995, the Company has net deferred income tax assets of
approximately $4,600,000, comprised primarily of net operating loss
carryforwards, which are fully offset by a valuation allowance of
approximately $4,600,000.
At August 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $15,257,000 which expire from
2009 to 2010, and net operating loss carryforwards for state income tax
purposes of approximately $2,938,000 which expire from 1999 to 2000. The
difference between the net operating loss carryforwards for federal and state
tax purposes is due to the California 50% limitation on loss carryforwards,
and to the lack of corporate income tax in one subsidiary's state
jurisdiction.
9. COMMITMENTS
Channel Leases--The Company leases from third parties channel rights
licensed by the FCC for wireless cable channels. The use of such channels by
the lessors is subject to regulation by the FCC and licenses generally must be
renewed every ten years. As of August 31, 1994, the remaining initial terms of
most of the Company's channel leases are approximately 8 to 10 years, although
certain of the Company's channel leases have initial terms expiring beginning
in 1995. Channel rights lease agreements generally require payments beginning
upon completion of construction of the transmission equipment and facilities.
Payments are based on the greater of specified minimums or amounts based upon
various subscriber levels. Channel rights lease expense was $505,287 and
$279,919 for the fiscal year ended August 31, 1995 and the period November 9,
1993 (date of inception) through August 31, 1994, respectively.
Operating Leases--The Company leases office, warehouse and transmission
tower space. Rent expense was $553,355 and $201,141 for the fiscal year ended
August 31, 1995 and the period November 9, 1993 (date of inception) through
August 31, 1994, respectively.
F-42
<PAGE>
WIRELESS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Inventory--As of August 31, 1995, WHI is committed to purchasing
approximately $4,500,000 of inventory associated with installations during the
year ended August 31, 1996.
Lease Payments--Future minimum lease payments due under channel rights
leases in effect at August 31, 1995 for channel and operating leases are as
follows:
<TABLE>
<CAPTION>
CHANNEL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Year ending August 31:
1996.................................................. $ 670 $ 516
1997.................................................. 796 511
1998.................................................. 918 515
1999.................................................. 1,035 517
2000.................................................. 1,093 264
Thereafter............................................ 15,590 1,204
------- ------
Total............................................... $20,102 $3,527
======= ======
</TABLE>
10. OTHER RELATED PARTY TRANSACTIONS
During the year ended August 31, 1995, the Company entered into an agreement
with Videotron (Bay Area) Inc., an entity owned 80% by Videotron USA and 20%
by TTI, whereby the Company provides management services to Videotron (Bay
Area) Inc. in exchange for reimbursement of one-third of their expenses.
Management fees paid to the Company by Videotron (Bay Area) Inc. for the year
ended August 31, 1995, were approximately $356,000.
11. PROPOSED SALE TO PACIFIC TELESIS GROUP
Effective November 9, 1995, Le Groupe Videotron Ltee, TTI, WHI, Videotron
USA, and Videotron (Bay Area) Inc. entered into a Stock Purchase Agreement to
sell WHI, Videotron USA and Videotron (Bay Area) Inc. to Pacific Telesis Group
for approximately $175 million. The purchase price is comprised of
approximately $125 million of Pacific Telesis Group's common stock and cash of
approximately $50 million, and is subject to certain pre-closing and post-
closing adjustments.
The proposed transaction is contingent upon among other things, FCC and
other regulatory approvals and approval of TTI's shareholders. Certain private
cable (primarily the SMATV operations in the San Francisco Bay Area) and two
wireline systems in Spokane and Tampa held by WHI and Videotron (Bay Area)
Inc. are not included in the proposed sale to Pacific Telesis Group. Such
assets and liabilities were sold to affiliates of Le Groupe Videotron Ltee on
July 31, 1996.
12. LITIGATION
On January 30, 1996, Vanguard Communications, L.P. filed suit against Le
Groupe Videotron Ltee, Videotron International Ltee, Videotron USA, WHI and
certain officers and directors of Le Groupe Videotron Ltee alleging among
other things that certain agreements entered into by affiliates of Le Groupe
Videotron Ltee improperly restrict the ability of OpTel, Inc. (a joint venture
between Vanguard and an affiliate of Le Groupe Videotron Ltee) to operate in
certain significant geographic locations in the United States.
On August 1, 1996, the above mentioned litigation was settled with no impact
to WHI.
F-43
<PAGE>
WIRELESS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. GOING CONCERN UNCERTAINTY
Cash used by operating activities and investing activities in the year ended
August 31, 1995 was $5,097,000 and $12,904,000, respectively. Net loss for the
year ended August 31, 1995 was $10,862,000. Since its inception, the Company
has been substantially dependent upon Videotron USA, one of its shareholders,
and Le Groupe Videotron Ltee, that shareholder's ultimate parent, to fund the
Company's day-to-day operations and capital infrastructure spending
requirements. There can be no assurance that the Company's operations will
become profitable or will produce positive cash flows.
As discussed in Note 11, the Company has entered into a Stock Purchase
Agreement effective November 9, 1995 with Pacific Telesis Group for the
proposed sale of the Company. Pursuant to a supplemental settlement agreement
effective November 9, 1995 among the shareholders and certain of their related
parties and pursuant to the Stock Purchase Agreement, Videotron USA and its
ultimate parent Le Groupe Videotron Ltee will continue to fund the Company's
day-to-day operations and fulfill the Company's financial obligations as long
as Pacific Telesis Group remains obligated to consummate the Stock Purchase
Agreement. Management of the Company believes it is probable that the proposed
transaction with Pacific Telesis Group will be consummated. If the proposed
transaction with Pacific Telesis Group is not consummated, the Company in
conjunction with its shareholders, intends to fund the Company's day-to-day
operations through December 31, 1996, reschedule or restructure the debt
payable to such shareholders as necessary and potentially sell or lease some
of the Company's licenses, to allow the Company to fulfill its other financial
obligations, while maintaining its capital expenditures at a level sufficient
to sustain operations through December 31, 1996.
Under the Settlement Agreement, if the proposed sale of the Company is not
consummated, then within 10 days after the Stock Purchase Agreement is
abandoned, Videotron USA may elect to purchase TTI's 50% interest in the
Company and the Company's debt payable to TTI (see Notes 7 and 11). If
Videotron USA does not elect such purchase, then TTI will be obligated to
purchase Videotron USA's 50% interest in the Company and the Company's debt
payable to Videotron USA. The total purchase price of the equity interest to
be purchased by Videotron USA or TTI would be the "true value" of such equity
interest, as defined under the Settlement Agreement.
The accompanying consolidated financial statements have been prepared on the
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The matters
discussed above, and in Note 14, may indicate that the Company will be unable
to continue as a going concern for a reasonable period of time.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to obtain
additional financing or refinancing, and ultimately to attain successful
operations.
14. ARBITRATION PROCEEDING
On September 24, 1996, Pacific Telesis Group filed a demand for arbitration
("Arbitration Demand") naming TTI, Le Groupe Videotron Ltee, Videoway
Technologies Ltd. (an affiliate of Le Groupe Videotron Ltee), WHI, Videotron
USA and Videotron (Bay Area) Inc. and alleging breach of the obligations under
the Stock Purchase Agreement. The Arbitration Demand requests a declaration
that TTI, Le Groupe Videotron Ltee, Videoway Technologies Ltd., WHI, Videotron
USA and Videotron (Bay Area) Inc. complete the transaction contemplated by the
Stock Purchase Agreement. In addition, the Arbitration Demand requests
damages, interest and attorney fees. The Arbitration Demand does not contain
any specific allegations of wrongdoing by the Company although relief is
sought against all named parties. The Company is contesting Pacific Telesis
Group's claims and intends to defend the action vigorously. Management
believes that the ultimate resolution of the above Arbitration Demand will not
have a material adverse effect on the Company's financial position, results of
operations, and cash flows or on the likelihood that the proposed transaction
with Pacific Telesis Group will be consummated.
F-44
<PAGE>
VIDEOTRON (BAY AREA) INC.
CONDENSED BALANCE SHEETS
MAY 31, 1996 AND AUGUST 31, 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1995
------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash equivalents........................................... $ 85 $ 153
Accounts receivable........................................ 362 191
Inventories................................................ 654 902
Prepaid expenses........................................... 69 26
------- -------
Total current assets..................................... 1,170 1,272
FIXED ASSETS, net............................................ 8,400 5,565
LICENSES, net................................................ 10,726 11,221
------- -------
TOTAL ASSETS................................................. $20,296 $18,058
======= =======
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accrued interest and other payables to shareholders........ $ 2,014 $ 1,165
Accounts payable and accrued liabilities................... 800 918
Debt, primarily to Videotron USA, Inc. .................... 14,601 9,331
------- -------
Total current liabilities................................ 17,415 11,414
------- -------
DEFERRED INCOME TAXES........................................ 494
------- -------
TOTAL LIABILITIES............................................ 17,415 11,908
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 1, 2 and 3).............
SHAREHOLDERS' EQUITY
Common stock (par value $0.01; 1,000 shares authorized,
1,000 shares issued and outstanding)...................... -- --
Additional paid-in capital................................. 9,140 9,140
Accumulated deficit........................................ (6,259) (2,990)
------- -------
Total.................................................... 2,881 6,150
------- -------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY................... $20,296 $18,058
======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
F-45
<PAGE>
VIDEOTRON (BAY AREA) INC.
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
REVENUES.............................................. $ 1,964 $ 664
COST OF REVENUES...................................... 990 330
---------- ----------
GROSS PROFIT.......................................... 974 334
SELLING, GENERAL AND ADMINISTRATIVE................... 2,392 1,556
---------- ----------
LOSS FROM OPERATIONS BEFORE DEPRECIATION AND AMORTIZA-
TION AND INTEREST EXPENSE............................ (1,418) (1,222)
DEPRECIATION AND AMORTIZATION......................... 1,161 510
---------- ----------
OPERATING LOSS........................................ (2,579) (1,732)
INTEREST EXPENSE...................................... (1,184) (436)
---------- ----------
LOSS BEFORE INCOME TAXES, AND EXTRAORDINARY ITEM...... (3,763) (2,168)
INCOME TAX BENEFIT.................................... 494 836
---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM........................ (3,269) (1,332)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT (LESS
APPLICABLE TAXES OF $61)............................. -- 101
---------- ----------
NET LOSS.............................................. $ (3,269) $ (1,231)
========== ==========
NET LOSS PER SHARE:
Loss before extraordinary gain...................... $(3,269.46) $(1,332.26)
Extraordinary gain.................................. -- 100.84
---------- ----------
TOTAL NET LOSS PER SHARE.............................. $(3,269.46) $(1,231.42)
========== ==========
SHARES USED IN COMPUTING NET LOSS PER SHARE........... 1,000 1,000
========== ==========
</TABLE>
See accompanying notes to the condensed financial statements.
F-46
<PAGE>
VIDEOTRON (BAY AREA) INC.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................... $(3,269) $(1,231)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................ 1,161 510
Loss on disposal of fixed assets......................... 42
Extraordinary gain on extinguishment of debt--net........ -- (101)
Changes in assets and liabilities:
Accounts receivable.................................... (171) (95)
Prepaid expenses....................................... (9) 18
Inventories............................................ 248 (530)
Accounts payable and accrued liabilities............... (118) 505
Deferred taxes......................................... (494) (836)
Intercompany payables.................................. 849 475
------- -------
Net cash used by operating activities................ (1,761) (1,285)
------- -------
INVESTING ACTIVITIES:
Acquisition of fixed assets................................ (3,577) (2,815)
------- -------
Net cash used by investing activities................ (3,577) (2,815)
------- -------
FINANCING ACTIVITIES:
Borrowings from Videotron USA, Inc. ....................... 5,286 4,960
Repayment of debt payable.................................. (16) (853)
------- -------
Net cash provided by financing activities............ 5,270 4,107
------- -------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS.................. (68) 7
CASH EQUIVALENTS AT BEGINNING OF PERIOD...................... 153 50
------- -------
CASH EQUIVALENTS AT END OF PERIOD............................ $ 85 $ 57
======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
F-47
<PAGE>
VIDEOTRON (BAY AREA) INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(UNAUDITED)
1. BASIS OF PRESENTATION AND ORGANIZATION
On November 19, 1993, Videotron (Bay Area) Inc., (the "Company") issued 800
new shares of stock to Videotron USA, Inc. ("USA"), whose ultimate parent is
Le Groupe Videotron Ltee. The remaining original 200 shares of stock of the
Company continue to be held by Transworld Telecommunication, Inc. ("TTI").
The Company was formed to develop and operate wireless cable television
systems in the Tampa Bay, Florida metropolitan area. Wireless cable
television, a developing industry, provides television programming by
transmitting a signal via microwave frequencies licensed by the Federal
Communications Commission ("FCC") to antennas located at the subscriber's
premises.
As the Company operates in a developing industry, the Company is subject to
all the risks and expenses inherent with the establishment of a new business
enterprise based upon innovative technology. There can be no assurance that
the Company's operations will become profitable or will produce positive cash
flows.
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation of the financial position, operating results and cash flows for
those periods. Results for the interim periods are not necessarily indicative
of the results for the entire year. These condensed financial statements, and
notes thereto, should be read in conjunction with the audited financial
statements of the Company for the year ended August 31, 1995 appearing in this
Registration Statement of Pacific Telesis Group on Form S-4.
2. PROPOSED SALE TO PACIFIC TELESIS GROUP
Effective November 9, 1995, Le Groupe Videotron Ltee, TTI, WHI, USA, and the
Company entered into a Stock Purchase Agreement to sell USA, WHI and the
Company to Pacific Telesis Group for approximately $175 million. The purchase
price is comprised of approximately $125 million of Pacific Telesis Group's
common stock and cash of approximately $50 million, and is subject to certain
pre-closing and post-closing adjustments.
The proposed transaction is contingent upon among other things, FCC and
other regulatory approvals and approval of TTI's shareholders. Certain private
cable and wireline systems held by the Company are not included in the
proposed sale to Pacific Telesis Group. Such assets and liabilities of the
Company (which comprise less than 10% of the total assets and revenues of the
Company) were sold to an affiliate of Le Groupe Videotron Ltee for
approximately $500,000 and the assumption of related liabilities on July 31,
1996.
On September 24, 1996, Pacific Telesis Group filed a demand for arbitration
("Arbitration Demand") naming TTI, Le Groupe Videotron Ltee, Videoway
Technologies Ltd. (an affiliate of Le Groupe Videotron Ltee), WHI, Videotron
USA and Videotron (Bay Area) Inc. and alleging breach of the obligations under
the Stock Purchase Agreement. The Arbitration Demand requests a declaration
that TTI, Le Groupe Videotron Ltee, Videoway Technologies Ltd., WHI, Videotron
USA and Videotron (Bay Area) Inc. complete the transaction contemplated by the
Stock Purchase Agreement. In addition, the Arbitration Demand requests
damages, interest and attorney fees. The Arbitration Demand does not contain
any specific allegations of wrongdoing by the Company although relief is
sought against all named parties. The Company is contesting Pacific Telesis
Group's claims and intends to defend the action vigorously. Management
believes that the ultimate resolution of the above Arbitration Demand will not
have a material adverse effect on the Company's financial position, results of
operations, and cash flows or on the likelihood that the proposed transaction
with Pacific Telesis Group will be consummated.
F-48
<PAGE>
VIDEOTRON (BAY AREA) INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
3. GOING CONCERN UNCERTAINTY
Cash used by operating and investing activities in the nine months ended May
31, 1996 was $1,761,000 and $3,577,000, respectively. Net loss for the nine
months ended May 31, 1996 was $3,269,000. Since its inception, the Company has
been substantially dependent upon USA and Le Groupe Videotron Ltee, its
ultimate parent, to fund the Company's day-to-day operations and capital
infrastructure spending requirements. There can be no assurance that the
Company's operations will become profitable or will produce positive cash
flows.
As discussed in Note 2, the Company has entered into a Stock Purchase
Agreement effective November 9, 1995 with Pacific Telesis Group for the
proposed sale of the Company, USA and WHI. Pursuant to a supplemental
settlement agreement effective November 9, 1995 among the shareholders and
certain other affiliated parties and pursuant to the Stock Purchase Agreement,
USA and its ultimate parent Le Groupe Videotron Ltee will continue to fund the
Company's day-to-day operations and fulfill the Company's financial
obligations as long as Pacific Telesis Group remains obligated to consummate
the Stock Purchase Agreement. Management of the Company believes it is
probable that the proposed transaction with Pacific Telesis Group will be
consummated. If the proposed transaction with Pacific Telesis Group is not
consummated, USA intends to fund the Company's day-to-day operations through
December 31, 1996, reschedule or restructure the debt payable to USA and
potentially sell or lease some of the Company's licenses, to allow the Company
to fulfill its other financial obligations, while maintaining its capital
expenditures at a level sufficient to sustain operations through December 31,
1996.
The accompanying condensed financial statements have been prepared on the
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The matters
discussed above, and in Note 2, may indicate that the Company will be unable
to continue as a going concern for a reasonable period of time.
The condensed financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis, to obtain additional financing
or refinancing, and ultimately to attain successful operations.
F-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Videotron (Bay Area) Inc.
Tampa, Florida
We have audited the accompanying balance sheets of Videotron (Bay Area) Inc.
(the "Company"), a majority-owned subsidiary of Videotron USA, Inc. ("USA"),
as of August 31, 1995 and 1994, and the related statements of operations,
shareholders' equity, and cash flows for the year ended August 31, 1995 and
for the period from November 19, 1993 (date of inception) through August 31,
1994. These financial statements are the responsibility of management of the
Company and USA. 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, such financial statements present fairly, in all material
respects, the financial position of the Company at August 31, 1995 and 1994
and the results of its operations and its cash flows for the above-stated
periods in conformity with generally accepted accounting principles.
We have not audited any financial statements of the Company for any period
subsequent to August 31, 1995. The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 12 to the financial statements, since its inception, the
Company has been substantially dependent on USA, to fund the Company's day-to-
day operations and capital infrastructure spending requirements. As discussed
in Note 11 to the financial statements, USA has entered into a Stock Purchase
Agreement effective November 9, 1995 with Pacific Telesis Group for the
proposed sale of USA, the Company and Wireless Holdings, Inc. As discussed in
Notes 11 and 12 to the financial statements, pursuant to a supplemental
settlement agreement effective November 9, 1995 among the shareholders and
certain other affiliated parties and pursuant to the Stock Purchase Agreement,
USA and its ultimate parent Le Groupe Videotron Ltee will continue to fund the
Company's day-to-day operations and fulfill the Company's financial
obligations for as long as Pacific Telesis Group remains obligated to
consummate the Stock Purchase Agreement. As discussed in Note 13 to the
financial statements, on September 24, 1996 Pacific Telesis Group filed an
arbitration proceeding against the Company and other related parties regarding
the Stock Purchase Agreement. If the proposed transaction with Pacific Telesis
Group is not consummated, the Company's shareholders intend to fund the
Company's day-to-day operations through December 31, 1996, reschedule or
restructure the debt payable to USA as necessary and potentially sell or lease
some of the Company's licenses to allow the Company to fulfill its other
financial obligations while maintaining its capital expenditures at a level
sufficient to maintain operations through December 31, 1996. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Tampa, Florida
April 2, 1996 (October 21, 1996 as to Notes 9, 11, 12 and 13)
F-50
<PAGE>
VIDEOTRON (BAY AREA) INC.
BALANCE SHEETS
AUGUST 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
------- -------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash equivalents............................................. $ 153 $ 50
Accounts receivable, net of allowance for doubtful accounts
of $12 and $0, respectively................................. 191 18
Inventory.................................................... 902 153
Prepaid expenses............................................. 26 48
------- -------
Total current assets....................................... 1,272 269
FIXED ASSETS, NET.............................................. 5,565 1,969
LICENSE AND LICENSE ACQUISITION COSTS, NET..................... 11,187 11,801
DEPOSITS....................................................... 34 32
------- -------
TOTAL ASSETS................................................... $18,058 $14,071
======= =======
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accrued interest and other payables to shareholders........ $ 1,165 $ 198
Accounts payable and accrued liabilities................... 918 180
Debt, primarily to Videotron USA, Inc...................... 9,331 3,507
------- -------
Total current liabilities................................ 11,414 3,885
DEFERRED INCOME TAXES........................................ 494 1,862
------- -------
Total liabilities........................................ 11,908 5,747
------- -------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 8, 9, 11, 12 and
13).........................................................
SHAREHOLDERS' EQUITY
Common Stock (par value $.01; 1,000 shares authorized,
1,000 shares issued and outstanding.......................
Additional paid-in capital................................. 9,140 9,140
Deficit.................................................... (2,990) (816)
------- -------
Total shareholders' equity............................... 6,150 8,324
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $18,058 $14,071
======= =======
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE>
VIDEOTRON (BAY AREA) INC.
STATEMENTS OF OPERATIONS
YEAR ENDED AUGUST 31, 1995 AND THE PERIOD FROM
NOVEMBER 19, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
REVENUES
Cable services........................................ $ 941 $ 696
Other services........................................ 1 4
---------- --------
942 700
---------- --------
COSTS OF REVENUES....................................... 491 285
---------- --------
OPERATING EXPENSES:
General and administrative............................ 1,643 767
Technical services.................................... 503 162
Marketing and sales................................... 423 68
Other services........................................ 5 1
---------- --------
2,574 998
---------- --------
LOSS FROM OPERATIONS BEFORE DEPRECIATION, AMORTIZATION
AND INTEREST EXPENSE................................... (2,123) (583)
DEPRECIATION AND AMORTIZATION EXPENSE................... (871) (589)
---------- --------
OPERATING LOSS BEFORE INTEREST EXPENSE.................. (2,994) (1,172)
INTEREST, including interest to affiliated companies of
$696 and $94, respectively............................. (709) (164)
---------- --------
LOSS BEFORE BENEFIT FOR INCOME TAXES AND EXTRAORDINARY
ITEM................................................... (3,703) (1,336)
INCOME TAX BENEFIT...................................... 1,428 520
---------- --------
LOSS BEFORE EXTRAORDINARY ITEM.......................... (2,275) (816)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT, less
applicable income taxes of $61......................... 101 --
---------- --------
NET LOSS................................................ $ (2,174) $ (816)
========== ========
NET LOSS PER SHARE:
Loss before extraordinary gain........................ $(2,274.67) $(816.34)
Extraordinary gain.................................... 100.84 --
---------- --------
TOTAL NET LOSS PER SHARE................................ $(2,173.83) $(816.34)
========== ========
SHARES USED IN COMPUTING NET LOSS PER SHARE............. 1,000 1,000
========== ========
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE>
VIDEOTRON (BAY AREA) INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED AUGUST 31, 1995 AND FOR THE PERIOD FROM
NOVEMBER 19, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID-IN
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Stock outstanding to TTI on
November 19, 1993................ 200 $ -- $ 640 -- $ 640
Issuance of stock................. 800 -- 8,500 -- 8,500
Net loss.......................... -- -- -- $ (816) (816)
----- ----- ------ ------- -------
Balance at August 31, 1994........ 1,000 -- 9,140 (816) 8,324
Net loss.......................... -- -- -- (2,174) (2,174)
----- ----- ------ ------- -------
Balance at August 31, 1995........ 1,000 $ -- $9,140 $(2,990) $ 6,150
===== ===== ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE>
VIDEOTRON (BAY AREA) INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1995 AND FOR THE PERIOD
NOVEMBER 19, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................... $(2,174) $ (816)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 871 589
Income tax benefit....................................... (1,428) (520)
Loss on fixed asset disposal............................. 2 --
Extraordinary gain on extinguishment of debt--net........ (101) --
Changes in operating assets and liabilities:
Increase in accounts receivable........................ (173) (4)
Decrease (increase) in prepaid expenses and deposits... 20 (42)
Increase in inventory.................................. (750) (153)
Increase (decrease) in accounts payable and accrued
liabilities........................................... 1,705 (1,094)
Increase in payable to Videotron USA, Inc. ............ -- 125
------- -------
Net cash used in operating activities................ (2,028) (1,915)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets................................ (3,858) (1,109)
Proceeds on disposal of fixed assets....................... 3 --
------- -------
Net cash used in investing activities................ (3,855) (1,109)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock to Videotron
USA, Inc. ................................................ -- 7,000
Repayment of advance from TTI.............................. -- (3,143)
Repayment of debt.......................................... (692) (3,338)
Borrowings from Videotron USA, Inc. ....................... 6,678 2,500
------- -------
Net cash provided by financing activities............ 5,986 3,019
------- -------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS.................. 103 (5)
CASH EQUIVALENTS AT BEGINNING OF PERIOD...................... 50 56
------- -------
CASH EQUIVALENTS AT END OF PERIOD............................ $ 153 $ 50
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Interest paid............................................... $ 13 $ 70
======= =======
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE>
VIDEOTRON (BAY AREA) INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1995 AND FOR THE PERIOD
NOVEMBER 19, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
1. SALE OF STOCK TO VIDEOTRON USA, INC. AND ORGANIZATION
On November 19, 1993, Videotron (Bay Area) Inc., (the "Company") issued 800
new shares of stock to Videotron USA, Inc. ("USA"), whose ultimate parent is
Le Groupe Videotron Ltee, for $7,000,000 in cash. The remaining original 200
shares of stock of the Company continue to be held by Transworld
Telecommunication, Inc. ("TTI"). Concurrent with the sale of shares, TTI sold
USA 1,000 shares of its Series B convertible preferred stock for $1.5 million
in cash. In September 1994, USA converted this stock into 1,000 shares of TTI
common stock. TTI has the option to redeem, in whole or in part at any time,
the Series B convertible preferred stock at a price of $10 per share, plus
declared and unpaid dividends. As part of these transactions, TTI received the
right to put their remaining 200 shares of the Company to USA for a five-year
period at any time after December 31, 1994 for the greater of $2.6 million or
the then fair value of the shares.
The acquisition of 80% control of the Company by USA was accounted for as a
purchase, and accordingly, the purchase price was allocated to the assets and
liabilities of the Company based on their respective fair values as of
November 19, 1993, as follows:
<TABLE>
<CAPTION>
Fair value of net assets acquired: (IN THOUSANDS)
<S> <C>
. Fixed assets............................................ $ 962
. Intangible assets, primarily licenses................... 11,648
. Other assets (including cash of $55).................... 1,263
. Liabilities assumed, (including $1,087 of convertible
debentures,
see Note 5, and deferred taxes of $2,381)............... (5,373)
-------
Purchase price............................................ $ 8,500
=======
</TABLE>
The purchase price includes the $7,000,000 discussed above plus the deemed
additional purchase price of $1,500,000 representing the excess paid over the
fair value of TTI Series B convertible preferred stock purchased by USA.
Additionally, included in equity as of November 19, 1993 is 20% of the
historical equity ($640,000) of TTI.
The Company was formed to develop and operate wireless cable television
systems in the Tampa Bay, Florida metropolitan area. Wireless cable
television, a developing industry, provides television programming by
transmitting a signal via microwave frequencies licensed by the Federal
Communications Commission ("FCC") to antennas located at the subscriber's
premises.
As the Company operates in a developing industry, the Company is subject to
all the risks and expenses inherent with the establishment of a new business
enterprise based upon innovative technology. There can be no assurance that
the Company's operations will become profitable or will produce positive cash
flows. See Note 12.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 amount 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 Equivalents--The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash or cash
equivalents.
F-55
<PAGE>
VIDEOTRON (BAY AREA) INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Inventories are recorded at the lower of cost, computed on a first-in first-
out basis, or market.
Fixed Assets are recorded at cost. Expenditures for additions, improvements
and replacements are capitalized, whereas expenses for maintenance and repairs
are charged to operating and administrative expenses.
Depreciation is calculated using the straight-line method as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Wireless cable television electronic equipment...................... 15
Cable wiring and equipment.......................................... 10
Installation labor.................................................. 3
Furniture and equipment............................................. 5
</TABLE>
License and License Acquisition Costs represent the acquisition cost of
rights to operate wireless cable networks. The Company amortizes licenses
using the straight-line method over 20 years. The Company evaluates the
carrying value of licenses annually based upon its estimates of future net
revenues or fair market value of such licenses.
Revenue Recognition--Subscription revenues are recognized in the period of
service. Installation fees are recognized upon origination of service to a
subscriber.
Income Taxes--The Company accounts for income taxes using the asset and
liability method under Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes.
Net Loss Per Share--Net loss per share is calculated based on shares of
common stock outstanding.
Fair Value of Financial Instruments--Management of the Company believes it
is not practicable to estimate the fair value of the debt payable to USA
described in Note 5 because of the related party nature of such obligation.
Management believes that the Company's other financial instruments' carrying
amounts are a reasonable estimate of their fair values.
New Accounting Standard--In 1995, the Financial Accounting Standards Board
issued SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. The Company's adoption of this standard
as of August 31, 1995 had no impact on the financial statements.
Reclassifications--Certain 1994 amounts have been reclassified to conform
with the 1995 presentation.
3. DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the fiscal year and period ended August
31, 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Depreciation of fixed assets............................ $257 $102
Amortization of leased license and license acquisition
costs.................................................. 614 487
------- -------
Total............................................... $871 $589
======= =======
</TABLE>
F-56
<PAGE>
VIDEOTRON (BAY AREA) INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. FIXED ASSETS
Fixed assets as of August 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Office furniture and equipment.......................... $ 434 $ 39
Leasehold improvements.................................. 190 49
Transmitting network.................................... 3,144 152
Installation network.................................... 2,155 1,831
------- -------
Total............................................... 5,924 2,071
Accumulated depreciation................................ (359) (102)
------- -------
Total............................................... $5,565 $1,969
======= =======
</TABLE>
5. LICENSE AND LICENSE ACQUISITION COSTS
The license and license acquisition costs as of December 31, 1995 and 1994
were:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Channel rights/broadcast license agreements, franchise
agreements and multiple-dwelling unit agreements........ $12,288 $12,288
Accumulated amortization................................. 1,101 487
------- -------
License and license acquisition costs, net............... $11,187 $11,801
======= =======
</TABLE>
6. DEBT
Debt as of August 31, 1995 and 1994 is:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Convertible debentures payable in semi-annual install-
ments of $14 and $83 at 1995 and 1994, respectively, in-
cluding interest at 8%, final payment is due October
2002, convertible into TTI common stock at a conversion
rate of two shares of common stock for each $10 of de-
benture principal, collateralized by the wireless/cable
broadcast system........................................ $ 153 $1,007
None payable to USA on demand, including interest at 4%
over prime (8% for 1995)................................ 9,178 2,500
------ ------
Total debt........................................... $9,331 $3,507
====== ======
</TABLE>
The Company has classified the note payable to USA and convertible
debentures as current liabilities as of August 31, 1995 and 1994 because
management of the Company believes it is probable that the proposed
transaction with Pacific Telesis Group will be consummated (see Notes 11 and
12). Upon closing of the proposed transaction, all notes will be paid prior to
any other distributions.
During the year ended August 31, 1995, an agreement was reached between a
majority of the various holders of the convertible debentures and TTI whereby
TTI acquired a significant portion of the unpaid principal amounts due on the
debentures in exchange for TTI stock. Later, in November 1994, the Company
paid off at a discount a portion of the 8% convertible debentures held by TTI
prior to their maturity. As a result, approximately $862,000 of the debentures
and accrued interest were paid off for $700,000. The difference between the
carrying value of the debentures and the amount paid was recognized as an
early extinguishment of debt by the Company for the fiscal year ended August
31, 1995 and treated as an extraordinary item in the accompanying statement of
operations.
F-57
<PAGE>
VIDEOTRON (BAY AREA) INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The significant components of the deferred tax assets and liabilities as of
August 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Fixed assets............................................. $ 613 $1,003
Net operating loss....................................... 2,139 552
Other.................................................... 14 4
------ ------
2,766 1,559
Deferred tax liabilities:
Channel rights........................................... 3,260 3,421
------ ------
Net deferred tax liability--non current.................... $ 494 $1,862
====== ======
</TABLE>
As of August 31, 1995 the Company had unused net operating losses for tax
reporting purposes of approximately $5,680,000. These losses will begin to
expire in 2009.
8. COMMITMENTS
Channel Leases--The Company leases from third parties channel rights
licensed by the FCC for wireless cable channels. The use of such channels by
the lessors is subject to regulation by the FCC and licenses generally must be
renewed every ten years. As of August 31, 1995, the remaining initial term of
most of the Company's channel leases is approximately 7 to 9 years although
certain of the channel leases begin expiring in 1996. Channel rights lease
agreements generally require payments beginning upon completion of
construction of the transmission equipment and facilities. Payments are based
on the greater of specified minimums or amounts based upon various subscribers
levels. Channel rights lease expense was $157,000 and $91,000 for the year
ended August 31, 1995 and for the period November 19, 1993 (date of inception)
through August 31, 1994, respectively.
Operating Leases--The Company leases for office, warehouse and transmission
tower space. Rent expense was $247,047 and $64,973 for the year ended August
31, 1995 and for the period November 19, 1993 (date of inception) through
August 31, 1994, respectively.
Lease Payments--Future minimum annual payments due under the channel rights
leases in effect at August 31, 1995 for operational systems and operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING CHANNEL OPERATING
AUGUST 31, LICENSES LEASES
----------- -------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996.................................................. $ 208 $ 296
1997.................................................. 195 296
1998.................................................. 136 296
1999.................................................. 137 231
2000.................................................. 122 158
Thereafter............................................ 367 641
------ ------
Total................................................. $1,165 $1,918
====== ======
</TABLE>
F-58
<PAGE>
VIDEOTRON (BAY AREA) INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The future minimum annual payments do not include payments for programming
leases since these payments are based on the total number of subscribers for
those programs.
9. LITIGATION
The shareholders of the Company, USA and TTI (the "Shareholders"), have been
involved in various disputes, litigation and arbitration (the "Litigation")
related to Wireless Holdings, Inc. ("WHI"), a separate corporation that
conducts wireless cable operations in other markets.
Pursuant to a settlement agreement effective March 31, 1995 (the
"Agreement"), among the Company WHI, USA and TTI, the Shareholders agreed to
terminate the Litigation and retained an investment banking firm to advise the
Shareholders in order to evaluate, identify and negotiate the possible
disposition of WHI by a sale or other appropriate transaction ( the "Proposed
Transaction") as provided in the Agreement, which Proposed Transaction may
include the Company.
On January 30, 1996, Vanguard Communications, L.P. filed suit against Le
Groupe Videotron Ltee, Videotron International Ltee, Videotron USA, WHI and
certain officers and directors of Le Groupe Videotron Ltee alleging among
other things that certain agreements entered into by affiliates of Le Groupe
Videotron Ltee improperly restrict the ability of OpTel, Inc. (a joint venture
between Vanguard and an affiliate of Le Groupe Videotron Ltee) to operate in
certain significant geographic locations in the United States.
On August 1, 1996, the Vanguard litigation was settled with no impact to the
Company.
10. RELATED PARTY TRANSACTIONS
During the year ended August 31, 1995, the Company entered into an agreement
with WHI, whereby WHI provides management services to the Company and the
Company, in return, reimburses WHI for one-third of their expenses. Management
fees paid by the Company to WHI for the year ended August 31, 1995 were
approximately $356,000.
11. PROPOSED SALE TO PACIFIC TELESIS GROUP
Effective November 9, 1995, Le Groupe Videotron Ltee, TTI, WHI, USA and the
Company entered into a Stock Purchase Agreement to sell USA, WHI and the
Company to Pacific Telesis Group for approximately $175 million. The purchase
price is comprised of approximately $125 million of Pacific Telesis Group's
common stock and cash of approximately $50 million, and is subject to certain
pre-closing and post-closing adjustments.
The proposed transaction is contingent upon among other things, FCC and
other regulatory approvals and approval of TTI's shareholders. Certain private
cable and wireline systems held by WHI and the Company are not included in the
proposed sale to Pacific Telesis Group. Such assets and liabilities were sold
to affiliates of Le Groupe Videotron Ltee on July 31, 1996.
12. GOING CONCERN UNCERTAINTY
Cash used by operating and investing activities in the year ended August 31,
1995 was approximately $2,028,000 and $3,855,000, respectively. Net loss for
the year ended August 31, 1995 was approximately $2,174,000. Since its
inception, the Company has been substantially dependent upon USA to fund the
Company's day-to-day operations and capital infrastructure spending
requirements. There can be no assurance that the Company's operations will
become profitable or will produce positive cash flows.
F-59
<PAGE>
VIDEOTRON (BAY AREA) INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As discussed in Note 11, the Company has entered into a Stock Purchase
Agreement effective November 9, 1995 with Pacific Telesis Group for the
proposed sale of the Company, USA and WHI. Pursuant to a supplemental
settlement agreement effective November 9, 1995 among the shareholders and
certain other affiliated parties and pursuant to the Stock Purchase Agreement,
USA and its ultimate parent, Le Groupe Videotron Ltee will continue to fund
the Company's day-to-day operations and fulfill the Company's financial
obligations as long as Pacific Telesis Group remains obligated to consummate
the Stock Purchase Agreement. Management of the Company believes it is
probable that the proposed transaction with Pacific Telesis Group will be
consummated. If the proposed transaction with Pacific Telesis Group is not
consummated, USA intends to fund the Company's day-to-day operations through
December 31, 1996, reschedule or restructure the Company's debt payable to USA
as necessary and potentially sell or lease some of the Company's licenses, to
allow the Company to fulfill its other financial obligations, while
maintaining its capital expenditures at a level sufficient to sustain
operations through December 31, 1996.
The accompanying financial statements have been prepared on the going
concern basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The matters discussed above,
and in Note 13, may indicate that the Company will be unable to continue as a
going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to obtain additional financing or
refinancing, and ultimately to attain successful operations.
13. ARBITRATION PROCEEDING
On September 24, 1996, Pacific Telesis Group filed a demand for arbitration
("Arbitration Demand") naming TTI, Le Groupe Videotron Ltee, Videoway
Technologies Ltd. (an affiliate of Le Groupe Videotron Ltee), WHI, Videotron
USA and Videotron (Bay Area) Inc. and alleging breach of the obligations under
the Stock Purchase Agreement. The Arbitration Demand requests a declaration
that TTI, Le Groupe Videotron Ltee, Videoway Technologies Ltd., WHI, Videotron
USA and Videotron (Bay Area) Inc. complete the transaction contemplated by the
Stock Purchase Agreement. In addition, the Arbitration Demand requests
damages, interest and attorney fees. The Arbitration Demand does not contain
any specific allegations of wrongdoing by the Company although relief is
sought against all named parties. The Company is contesting Pacific Telesis
Group's claims and intends to defend the action vigorously. Management
believes that the ultimate resolution of the above Arbitration Demand will not
have a material adverse effect on the Company's financial position, results of
operations, and cash flows or on the likelihood that the proposed transaction
with Pacific Telesis Group will be consummated.
F-60
<PAGE>
VIDEOTRON USA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 1996 AND AUGUST 31, 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1995
-------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash equivalents........................................ $ 93 $ 171
Accounts receivable..................................... 5,428 1,466
Inventories............................................. 654 900
Prepaid expenses........................................ 69 58
-------- -------
Total current assets.................................. 6,244 2,595
FIXED ASSETS, net......................................... 8,400 5,564
LICENSES, net............................................. 12,073 12,586
INVESTMENTS IN AND ADVANCES TO WIRELESS HOLDINGS, INC. ... 34,103 36,062
-------- -------
TOTAL ASSETS.............................................. $ 60,820 $56,807
======== =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Debt payable.............................................. $ 15 $ 153
Accounts payable and accrued liabilities.................. 1,238 1,090
Note payable to Le Groupe Videotron Ltee.................. 44,454 30,467
-------- -------
Total current liabilities............................. 45,707 31,710
-------- -------
LONG-TERM DEBT............................................ 123 --
DEFERRED INCOME TAXES..................................... 737 1,619
MINORITY INTEREST......................................... 974 1,441
COMMITMENTS AND CONTINGENCIES (Notes 1, 2 and 3)..........
SHAREHOLDER'S EQUITY
Common stock (par value $0.01; 5,000 shares authorized,
no shares issued
and outstanding).......................................
Class A common stock (par value $0.01; 5,000 shares
authorized, 3,000 shares issued and outstanding)....... 1 1
Additional paid-in capital.............................. 29,999 29,999
Accumulated deficit..................................... (16,721) (7,963)
-------- -------
Total................................................. 13,279 22,037
-------- -------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY................ $ 60,820 $56,807
======== =======
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-61
<PAGE>
VIDEOTRON USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
REVENUES.............................................. $ 1,964 $ 664
COST OF REVENUES...................................... 711 330
---------- ----------
GROSS PROFIT.......................................... 1,253 334
SELLING, GENERAL AND ADMINISTRATIVE................... 3,061 1,981
---------- ----------
LOSS FROM OPERATIONS BEFORE DEPRECIATION AND
AMORTIZATION AND EQUITY LOSS......................... (1,808) (1,647)
DEPRECIATION AND AMORTIZATION......................... 1,214 510
EQUITY LOSS--WIRELESS HOLDINGS, INC. ................. 7,738 3,685
---------- ----------
OPERATING LOSS........................................ (10,760) (5,842)
INTEREST INCOME (EXPENSE):
Interest income from Wireless Holdings, Inc. ....... 3,465 2,790
Interest expense to Le Groupe Videotron Ltee........ (2,812)
---------- ----------
Total interest income (expense)................... 653 2,790
---------- ----------
LOSS BEFORE INCOME TAXES, MINORITY INTEREST AND
EXTRAORDINARY ITEM................................... (10,107) (3,052)
INCOME TAX BENEFIT (provision)........................ 882 (368)
---------- ----------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM.. (9,225) (3,420)
MINORITY INTEREST..................................... 467 272
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
(LESS APPLICABLE TAXES OF $61)....................... -- 101
---------- ----------
NET LOSS.............................................. $ (8,758) $ (3,047)
========== ==========
NET LOSS PER SHARE:
Loss before extraordinary gain...................... $(2,919.33) $(1,049.33)
Extraordinary gain.................................. 33.67
---------- ----------
TOTAL NET LOSS PER SHARE.............................. $(2,919.33) $(1,015.66)
========== ==========
SHARES USED IN COMPUTING NET LOSS PER SHARE........... 3,000 3,000
========== ==========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-62
<PAGE>
VIDEOTRON USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................. $ (8,758) $ (3,047)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,214 510
Loss on disposal of fixed assets....................... 39
Extraordinary gain..................................... (101)
Equity loss--Wireless Holdings, Inc. .................. 7,738 3,685
Minority interest...................................... (467) (272)
Deferred taxes......................................... (882) 368
Changes in assets and liabilities:
Accounts receivable.................................. (3,962) 592
Prepaid expenses..................................... (11) 78
Inventories.......................................... 246 (530)
Accounts payable and accrued liabilities............. 148 514
-------- --------
Net cash provided (used) by operating activities... (4,695) 1,797
-------- --------
INVESTING ACTIVITIES:
Acquisition of fixed assets.............................. (3,577) (2,815)
Investments in and advances to Wireless Holdings, Inc. .. (5,778) (14,779)
-------- --------
Net cash used by investing activities.............. (9,355) (17,594)
FINANCING ACTIVITIES:
Borrowings from Le Groupe Videotron Ltee................. 13,987 16,854
Repayment of long-term debt.............................. (15) (853)
-------- --------
Net cash provided (used) by financing activities... 13,972 16,001
-------- --------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS................ (78) 204
CASH EQUIVALENTS AT BEGINNING OF PERIOD.................... 171 153
-------- --------
CASH EQUIVALENTS AT END OF PERIOD.......................... $ 93 $ 357
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-63
<PAGE>
VIDEOTRON USA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(UNAUDITED)
1. BASIS OF PRESENTATION AND ORGANIZATION
Videotron USA, Inc. ("Videotron USA" or the "Company") was incorporated on
September 3, 1993 under the laws of the State of Delaware. The Company is an
indirect wholly-owned subsidiary of Le Groupe Videotron Ltee.
The Company was formed to acquire, develop and operate wireless cable
television systems in the United States. Wireless cable television, a
developing industry, provides television programming by transmitting a signal
via microwave frequencies licensed by the Federal Communications Commission
("FCC") to antennas located at the subscribers' premises. At May 31, 1996, the
Company owns 50% of Wireless Holdings, Inc. ("WHI") which operates wireless
cable systems in the San Francisco Bay Area and Spokane and holds license
rights for wireless cable networks in Greenville, South Carolina, Seattle,
Washington, Victorville and San Diego, California that have not begun
operations. The Company also owns 80% of Videotron (Bay Area) Inc. which
operates wireless cable television systems in metropolitan Tampa Bay, Florida.
Transworld Telecommunications, Inc. ("TTI") owns the remaining 20% of Bay Area
and 50% of WHI.
As the Company operates in a developing industry, the Company is subject to
all the risks and expenses inherent with the establishment of a new business
enterprise based upon innovative technology. There can be no assurance that
the Company's operations will become profitable or will produce positive cash
flows.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and include all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
presentation of the financial position, operating results and cash flows for
those periods. Results for the interim periods are not necessarily indicative
of the results for the entire year. These condensed consolidated financial
statements, and notes thereto, should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended August 31,
1995 appearing in this Registration Statement of Pacific Telesis Group on Form
S-4.
2. PROPOSED SALE TO PACIFIC TELESIS GROUP
Effective November 9, 1995, Le Groupe Videotron Ltee, TTI, WHI, Videotron
USA, and Videotron (Bay Area) Inc. entered into a Stock Purchase Agreement to
sell Videotron USA, WHI and Videotron (Bay Area) Inc. to Pacific Telesis Group
for approximately $175 million. The purchase price is comprised of
approximately $125 million of Pacific Telesis Group's common stock and cash of
approximately $50 million, and is subject to certain pre-closing and post-
closing adjustments.
The proposed transaction is contingent upon, among other things, FCC and
other regulatory approvals and approval of TTI's shareholders. Certain private
cable (primarily the SMATV operations in the San Francisco Bay Area) and
wireline (primarily in Spokane and Tampa Bay) systems held by WHI and
Videotron (Bay Area) Inc. are not included in the proposed sale to Pacific
Telesis Group. Such assets and liabilities of the Company (which comprise less
than 10% of the total assets and revenues of the Company) were sold to
affiliates of Le Groupe Videotron Ltee for approximately $4,300,000 plus the
assumption of related liabilities on July 31, 1996.
On September 24, 1996, Pacific Telesis Group filed a demand for arbitration
("Arbitration Demand") naming TTI, Le Groupe Videotron Ltee, Videoway
Technologies Ltd. (an affiliate of Le Groupe Videotron Ltee), WHI, Videotron
USA and Videotron (Bay Area) Inc. and alleging breach of the obligations under
the Stock
F-64
<PAGE>
VIDEOTRON USA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Purchase Agreement. The Arbitration Demand requests a declaration that TTI, Le
Groupe Videotron Ltee, Videoway Technologies Ltd., WHI, Videotron USA and
Videotron (Bay Area) Inc. complete the transaction contemplated by the Stock
Purchase Agreement. In addition, the Arbitration Demand requests damages,
interest and attorney fees. The Arbitration Demand does not contain any
specific allegations of wrongdoing by the Company although relief is sought
against all named parties. The Company is contesting Pacific Telesis Group's
claims and intends to defend the action vigorously. Management believes that
the ultimate resolution of the above Arbitration Demand will not have a
material adverse effect on the Company's financial position, results of
operations, and cash flows or on the likelihood that the proposed transaction
with Pacific Telesis Group will be consummated.
3. GOING CONCERN UNCERTAINTY
Cash used by operating and investing activities in the nine months ended May
31, 1996 was $4,695,000 and $9,355,000, respectively. Net loss for the nine
months ended May 31, 1996 was $8,758,000. Since its inception, the Company has
been substantially dependent upon its ultimate parent, Le Groupe Videotron
Ltee, to fund the Company's day-to-day operations and capital infrastructure
spending requirements. There can be no assurance that the Company's operations
will become profitable or will produce positive cash flows.
As discussed in Note 2, the Company has entered into a Stock Purchase
Agreement effective November 9, 1995 with Pacific Telesis Group for the
proposed sale of the Company, its subsidiary, Videotron (Bay Area) Inc., and
Wireless Holdings, Inc. Pursuant to such Stock Purchase Agreement, the
Company's ultimate parent Le Groupe Videotron Ltee will continue to fund the
Company's day-to-day operations and fulfill its financial obligations as long
as Pacific Telesis Group remains obligated to consummate the Stock Purchase
Agreement. Management of the Company believes it is probable that the proposed
transaction with Pacific Telesis Group will be consummated. If the proposed
transaction with Pacific Telesis Group is not consummated, the Company in
conjunction with its shareholder, intends to fund the Company's day-to-day
operations through December 31, 1996, reschedule or restructure the Company's
debt payable to its shareholder as necessary and potentially sell or lease
some of WHI and Bay Area's licenses, to allow the Company to fulfill its other
financial obligations, while maintaining its capital expenditures at a level
sufficient to sustain operations through December 31, 1996.
The accompanying condensed consolidated financial statements have been
prepared on the going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. The
matters discussed above, and in Note 2, may indicate that the Company will be
unable to continue as a going concern for a reasonable period of time.
The condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain additional financing or refinancing, and ultimately to attain
successful operations.
F-65
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
Videotron USA, Inc.:
We have audited the accompanying consolidated balance sheets of Videotron
USA, Inc. (an indirect wholly-owned subsidiary of Le Groupe Videotron Ltee)
and its subsidiaries (the "Company") as of August 31, 1995 and 1994, and the
related consolidated statements of operations, shareholder's equity and cash
flows for the year ended August 31, 1995 and the period from September 3, 1993
(date of inception) to August 31, 1994. These consolidated financial
statements are the responsibility of the Company's management and its
shareholder. Our responsibility is to express an opinion on these consolidated
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 consolidated 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 consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at August 31,
1995 and 1994, and the results of its operations and its cash flows for the
above-stated periods in conformity with generally accepted accounting
principles.
We have not audited any consolidated financial statements of the Company for
any period subsequent to August 31, 1995. The accompanying consolidated
financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 13 to the consolidated
financial statements, since its inception, the Company has been substantially
dependent on Le Groupe Videotron Ltee to fund the Company's day-to-day
operations and capital infrastructure spending requirements. As discussed in
Note 11 to the consolidated financial statements, the Company has entered into
a Stock Purchase Agreement effective November 9, 1995 with Pacific Telesis
Group for the proposed sale of the Company, its subsidiary, Videotron (Bay
Area) Inc. and Wireless Holdings, Inc. As discussed in Note 13 to the
consolidated financial statements, pursuant to such Stock Purchase Agreement,
Le Groupe Videotron Ltee will continue to fund the Company's day-to-day
operations and fulfill the Company's financial obligations for as long as
Pacific Telesis Group remains obligated to consummate the Stock Purchase
Agreement. As discussed in Note 14 to the consolidated financial statements,
on September 24, 1996 Pacific Telesis Group filed an arbitration proceeding
against the Company and other related parties regarding the Stock Purchase
Agreement. If the proposed transaction with Pacific Telesis Group is not
consummated, the Company, in conjunction with its shareholder, intends to fund
the Company's day-to-day operations through December 31, 1996, reschedule or
restructure the Company's debt payable to its shareholder as necessary and
potentially sell or lease some of WHI and VBAI's licenses, to allow the
Company to fulfill its other financial obligations while maintaining its
capital expenditures at a level sufficient to maintain operations through
December 31, 1996. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
DELOITTE & TOUCHE LLP
San Francisco, California
April 2, 1996 (October 21, 1996 as to Notes 11, 12, 13 and 14)
F-66
<PAGE>
VIDEOTRON USA, INC.
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash equivalents........................................... $ 171 $ 153
Accounts receivable........................................ 1,466 1,300
Inventories................................................ 900 153
Prepaid expenses........................................... 58 100
------- -------
Total current assets..................................... 2,595 1,706
FIXED ASSETS, net............................................ 5,564 1,968
LICENSES, net................................................ 12,586 13,202
INVESTMENTS IN AND ADVANCES TO WIRELESS HOLDINGS, INC. ...... 36,062 24,628
------- -------
TOTAL ASSETS................................................. $56,807 $41,504
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Debt payable............................................... $ 153 $ 1,007
Accounts payable and accrued liabilities................... 1,090 302
Note payable to Le Groupe Videotron Ltee................... 30,467 7,209
------- -------
Total current liabilities................................ 31,710 8,518
------- -------
DEFERRED INCOME TAXES........................................ 1,619 1,862
------- -------
MINORITY INTEREST............................................ 1,441 1,876
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 1, 9, 11, 12, 13 and
14).........................................................
SHAREHOLDER'S EQUITY
Common stock (par value $0.01; 5,000 shares authorized, no
shares issued
or outstanding)........................................... -- --
Class A common stock (par value $0.01; 5,000 shares
authorized, 3,000 shares issued and outstanding).......... 1 1
Additional paid-in capital................................. 29,999 29,999
Accumulated deficit........................................ (7,963) (752)
------- -------
Total.................................................... 22,037 29,248
------- -------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY................... $56,807 $41,504
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-67
<PAGE>
VIDEOTRON USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED AUGUST 31, 1995 AND THE PERIOD FROM
SEPTEMBER 3, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
REVENUES................................................. $ 942 $ 699
COST OF REVENUES......................................... 491 282
---------- --------
GROSS PROFIT............................................. 451 417
SELLING, GENERAL AND ADMINISTRATIVE...................... 3,098 1,216
---------- --------
LOSS FROM OPERATIONS BEFORE DEPRECIATION AND
AMORTIZATION AND EQUITY LOSS............................ (2,647) (799)
DEPRECIATION AND AMORTIZATION............................ 871 589
EQUITY LOSS--WIRELESS HOLDINGS, INC. .................... 7,470 1,246
---------- --------
OPERATING LOSS........................................... (10,988) (2,634)
INTEREST INCOME (EXPENSE):
Interest income from Wireless Holdings, Inc. .......... 3,796 1,268
Interest expense to Le Groupe Videotron Ltee........... (778) (70)
---------- --------
Total interest income (expense)...................... (3,018) (1,198)
---------- --------
LOSS BEFORE INCOME TAXES, MINORITY INTEREST AND
EXTRAORDINARY ITEM...................................... (7,970) (1,436)
INCOME TAX BENEFIT....................................... 223 520
---------- --------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM..... (7,747) (916)
MINORITY INTEREST........................................ 435 164
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
(LESS APPLICABLE TAXES OF $61).......................... 101 --
---------- --------
NET LOSS................................................. $ (7,211) $ (752)
========== ========
NET LOSS PER SHARE:
Loss before extraordinary gain......................... $(2,437.33) $(250.67)
Extraordinary gain..................................... 33.67 --
---------- --------
TOTAL NET LOSS PER SHARE................................. $(2,403.66) $(250.67)
========== ========
SHARES USED IN COMPUTING NET LOSS PER SHARE.............. 3,000 3,000
========== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-68
<PAGE>
VIDEOTRON USA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEAR ENDED AUGUST 31, 1995 AND THE PERIOD FROM
SEPTEMBER 3, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
CLASS A ADDITIONAL
------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK......... 3,000 $ 1 $29,999 $30,000
NET LOSS......................... -- -- -- $ (752) (752)
----- --- ------- ------- -------
BALANCE, AUGUST 31, 1994......... 3,000 1 29,999 (752) 29,248
NET LOSS......................... -- -- -- (7,211) (7,211)
----- --- ------- ------- -------
BALANCE, AUGUST 31, 1995......... 3,000 $ 1 $29,999 $(7,963) $22,037
===== === ======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-69
<PAGE>
VIDEOTRON USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED AUGUST 31, 1995 AND THE PERIOD FROM
SEPTEMBER 3, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................. $ (7,211) $ (752)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 871 589
Equity loss--Wireless Holdings, Inc.................... 7,470 1,246
Minority interest...................................... (435) (164)
Extraordinary gain..................................... (160)
Changes in assets and liabilities:
Accounts receivable.................................. (166) (1,285)
Prepaid expenses..................................... 42 954
Inventories.......................................... (747)
Accounts payable and accrued liabilities............. 807 (1,602)
Deferred taxes....................................... (243) (519)
-------- --------
Net cash provided (used) by operating activities... 228 (1,533)
-------- --------
INVESTING ACTIVITIES:
Acquisition of wireless cable business................... (8,500)
Acquisition of licenses.................................. (2,040)
Acquisition of fixed assets.............................. (3,853) (1,109)
Investments in and advances to Wireless Holdings, Inc. .. (18,904) (23,850)
-------- --------
Net cash used by investing activities.............. (22,757) (35,499)
-------- --------
FINANCING ACTIVITIES:
Borrowings from Le Groupe Videotron Ltee................. 23,239 7,209
Issuance of common stock................................. 30,000
Repayment of debt payable................................ (692) (80)
-------- --------
Net cash provided by financing activities.......... 22,547 37,129
-------- --------
NET INCREASE IN CASH EQUIVALENTS........................... 18 97
CASH EQUIVALENTS AT BEGINNING OF PERIOD.................... 153 56
-------- --------
CASH EQUIVALENTS AT END OF PERIOD.......................... $ 171 $ 153
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Interest paid............................................ $ 13 $ 70
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-70
<PAGE>
VIDEOTRON USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED AUGUST 31, 1995 AND PERIOD FROM
SEPTEMBER 3, 1993 (DATE OF INCEPTION) THROUGH AUGUST 31, 1994
1. ORGANIZATION
Videotron USA, Inc. ("Videotron USA" or the "Company") was incorporated on
September 3, 1993 under the laws of the State of Delaware. The Company is an
indirect wholly-owned subsidiary of Le Groupe Videotron Ltee.
The Company was formed to acquire, develop and operate wireless cable
television systems in the United States. Wireless cable television, a
developing industry, provides television programming by transmitting a signal
via microwave frequencies licensed by the Federal Communications Commission
("FCC") to antennas located at the subscribers' premises. At August 31, 1995,
the Company owns 50% of Wireless Holdings, Inc. ("WHI") which operates
wireless cable systems in the San Francisco Bay Area and Spokane and holds
license rights for wireless cable networks in Greenville, South Carolina,
Seattle, Washington, and Victorville and San Diego, California that have not
begun operations. The Company also owns 80% of Videotron (Bay Area) Inc. which
operates wireless cable television systems in metropolitan Tampa Bay, Florida.
Transworld Telecommunications, Inc. ("TTI") owns the remaining 20% of Bay Area
and 50% of WHI.
As the Company operates in a developing industry, the Company is subject to
all the risks and expenses inherent with the establishment of a new business
enterprise based upon innovative technology. There can be no assurance that
the Company's operations will become profitable or will continue to produce
positive cash flows. See Note 13.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation-- The consolidated financial statements include the accounts
of the Company and its 80% owned subsidiary Videotron (Bay Area) Inc. The
investment in WHI is accounted for under the equity method.
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 Equivalents--The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash or cash
equivalents.
Inventories are recorded at the lower of cost, computed on a first-in first-
out basis, or market.
Fixed assets are recorded at cost. Expenditures for additions, improvements
and replacements are capitalized, whereas expenses for maintenance and repairs
are charged to operating and administrative expenses.
Depreciation is calculated using the straight-line method as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Wireless cable television electronic equipment.................... 15
Cable wiring and equipment........................................ 10
Installation labor................................................ 3
Satellite Master Antenna Television ("SMATV") systems and
equipment........................................................ 10
Furniture and equipment........................................... 5
</TABLE>
Licenses represent the acquisition cost of rights to operate wireless cable
networks. The Company amortizes licenses using the straight-line method over
20 years. The Company evaluate the carrying value of licenses annually based
upon its estimates of future net revenues or fair market value of such
licenses.
F-71
<PAGE>
VIDEOTRON USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition--Subscription revenues are recognized in the period of
service.
Income Taxes--The Company accounts for income taxes using the asset and
liability method under Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes.
Net Loss Per Share--Net loss per share is calculated based on shares of
common stock outstanding.
Fair Value of Financial Instruments--Management of the Company believes it
is not practicable to estimate the fair value of the debt payable to Le Groupe
Videotron Ltee and TTI described in Note 8 and advances to WHI described in
Note 6 because of the related party nature of such obligations. Management
believes that the Company's other financial instruments' carrying amounts are
a reasonable estimate of their fair values.
New Accounting Standard--In 1995, the Financial Accounting Standards Board
issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of. The Company's adoption of this
standard as of August 31, 1995 had no impact on the consolidated financial
statements.
3. DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the fiscal year and period ended August
31, 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Depreciation of fixed assets............................. $ 257 $ 103
Amortization of licenses................................. 614 486
------- -------
Total................................................ $ 871 $ 589
======= =======
</TABLE>
4. FIXED ASSETS
Fixed assets at August 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Office furniture and equipment........................... $ 434 $ 39
Leasehold improvements................................... 190 49
Wireless cable television electronic equipment network... 3,145 152
Cable wiring and installation network.................... 2,155 1,831
------ ------
Total................................................ 5,924 2,071
Accumulated depreciation................................. (360) (103)
------ ------
Total................................................ $5,564 $1,968
====== ======
</TABLE>
5. LICENSES
Licenses at August 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Licenses................................................ $13,686 $13,688
Accumulated amortization................................ (1,100) (486)
------- -------
Licenses, net........................................... $12,586 $13,202
======= =======
</TABLE>
F-72
<PAGE>
VIDEOTRON USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENTS IN AND ADVANCES TO WIRELESS HOLDINGS, INC.
Investments in and advances to WHI at August 31, 1995 and 1994 were (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Investments--Wireless Holdings, Inc., 50% interest...... $(3,959) $ 3,505
------- -------
Advances to Wireless Holdings, Inc.:
Note receivable, bearing interest at 10 5/8%.......... 40,021 18,574
Promissory notes, bearing interest at the greater of
6.0% over the prime rate or 15.0%, maturing in 1999.. 691
Convertible note, bearing interest at the greater of
2.5% over the prime rate or 18.0%, convertible at the
option of the Company upon certain conditions at the
price of $1,000 per Common Share of the affiliated
company.............................................. 1,858
------- -------
Total............................................... 40,021 21,123
------- -------
Total................................................... $36,062 $24,628
======= =======
</TABLE>
Advances to WHI--The shareholders of WHI, the Company and TTI (the
"Shareholders") have been involved in various disputes, litigation and
arbitration (the "Litigation") related to WHI and the conduct of the
shareholders with respect to the WHI Shareholders agreement.
Pursuant to a settlement agreement effective March 31, 1995 (the
"Agreement"), among WHI, the Company, TTI and Videotron (Bay Area) Inc., the
shareholders agreed to terminate the Litigation and retained an investment
banking firm to evaluate, identify and negotiate the possible disposition of
WHI by a sale or other appropriate transaction as provided in the Agreement.
Pursuant to the Agreement, all advances to WHI, including accrued interest,
were converted on March 31, 1995 to unsecured promissory notes. The notes are
due on (i) the earlier of December 31, 1999, (ii) the closing of the sale of
the Company or (iii) the availability of funds in connection with the
dissolution or liquidation of WHI. Upon closing of the sale of the Company,
all notes will be paid prior to any other distributions.
Investment--WHI--The Company acquired a 50% interest in WHI for $4,751,000
during the fiscal year ended August 31, 1994. However, for accounting
purposes, since all operating losses of WHI are now being funded by the
Company, all the losses attributable to TTI in excess of its investment in WHI
have been provided for in the Company's share of losses of WHI since March 31,
1995. This amounted to $2,034,000 in 1995. The Company expects such losses
will be recovered upon the consummation of the sale of the Company.
7. ACQUISITION OF INTEREST IN VIDEOTRON (BAY AREA) INC.
On November 19, 1993, the Company acquired 80% of the share capital of
Videotron (Bay Area) Inc., (formerly Transworld Wireless TV-Tampa Bay Inc.),
which operates a wireless cable network in metropolitan Tampa Bay, Florida.
Operations of Bay Area prior to November 19, 1993 were not significant.
The cost of acquisition was $7,000,000 in cash. The remaining 20% of the
stock of Bay Area continues to be held by TTI. Concurrent with the
acquisition, TTI sold the Company 1,000 shares of its Series B convertible
preferred stock for $1.5 million in cash. In September 1994, this stock was
converted into 1,000 shares of TTI common stock. In connection with the
acquisition, TTI received the right to sell its remaining 200 shares in Bay
Area to the Company during a five-year period at anytime after December 31,
1994 for the greater of $2.6 million or the then fair market value of the 200
TTI shares.
F-73
<PAGE>
VIDEOTRON USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The acquisition was accounted for as a purchase, and accordingly, the
purchase price was allocated to the assets and liabilities of the Company
based on their respective fair values as of the acquisition date of November
19, 1993, as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Fair value of net assets acquired:
Fixed assets............................................ $ 962
Intangible assets, primarily license and leased
licenses............................................... 11,648
Other assets (including cash of $55,527)................ 1,263
Liabilities assumed (including $1,087,220 of convertible
debentures (see Note 8), and deferred taxes of
$2,381,203)............................................ (5,373)
-------
Purchase price............................................ $ 8,500
=======
</TABLE>
The purchase price includes the $7,000,000 discussed above plus the deemed
additional purchase price of $1,500,000 representing the excess paid over the
fair value of TTI Series B convertible preferred stock purchased by the
Company.
8. NOTE PAYABLE TO LE GROUPE VIDEOTRON LTEE AND DEBT PAYABLE
Note payable to Le Groupe Videotron Ltee and debt payable at August 31, 1995
and 1994 were:
<TABLE>
<CAPTION>
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Note payable to Le Groupe Videotron Ltee on demand,
including interest at the lower of 15% or 4% over prime
(8% at August 31, 1995).................................. $30,467 $7,209
======= ======
Convertible debentures payable in semi-annual installments
of $13,796 and $82,779 at 1995 and 1994, respectively,
including interest at 8%, final payment is due October
2002, convertible into TTI common stock (a non-
controlling shareholder in a subsidiary), at a conversion
rate of one share of common stock for each $10 of
debenture principal, collateralized by the wireless/cable
broadcast system......................................... $ 153 $1,007
======= ======
</TABLE>
The notes payable to Le Groupe Videotron Ltee are due on (i) the earlier of
December 31, 1999, (ii) the closing of the sale of the Company or (iii) the
availability of funds in connection with the dissolution or liquidation of
WHI. Upon closing of the sale of the Company, all notes will be paid prior to
any other distributions. The Company has classified note payable to Le Groupe
Videotron Ltee and debt payable as current liabilities as of August 31, 1995
and 1994 because management of the Company believes it is probable that the
proposed transaction with Pacific Telesis Group will be consummated (see Notes
11 and 13).
During the year ended August 31, 1995, an agreement was reached between a
majority of the various holders of the convertible debentures and TTI whereby
TTI acquired a significant portion of the unpaid principal amounts due on the
debentures in exchange for TTI stock. The Company paid off at a discount a
portion of the 8% convertible debentures held prior to their maturity. As a
result, approximately $862,000 of the debentures and accrued interest were
paid off for $700,000. The $162,000 difference between the carrying value of
the debentures and the amount paid was recognized as an early extinguishment
of debt by the Company and treated as an extraordinary item in the
accompanying statement of operations for the fiscal year ended August 31,
1995.
F-74
<PAGE>
VIDEOTRON USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMITMENTS
Channel Leases--The Company leases from third parties channel rights
licensed by the FCC for wireless cable channels. The use of such channels by
the lessors is subject to regulation by the FCC and licenses generally must be
renewed every ten years. As of August 31, 1995, the remaining initial terms of
most of the Company's channel leases are approximately 7 to 9 years, although
certain of the Company's channel leases have initial terms expiring beginning
in 1996. Channel rights lease agreements generally require payments beginning
upon completion of construction of the transmission equipment and facilities.
Payments are based on the greater of specified minimums or amounts based upon
various subscriber levels. Channel rights lease expense was $156,809 and
$91,203 for the year ended August 31, 1995 and the period from September 3,
1993 (date of inception) through August 31, 1994, respectively.
Operating Leases--The Company leases office, warehouse and transmission
tower space. Rent expense was $247,047 and $64,973 for the year ended August
31, 1995 and the period from September 3, 1993 (date of inception) through
August 31, 1994, respectively.
Lease Payments--Future minimum lease payments due under channel rights
leases in effect at August 31, 1995 for operational systems and operating
leases are as follows:
<TABLE>
<CAPTION>
CHANNEL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996.................................................... $ 208 $ 296
1997.................................................... 195 296
1998.................................................... 136 296
1999.................................................... 137 231
2000.................................................... 122 158
Thereafter.............................................. 367 624
------ ------
Total............................................... $1,165 $1,901
====== ======
</TABLE>
10. INCOME TAXES
The significant components of the deferred tax assets and liabilities as at
August 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Fixed assets............................................. $ 613 $1,003
Net operating losses..................................... 6,139 1,552
Other.................................................... 14 4
------ ------
Total.................................................. 6,766 2,559
Deferred tax liabilities:
Licenses................................................. 4,385 3,421
Valuation allowances..................................... 4,000 1,000
------ ------
Net deferred tax liability................................. $1,619 $1,862
====== ======
</TABLE>
The Company and its subsidiaries file individual Federal tax returns. The
income tax benefit resulted from the recognition of net operating losses in
the year ended August 31, 1995 equal to that of the deferred tax liability.
F-75
<PAGE>
VIDEOTRON USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At August 31, 1995 the Company had net operating losses carryforwards for
Federal income tax purposes of approximately $17,700,000 expiring in 2009 and
net operating carryforwards for state income tax purposes of approximately
$2,000,000 which expire from 1999 to 2000. A valuation allowance was
established to reduce a deferred tax asset to the amount expected to be
realized.
11. PROPOSED SALE TO PACIFIC TELESIS GROUP
Effective November 9, 1995, Le Groupe Videotron Ltee, TTI, WHI, Videotron
USA, and Videotron (Bay Area) Inc. entered into a Stock Purchase Agreement to
sell Videotron USA, WHI and Videotron (Bay Area) Inc. to Pacific Telesis Group
for approximately $175 million. The purchase price is comprised of
approximately $125 million of Pacific Telesis Group's common stock and cash of
approximately $50 million, and is subject to certain pre-closing and post-
closing adjustments.
The proposed transaction is contingent upon among other things, FCC and
other regulatory approvals and approval of TTI's shareholders. Certain private
cable (primarily the SMATV operations in the San Francisco Bay Area) and
wireline (primarily in Spokane and Tampa Bay) systems held by WHI and
Videotron (Bay Area) Inc. are not included in the proposed sale to Pacific
Telesis Group. Such assets and liabilities were sold to affiliates of Le
Groupe Videotron Ltee on July 31, 1996.
12. LITIGATION
On January 30, 1996, Vanguard Communications, L.P. filed suit against Le
Groupe Videotron Ltee, Videotron International Ltee, Videotron USA, WHI and
certain officers and directors of Le Groupe Videotron Ltee alleging among
other things that certain agreements entered into by affiliates of Le Groupe
Videotron Ltee improperly restricted the ability of OpTel, Inc. (a joint
venture between Vanguard and an affiliate of Le Groupe Videotron Ltee) to
operate in certain significant geographic locations in the United States.
On August 1, 1996 the above mentioned litigation was settled with no impact
to the Company.
13. GOING CONCERN UNCERTAINTY
Cash used by investing activities in the year ended August 31, 1995 was
$22,257,000. Net loss for the year ended August 31, 1995 was $7,211,000. Since
its inception, the Company has been substantially dependent upon its ultimate
parent, Le Groupe Videotron Ltee, to fund the Company's day-to-day operations
and capital infrastructure spending requirements. There can be no assurance
that the Company's operations will become profitable or will produce positive
cash flows.
As discussed in Note 11, the Company has entered into a Stock Purchase
Agreement effective November 9, 1995 with Pacific Telesis Group for the
proposed sale of the Company, its subsidiary Videotron (Bay Area) Inc. and
Wireless Holdings, Inc. Pursuant to such Stock Purchase Agreement, Le Groupe
Videotron Ltee will continue to fund the Company's day-to-day operations and
fulfill their financial obligations as long as Pacific Telesis Group remains
obligated to consummate the Stock Purchase Agreement. Management of the
Company believes it is probable that the proposed transaction with Pacific
Telesis Group will be consummated. If the proposed transaction with Pacific
Telesis Group is not consummated, the Company in conjunction with its
shareholder, intends to fund the Company's day-to-day operations through
December 31, 1996, reschedule or restructure the debt payable to its
shareholder as necessary and potentially sell or lease some of WHI and VBAI's
licenses, to allow the Company to fulfill its other financial obligations,
while maintaining its capital expenditures at a level sufficient to sustain
operations through December 31, 1996.
F-76
<PAGE>
VIDEOTRON USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accompanying consolidated financial statements have been prepared on the
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The matters
discussed above, and in Note 14, may indicate that the Company will be unable
to continue as a going concern for a reasonable period of time.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to obtain
additional financing or refinancing, and ultimately to attain successful
operations.
14. ARBITRATION PROCEEDING
On September 24, 1996, Pacific Telesis Group filed a demand for arbitration
("Arbitration Demand") naming TTI, Le Groupe Videotron Ltee, Videoway
Technologies Ltd. (an affiliate of Le Groupe Videotron Ltee), WHI, Videotron
USA and Videotron (Bay Area) Inc. and alleging breach of the obligations under
the Stock Purchase Agreement. The Arbitration Demand requests a declaration
that TTI, Le Groupe Videotron Ltee, Videoway Technologies Ltd., WHI, Videotron
USA and Videotron (Bay Area) Inc. complete the transaction contemplated by the
Stock Purchase Agreement. In addition, the Arbitration Demand requests
damages, interest and attorney fees. The Arbitration Demand does not contain
any specific allegations of wrongdoing by the Company although relief is
sought against all named parties. The Company is contesting Pacific Telesis
Group's claims and intends to defend the action vigorously. Management
believes that the ultimate resolution of the above Arbitration Demand will not
have a material adverse effect on the Company's financial position, results of
operations, and cash flows or on the likelihood that the proposed transaction
with Pacific Telesis Group will be consummated.
15. OTHER RELATED PARTY TRANSACTIONS
During the year ended August 31, 1995, Bay Area entered into an agreement
with WHI whereby WHI provides management services to Bay Area and Bay Area, in
return, reimburses WHI for one-third of their expenses. Management fees paid
by Bay Area to WHI for the year ended August 31, 1995 were approximately
$356,000.
F-77
<PAGE>
INDEX TO APPENDICES
Appendix A--Stock Purchase Agreement dated as of November 9, 1995 by and among
Pacific Telesis, Pacific Telesis Acquisitions, Pacific Telesis
Purchasing, TTI, WHI, VBAI, Videotron Canada, Videoway and Messrs.
Crutchfield and D'Ambrosio
Appendix B--Plan of Complete Liquidation of TTI dated as of , 1996
Appendix C--Fairness Opinion of Wasserstein, Perella & Co., Inc., TTI's
financial advisor
Appendix D--Tax Opinion of Parsons Behle & Latimer, TTI's counsel
I
<PAGE>
APPENDIX A
STOCK PURCHASE AGREEMENT
DATED AS OF NOVEMBER 9, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I
Definitions
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <S> <C>
1.01 Defined Terms.................................................. 1
1.02 Construction................................................... 11
1.03 Other Definitional Provisions.................................. 11
ARTICLE II
Exchange of Stock
2.01 Number of Shares of PTG Common Stock to Be Exchanged........... 12
2.02 Exchanges of PTG Common Stock for the Transferred Shares....... 12
2.03 Delivery of Certain Shares into Escrow......................... 12
ARTICLE III
Representations and Warranties of the Sellers and the Principal Shareholders
3.01 Corporate Organization......................................... 12
3.02 Execution, Delivery and Enforceability of Agreement............ 13
3.03 Capitalization................................................. 13
3.04 Subsidiaries................................................... 14
3.05 Financial Statements........................................... 14
3.06 No Adverse Changes............................................. 15
3.07 No Violation................................................... 15
3.08 Consents and Approvals......................................... 15
3.09 Compliance with Legal Requirements............................. 15
3.10 Absence of Certain Changes..................................... 16
3.11 Availability of Assets and Title............................... 17
3.12 Permits........................................................ 17
FCC Licenses; Channel Leases; System Agreements; and The
3.13 System......................................................... 17
3.14 Litigation..................................................... 19
3.15 Taxes.......................................................... 19
3.16 Employee Benefit Plans......................................... 20
3.17 Contracts...................................................... 21
3.18 Employees and Affiliated Agreements............................ 22
3.19 Proprietary Rights............................................. 23
3.20 Insurance...................................................... 24
3.21 Real Property.................................................. 24
3.22 Personal Property.............................................. 25
3.23 Personal Property Leases....................................... 25
3.24 Disclosure..................................................... 25
3.25 Information Supplied........................................... 25
3.26 HSR Act........................................................ 25
</TABLE>
i
<PAGE>
ARTICLE IV
Representations and Warranties of Videoway, Videotron Canada and Videotron USA
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <S> <C>
4.01 Corporate Organization........................................... 25
4.02 Execution, Delivery and Enforceability of Agreement.............. 26
4.03 Capitalization................................................... 26
4.04 Subsidiaries..................................................... 26
4.05 Financial Statements............................................. 26
4.06 No Adverse Changes............................................... 27
4.07 No Violation..................................................... 27
4.08 Consents and Approvals........................................... 27
4.09 Compliance with Legal Requirements............................... 27
4.10 Absence of Certain Changes....................................... 28
4.11 Availability of Assets and Title................................. 28
4.12 Permits.......................................................... 29
4.13 Litigation....................................................... 29
4.14 Taxes............................................................ 29
4.15 Employee Benefit Plans........................................... 30
4.16 Contracts........................................................ 30
4.17 Employees and Affiliated Agreements.............................. 31
4.18 Proprietary Rights............................................... 32
4.19 Insurance........................................................ 32
4.20 Real Property.................................................... 32
4.21 Personal Property................................................ 33
4.22 Personal Property Leases......................................... 33
4.23 Ownership of Stock............................................... 33
4.24 Disclosure....................................................... 33
4.25 Information Supplied............................................. 33
</TABLE>
ARTICLE V
Representations and Warranties of TTI
<TABLE>
<C> <S> <C>
5.01 Corporate Organization............................................... 33
5.02 Execution, Delivery and Enforceability of Agreement.................. 33
5.03 No Violation......................................................... 34
5.04 Consents and Approvals............................................... 34
5.05 Litigation .......................................................... 34
5.06 Ownership of Stock................................................... 34
5.07 Disclosure........................................................... 34
5.08 Information Supplied................................................. 34
</TABLE>
ARTICLE VA
Representations and Warranties of F. Lorenzo Crutchfield and Lance V.
D'Ambrosio
<TABLE>
<C> <S> <C>
5.01A Execution, Delivery and Enforceability of Agreement................. 35
5.02A No Violation........................................................ 35
5.03A Consents and Approvals.............................................. 35
5.04A Litigation.......................................................... 35
</TABLE>
ii
<PAGE>
ARTICLE VI
Representations and Warranties of PTG and Newco
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <S> <C>
6.01 Corporate Organization......................................... 35
6.02 Capitalization................................................. 35
6.03 SEC Filings.................................................... 36
6.04 No Adverse Changes............................................. 36
6.05 Authorization.................................................. 36
6.06 No Violation................................................... 36
6.07 Consents and Approvals......................................... 36
6.08 Financial Statements of PTG.................................... 36
6.09 Litigation..................................................... 37
6.10 Disclosure..................................................... 37
6.11 Information Supplied........................................... 37
6.12 Investment Intent.............................................. 37
ARTICLE VII
Actions Prior to the Closing Date
7.01 Investigation of the Acquired Companies by PTG................. 37
7.02 Litigation..................................................... 38
7.03 Consents and Approvals......................................... 38
7.04 Operations of WHI and VBAI Prior to the Closing Date........... 38
7.05 Operations of Videotron USA.................................... 40
7.06 No Other Offers................................................ 41
7.07 No Announcements............................................... 42
7.08 Antitrust Law Compliance....................................... 42
7.09 Subsequent Financial Statements................................ 42
7.10 Cooperative Efforts; FCC Adjustment; MFJ Compliance............ 42
7.11 Acquisition of Minority Shares of BAC.......................... 43
7.12 Disclosure Schedule Supplement................................. 43
7.13 Tax-Free Reorganization........................................ 44
7.14 NYSE Listing................................................... 45
ARTICLE VIII
Registration Statement; Transfer Restrictions
8.01 Registration Statement......................................... 46
8.02 145 Affiliates................................................. 46
8.03 Limited Resales................................................ 46
8.04 Legends........................................................ 47
8.05 Videotron Share Release........................................ 47
ARTICLE IX
Other Agreements of the Parties
9.01 Further Documents and Assurances............................... 48
Tax Returns and Related Matters of WHI, VBAI and their
9.02 Subsidiaries................................................... 48
9.03 Tax Returns and Related Matters of Videotron USA............... 50
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <S> <C>
9.04 The Spin-off................................................... 51
9.05 TTI Shareholders Meeting....................................... 51
9.06 Agreement To Vote Shares and Covenant Not to Sue............... 52
9.07 Intentionally Deleted.......................................... 52
9.08 VDT............................................................ 52
9.09 Settlement Agreement........................................... 52
9.10 Tax Returns of TTI............................................. 52
ARTICLE X
Conditions to Obligations of PTG
to Consummate the Transactions Contemplated Hereby
10.01 Representations and Warranties True............................ 53
10.02 Performance.................................................... 53
10.03 Authorization.................................................. 53
10.04 No Change in Business.......................................... 53
Opinion of Counsel for the Sellers and the Principal
10.05 Shareholders................................................... 53
10.06 No Restraint or Litigation..................................... 54
10.07 Necessary Governmental Approvals............................... 54
10.08 Necessary Consents............................................. 54
10.09 Resignations................................................... 54
10.10 Liens.......................................................... 54
10.11 Spin-Off....................................................... 54
10.12 Other Documents................................................ 54
10.13 Transfer of Interexchange Facilities........................... 54
10.14 Pre-Closing Balance Sheet and Audited Financials............... 54
10.15 FCC Approvals.................................................. 55
10.16 Minimum Channel Deliveries..................................... 55
10.17 Effectiveness of the Registration Statement.................... 55
10.18 Tax-Free Reorganization........................................ 55
10.19 Withdrawal of Arbitration Proceedings.......................... 55
10.20 Repayment of Affiliate Indebtedness............................ 55
10.21 Other Closing Date Deliveries.................................. 55
10.22 Proceedings, Instruments, etc.................................. 56
ARTICLE XI
Conditions to Obligations of the Sellers to
Consummate the Transactions Contemplated Hereby
11.01 Representations and Warranties True............................ 56
11.02 Performance.................................................... 56
11.03 Authorization.................................................. 56
11.04 No Restraint or Litigation..................................... 56
11.05 Necessary Governmental Approvals............................... 56
11.06 Opinions of Counsel of PTG..................................... 56
11.07 Effectiveness of the Registration Statement.................... 56
11.08 New York Stock Exchange Listing................................ 57
11.09 Tax-Free Reorganization........................................ 57
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <S> <C>
11.10 Payment of Outstanding Indebtedness and Videotron Cash Amount.. 57
11.11 Payment for Non-Compete........................................ 57
11.12 Other Documents................................................ 57
11.13 Certificates................................................... 57
11.14 Proceedings, Instruments, etc.................................. 57
ARTICLE XII
Closing
12.01 Closing........................................................ 57
ARTICLE XIII
Termination and Abandonment
13.01 Grounds for Termination........................................ 57
13.02 Procedure Upon Termination..................................... 58
ARTICLE XIV
Post-Closing Matters
14.01 Covenants Regarding Employees and Covenant Not to Interfere,
Compete or Solicit Business.................................... 58
14.02 Use of Trademarks and Names.................................... 59
14.03 Post Closing Adjustments....................................... 59
Payment of Certain Liabilities and Delivery of Stock
14.04 Certificates................................................... 60
ARTICLE XV
Indemnification
15.01 Indemnification by the Sellers and the Principal Shareholders.. 61
15.02 Indemnification by PTG......................................... 62
15.03 Notice of Claims............................................... 63
15.04 Escrow......................................................... 63
15.05 Third Party Claims............................................. 63
15.06 TTI Shareholder Acknowledgment................................. 64
ARTICLE XVI
Miscellaneous Provisions
16.01 Brokers........................................................ 64
16.02 Confidentiality................................................ 64
16.03 Payment of Expenses............................................ 65
16.04 Waiver of Compliance........................................... 65
16.05 Notices........................................................ 65
16.06 Certain Limitations............................................ 69
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <S> <C>
Survival of Representations, Warranties, Indemnities and Other
16.07 Agreements..................................................... 69
16.08 Binding Nature; Assignment..................................... 69
16.09 Governing Law; Construction.................................... 69
16.10 Counterparts................................................... 69
16.11 Entire Agreement; Amendments and Waivers....................... 69
16.12 Severability................................................... 69
16.13 Headings....................................................... 69
16.14 Remedies....................................................... 69
16.15 Arbitration.................................................... 70
16.16 Escrow Agreement............................................... 71
Execution...............................................................
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
- ---------
Disclosure Schedule
<S> <C>
Schedule A List of Sellers and Shares to be Exchanged
Schedule B Permitted Monthly Subscribers
Schedule C Assumed Employment Agreements
Schedule D Closing Consents/Estoppel Certificates
Schedule E Subleased Channels
EXHIBITS
- --------
<S> <C>
Exhibit A Form of Escrow Agreement
Exhibit B Form of Irrevocable Proxy
Exhibit C Intentionally Deleted
Exhibit D Form of Cooley Godward et al Opinion
Exhibit E Form of FCC Opinion
Exhibit F Form of Consent/Estoppel Certificates
Exhibit G Form of Richard W. Odgers Opinion
Exhibit H Form of Orrick, Herrington & Sutcliffe Opinion
</TABLE>
vi
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, is made and entered into as of this 9th day
of November, 1995, by and among Pacific Telesis Group, a Nevada corporation
("PTG"), Pacific Telesis Acquisitions, a California corporation and a wholly-
owned subsidiary of PTG ("Newco I"), Pacific Telesis Purchasing, a California
corporation and wholly owned subsidiary of Pacific Telesis Enterprises
Services Inc. ("Newco II"), Transworld Telecommunications, Inc., a
Pennsylvania corporation ("TTI"), Videotron USA, Inc., a Delaware corporation
("Videotron USA"), Videoway Technologies Ltd., a Barbados corporation
("Videoway"), Wireless Holdings, Inc., a Delaware corporation ("WHI"),
Videotron (Bay Area), Inc., a Florida corporation ("VBAI"), Le Groupe
Videotron Ltee, a Canadian corporation ("Videotron Canada"), solely with
respect to Sections 7.13, 9.06, 9.09 and 14.01 and Articles VA and XV hereof,
F. Lorenzo Crutchfield, Jr. (the "TTI Shareholder"), and solely with respect
to Sections 9.06 and 14.01 and Article VA, Lance V. D'Ambrosio.
Witnesseth:
Whereas, TTI and Videotron USA each own 50% of the outstanding shares of
capital stock of WHI;
Whereas, TTI and Videotron USA own 20% and 80%, respectively, of the
outstanding shares of capital stock of VBAI;
Whereas, Videoway owns all of the outstanding shares of Videotron USA and
Videotron Canada owns indirectly all of the outstanding shares of Videoway;
Whereas, PTG desires Newco I to acquire from TTI, TTI's 50% equity interest
in WHI (the "WHI Stock") and TTI's 20% equity interest in VBAI (the "VBAI
Stock"), and TTI desires to transfer to Newco I all of TTI's shares of such
capital stock, solely in exchange for the number of shares of Common Stock,
$0.10 par value ("PTG Common Stock"), of PTG determined pursuant to Article II
hereof, subject to certain adjustments set forth in Section 14.03 hereof in a
transaction intended by the parties hereto to qualify as a reorganization
within the meaning of Section 368(a)(1)(C) of the Code;
Whereas, PTG desires Newco II to acquire from Videoway all of the
outstanding shares (the "Videotron Stock") of Videotron USA, and Videoway and
Videotron Canada desire to transfer such shares to Newco II, in exchange for
the number of shares of PTG Common Stock and cash determined pursuant to
Article II hereof, subject to certain adjustments set forth in Section 14.03
hereof (this exchange, together with the exchange described in the preceding
recital being collectively referred to herein as the "Exchange");
Whereas, the Acquired Companies or their Subsidiaries hold or have rights to
certain FCC Licenses and Channel Leases, control of which may not be
transferred or the rights to which may not be assigned without prior FCC
approval, and the parties agree to seek such approval;
Now, therefore, for and in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"Acquired Companies" shall mean WHI, VBAI and Videotron U.S.A. and their
respective Subsidiaries.
<PAGE>
"Adjusted Gain" means net taxable gains and taxable dividends, without any
offset of any operating or capital losses, recognized or required to be
recognized by any of the Acquired Companies on any disposition or distribution
of the Spin-Off Assets.
"Affiliate" of a Person shall mean any other Person that, directly or
indirectly, Controls or is Controlled by that Person, or is under common
Control with that Person or any such other Person.
"Agreement" shall mean this Stock Purchase Agreement as the same may be
amended, supplemented or otherwise modified from time to time.
"Approved Expenditures" shall mean any expenditures incurred by WHI or VBAI
which are approved in writing by PTG.
"Assumed Interest on Shareholder Debt" shall mean all interest accruing from
October 1, 1995 to the Closing Date on all money borrowed by WHI and VBAI from
Videotron USA or TTI, but in no event more than $500,000 per month.
"BAC" shall mean Bay Area Cablevision, Inc., a California corporation.
"Balance Sheet Date" shall mean September 30, 1995.
"Benefit Plans" shall have the meaning ascribed thereto in Section 3.16(a)
hereof.
"Best Efforts" shall mean the taking by a party of such action as would be
in accordance with reasonable commercial practices as applied to the
particular matter in question to achieve the result as expeditiously as
practicable; provided, however, that such action shall not include the
incurrence of unreasonable expense.
"Business Day" shall mean any day excluding Saturday, Sunday and any day
which shall be in San Francisco, California a legal holiday or a day on which
banking institutions are authorized by law to close.
"Channel Leases" shall mean all leases held by or for the benefit of, WHI,
VBAI or their respective Subsidiaries, relating to the use by WHI, VBAI or
their respective Subsidiaries of airtime on ITFS, MDS or MMDS frequencies
licensed by the FCC.
"Channel License" shall mean any license granted by the FCC to a lessor of a
Channel Lease to operate a Channel.
"Channels" shall mean the ITFS, MDS or MMDS frequencies licensed by the FCC
pursuant to the FCC Licenses or leased to WHI, VBAI or their Subsidiaries by
an ITFS, MDS or MMDS licensee pursuant to Channel Leases, which Channels are
set forth in Schedule 3.13 of the Disclosure Schedule under the caption
"System Channels."
"Closing" shall have the meaning ascribed thereto in Article XII.
"Closing Date" shall have the meaning ascribed thereto in Article XII.
"COBRA" shall have the meaning ascribed thereto in Section 3.16(a) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall have the meaning ascribed to it in Section 14.03(f)
hereof.
"Colocate" shall mean to modify and/or relocate the facilities of an ITFS,
MDS or MMDS applicant, permittee, conditional licensee or licensee, pursuant
to FCC approval and in accordance with FCC Rules, at a
A-2
<PAGE>
common transmitter site with other ITFS, MDS and MMDS licensees in the same
market pursuant to common technical characteristics.
"Colocation Application" shall mean an application filed by an ITFS, MDS or
MMDS licensee, pursuant to the FCC Rules, that has not been dismissed or
denied by the FCC, to Colocate its facilities at the relevant Colocation Site,
provided such application satisfies and complies with the FCC Rules, including
without limitation, the interference protection requirements set forth in 47
C.F.R. (S)(S) 21.902, 21.938 and 74.903, and includes all necessary consent/no
objection letters except those required from American Telecasting Inc.,
Gavilon, any Affiliates of American Telecasting Inc., any lessors of channel
airtime leases to which American Telecasting Inc. is a party, PTG or
Affiliates of PTG.
"Colocation Sites" shall mean Mt. San Bruno, Monument Peak (Southern Bay
Area System), Oldsmar Tower (Tampa System), San Miguel Mountain (San Diego
System), Krell Mountain (Spokane System), Quartzite Mountain (Victorville
System) and Paris Mountain (Greenville System).
"Communications Act" shall mean the Communications Act of 1934, as amended,
47 U.S.C. (S) 151, et seq.
"Contracts" shall have the meaning ascribed thereto in Section 3.17(b)
hereof.
"Control" (including, with correlative meaning, the terms "controlled by" or
"under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person through the ownership
of voting securities representing more than 50% of the voting power of such
Person.
"Cure Period" shall have the meaning set forth in Section 7.10 hereof.
"Customer Premises Equipment" shall mean equipment employed on the premises
of a Person (other than a carrier) to originate, route, or terminate
telecommunications, but does not include equipment used to multiplex, maintain
or terminate access lines.
"Disclosure Schedule" shall mean the disclosure schedule delivered to PTG
concurrently with the execution of this Agreement.
"Disclosure Schedule Supplement" shall have the meaning set forth in Section
7.12 hereof.
"Distribution Adjustment" shall mean the product of (x) the Adjusted Gain
and (y) 41%.
"Environmental Laws" shall have the meaning set forth in the definition of
"Environmental Liabilities."
"Environmental Liabilities" shall mean any cost, debt, expense, obligation,
liability or other responsibility arising as a result of, from or under any
federal or state environmental law or regulation or other law or regulation
relating to pollution or protection of the environment including any law that
regulates or imposes standards of conduct with regard to the use, release,
storage, handling or disposal of any solid wastes, toxic wastes, hazardous
wastes or other hazardous, toxic or dangerous materials or substances
("Environmental Laws").
"ERISA" shall have the meaning ascribed thereto in Section 3.16(a) hereof.
"Escrow Agreement" shall mean that certain Escrow Agreement in the form of
Exhibit A hereto to be entered into by PTG, Videotron Canada, Videoway, TTI
and The Chase Manhattan Bank, N.A. as escrow agent.
"Exchange" shall have the meaning set forth in the fifth recital hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the regulations and rules promulgated thereunder.
A-3
<PAGE>
"Expense" shall have the meaning ascribed to it in Section 15.01 hereof.
"FAA" shall mean the Federal Aviation Administration.
"FCC" shall mean the Federal Communications Commission or any governmental
body or agency succeeding to the functions thereof.
"FCC Adjustment" shall have the meaning ascribed thereto in Section 7.10
hereof.
"FCC Conditions" shall mean with respect to any FCC License, Channel License
or Related Facilities License that (a) such License is in full force and
effect under the FCC Rules, (b) there are no expired authorizations where the
licensee is seeking reinstatement, nor are there any pending extension
requests unless there is a pending Colocation Application, the licensee has
built facilities pursuant to the licensee's initial authorization and such
request is the first extension request, (c) there are no material violations
of any FCC Rules with respect to such License (including, (i) no enforcement
action or written inquiry that could result in the termination of, the
material impairment or forfeiture of any rights under, or material fine or
forfeiture with respect to such License, (ii) no Channels shall be, or shall
have been, nonoperational without the grant of special temporary authorization
from the FCC unless the FCC has granted a waiver of its requirements that a
Channel remain operational and all necessary filings relating to the operation
of the Channel have been amended to reflect the period of nonoperation, and
(iii) there shall be no written renewal challenges or inquiries that could
result in the termination of, the material impairment or forfeiture of any
rights under or material fine or forfeiture with respect to the License, other
than those arising from wireline ownership), (d) the Channels relating to such
License shall have been Colocated or Colocation Applications shall have been
filed (which do not request waivers of the FCC Rules except for the "natural
evolution" waiver requests for the San Francisco System and the four channel
waiver requests for the Tampa System), are not subject to any competing or
conflicting applications (unless such competing or conflicting applications
are dismissed and the relevant colocation application has been granted) and
contain all necessary no objection letters unless such no objection letter is
needed from American Telecasting Inc. ("ATI"), any Affiliates of ATI, any
lessors of leases for channel airtime use to which ATI is a party, Gavilon,
PTG, PTG's Affiliates or any lessors of leases for channel airtime use to
which PTG is a party), and if granted, will allow the ITFS, MDS or MMDS
licensee to transmit on the Channels from the relevant Colocation Site, (e) no
substantive petition to deny or other substantive objection (including without
limitation any interference issues, substantive petitions to deny, and
substantive informal objections) relating to such Colocation Applications
shall be pending or shall have been filed with the FCC, except those filed by
ATI, any Affiliates of ATI, any lessors of leases for channel airtime use to
which ATI is a party, Gavilon, PTG, PTG's Affiliates or any lessors of leases
for channel airtime use to which PTG is a party; provided, however, that in
order for a petition to deny or objection to be considered substantive, it
must relate only to ITFS, MDS or MMDS channels currently being transmitted or
proposed to be transmitted from a site located within the 50 mile radius of
the Colocation Site in that market and must be filed by the permitholder or
lessee of such channels; and provided, further, that if the period provided in
the FCC Rules for the timely filings of petitions to deny has not expired as
of the Closing Date and there are no substantive petitions to deny or other
substantive objections (as described above) filed with the FCC or outstanding
as of the Closing with respect to such License or Colocation Application, then
such License shall be deemed to satisfy this clause (e) for purposes of
satisfying the Minimum Channel Closing requirement set forth in Section 10.16
hereof and shall not be subject to the FCC Adjustment provided for in Section
7.10 hereof if such License otherwise meets the other FCC Conditions, (f) the
Channel is licensed by the FCC to one of the Acquired Companies or there is a
Channel Lease relating to such License that is in full force and effect, is a
legal, valid and binding obligation of WHI, VBAI or one of their Subsidiaries,
and to the Knowledge of Sellers, there is no material breach with respect to
such Lease which could result in the termination of such Lease, the loss of
any rights thereunder or any payments being made with respect to such breach,
except RT Wireless with respect to the San Francisco System and LA Paging and
MDS Associates with respect to the San Diego System, and (g) no third party
shall be asserting or have any rights to assert any interest in any such
Licenses or Channel Leases, if such License is a Channel License, except RT
Wireless with respect to the San Francisco System and LA Paging and MDS
Associates with respect to the San Diego System. Notwithstanding the
foregoing, these FCC Conditions shall not be deemed
A-4
<PAGE>
unsatisfied solely because an application is dismissed or returned solely due
to missing "no objection" letters from, or because of issues raised in
petitions to deny or informal objections filed by ATI, ATI Affiliates, any
lessors of leases of channel airtime use to which ATI is a party, Gavilon,
PTG, PTG's Affiliates or any lessors of leases of channel airtime use to which
PTG is a party.
"FCC Licenses" shall mean the Permits issued by the FCC, including
construction permits, to operate and transmit on the following Channels with
the following call signs: San Francisco: KFF81, Channel MDS-1; WMY498,
Channels F1 through F3; WNTA514, Channel H2; San Jose: WJL36, Channel MDS-1;
Channel MDS-2; WMY499, Channels F2 through F4; WNEJ497, Channel H-1; WNTM579,
Channel H-2; Tampa: WHT700, Channels E1 through E4; Greenville: WLW738,
Channels E1 through E4, and WNTH789, Channel H-1; Additional Licenses: WLY503,
WNTX836, WLY480.
"FCC Orders" shall have the meaning set forth in Section 7.03(b) hereof.
"FCC Rules" shall mean Title 47 of the Code of the Federal Regulations, as
amended, from time to time, and FCC decisions issued pursuant to the adoption
of such regulations.
"Final Action" shall have the meaning set forth in Section 7.03(b) hereof.
"Financial Status" shall mean the financial position, business, assets,
properties or operations of the Person in question and its Subsidiaries.
"Financial Statements" shall have the meanings ascribed thereto in Section
3.05 hereof.
"Final Closing Balance Sheet" shall have the meaning ascribed thereto in
Section 14.03 hereof.
"Final Starting Balance Sheet" shall have the meaning ascribed thereto in
Section 14.03(b) hereof.
"GAAP" shall mean generally accepted United States accounting principles,
applied on a consistent basis.
"Governmental Authority" shall mean any federal, state, local or other
governmental or administrative body, instrumentality, department, agency or
any court, tribunal, administrative hearing, arbitration panel, commission or
other similar dispute resolving panel or body.
"Greenville System" shall have the meaning ascribed thereto in Section
3.13(g) hereof.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
"ITFS" shall mean Instructional Television Fixed Service, a class of
microwave frequencies licensed by the FCC, pursuant to Part 74 of the FCC
Rules, primarily to educational organizations to be used primarily for the
transmission of instructional, cultural and other types of educational
material to fixed receiving stations; the excess capacity of ITFS stations may
be leased for commercial operations pursuant to the terms and conditions set
forth in the FCC Rules.
"Interexchange Facilities" shall mean radio devices used to receive or
transmit signals from or to remote telecommunications exchange areas,
including satellite earth stations or other receive-only devices, and any
Permits relating thereto.
"Interexchange telecommunications" shall mean telecommunications between a
point or points located in one exchange telecommunications area and a point or
points located in one or more other exchange areas or a point outside an
exchange area.
A-5
<PAGE>
"Knowledge of the Sellers and the Principal Shareholders" shall mean the
"Knowledge of Videoway and Videotron Canada," the "Knowledge of TTI," the
actual knowledge of the respective members of the boards of directors and
officers of each of the Acquired Companies, and the actual knowledge of Brian
Reynolds, Francois Labonte, Harry Perlow, Chris Meyers, Bob Stark, Ron Hren,
Cheryl Hanna, Chris Anderson, Phil Mustain, Ron Loiacano and Dale Montgomery.
"Knowledge of Videoway and Videotron Canada" shall mean the actual knowledge
of David Lowry, Jerry Tegler, Alain Michel, Guy Brochu and each of the
officers and directors of Videoway and Videotron Canada.
"Knowledge of TTI" shall mean the actual knowledge of TTI; provided,
however, that TTI shall be deemed to have actual knowledge of a particular
fact if any individual who is serving as a director or officer of TTI has
actual knowledge of such fact.
"Leased Property" shall have the meaning ascribed thereto in Section 3.21
hereof.
"Leased Spectrum" shall have the meaning set forth in Section 9.04(b)
hereof.
"Leases" shall have the meaning ascribed thereto in Section 3.21 hereof.
"Legal Requirements" shall mean all applicable international, foreign,
federal, state and local laws, judgments, decrees, orders, statutes,
ordinances, rules, regulations or permits, including, without limitation,
(a) the Communications Act and all orders issued and regulations promulgated
under the Communications Act (excluding proposed regulatory rules of general
applicability), (b) the HSR Act, and (c) the Securities Act and the Exchange
Act and all orders issued and rules and regulations promulgated under the
Securities Act and the Exchange Act.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien, hypothecation, assignment for security or charge of any kind.
"LMDS" shall mean local multipoint distribution service which is expected to
be authorized by the FCC in the 27.5-29.5 GHZ band in CC Docket No. 92-297.
"Loss" shall have the meaning ascribed to it in Section 15.01 hereof.
"MDS" shall mean Multipoint Distribution Service, a domestic transmission
service licensed by the FCC pursuant to Part 21 of the FCC Rules, rendered on
microwave frequencies from a primary fixed transmitter location simultaneously
to multiple receiving facilities used primarily for the distribution of
commercial visual and audio programming.
"MFJ" shall mean the consent decree settling antitrust litigation, pursuant
to which AT&T Corp. divested its local telephone companies in 1984, entitled
"Modification of Final Judgment" entered into in United States v. AT&T, 552 F.
Supp. 131 (D.D.C. 1982) and as amended from time to time.
"Minority Shareholders" shall mean Tony Thomson and Philip Mustain.
"MMDS" shall mean Multichannel Multipoint Distribution Service, a domestic
transmission service licensed by the FCC pursuant to Part 21 of the FCC Rules
using the frequency of 2596 to 2644 MHZ and rendered on microwave frequencies
from a fixed transmitter location simultaneously to multiple receiving
facilities used primarily for the distribution of commercial visual and audio
programming.
"Net Incremental Subscribers Added" shall mean Subscribers added in the
Tampa System and the Spokane System between September 1, 1995 and the Closing
Date, minus any Subscribers who are past due in making payments by more than
45 days at any time between September 1, 1995 and the Closing Date at the
applicable date; provided, however, that in no event shall the cumulative Net
Incremental Subscribers Added for the period
A-6
<PAGE>
September 1, 1995 through the Closing Date for each of the Spokane and Tampa
Systems exceed the cumulative Permitted Monthly Subscribers for such period
for such System (adjusted pro rata based on the number of days elapsed during
the month if the Closing does not occur on the last day of a month); and
provided, further that Net Incremental Subscribers Added shall not exceed the
quotient obtained by dividing (i) the subscriber revenue (excluding non-
recurring items) less Subscribers 45 days past due in payments for each of the
Spokane System and the Tampa System from September 1, 1995 through the Closing
Date by (ii) $27.00 with respect to Spokane Subscribers and $21.00 with
respect to Tampa Subscribers, respectively, less the Subscriber number as of
September 1, 1995.
"Newco I" shall have the meaning ascribed to it in the introduction of this
Agreement.
"Newco II" shall have the meaning ascribed to it in the introduction of this
Agreement.
"Northern Bay Area System" shall have the meaning ascribed to it in Section
3.13(j) hereof.
"145 Affiliate" shall have the meaning ascribed to it in Section 8.02
hereof.
"Officers' Certificate" shall have the meaning set forth in Section 7.09(b)
hereof.
"Ordinary Course of Business" shall mean an action taken by a Person if: (a)
such action is consistent with the past practices of such Person and is taken
in the ordinary course of the normal ongoing operations of such Person; and
(b) such action is not required to be authorized by the board of directors of
such Person (or by any Person or group of Persons exercising similar
authority), is not required to be specifically authorized by the parent
company (if any) of such Person, and does not require any other special
corporate authorization (other than the customary delegation of authority to
officers and other employees).
"Outstanding Indebtedness" shall mean all outstanding indebtedness for money
borrowed by any of the Acquired Companies (excluding inter-company debt among
the Acquired Companies and any Spin-off Liabilities), including the face
amount of such indebtedness, all accrued interest and penalties, if any,
thereon, and all financing and brokerage fees relating thereto.
"Outstanding Liabilities" shall mean any liabilities of the Acquired
Companies (excluding any Spin-off Liabilities) relating to (a) fees and
expenses for investment banking and financial advisory services, if any,
including without limitation, those payable to Goldman Sachs & Co. and
Wasserstein, Perella & Co., (b) amounts under any employment or severance
agreements between any of the Acquired Companies and any Person, except for
those employment agreements set forth on Schedule C hereto, (c) amounts
expended or liabilities incurred with respect to the acquisition of shares of
BAC's stock from the Minority Shareholders, (d) obligations under that certain
partnership agreement to which Dakota Licensing is a party unless PTG notifies
the Sellers prior to Closing that it intends to assume such obligations (if
PTG does not so notify, the partnership agreement and the obligations
thereunder shall be spun-off in the Spin-Off), (e) Approved Expenditures which
have not been paid as of the Closing Date, and (f) any other liabilities set
forth on the Final Closing Balance Sheet other than Outstanding Indebtedness
and accrued expenses incurred in the Ordinary Course of Business and not yet
payable in accordance with their terms (specifically excluding from Ordinary
Course of Business (i) any fees and expenses relating to litigation (provided,
however, that litigation costs incurred after the date hereof in connection
with any litigation involving American Telecasting Inc. shall be included in
Ordinary Course of Business if the Sellers have obtained the written consent
of PTG prior to incurring such costs), (ii) financing arrangements or
brokerage services, (iii) financial advisory, legal or engineering services,
(iv) any obligations under Contracts entered into subsequent to the date
hereof without the prior written consent of PTG or modifications to existing
Contracts, which modifications are entered into subsequent to the date hereof
without the prior written consent of PTG and (v) any liabilities or
obligations incurred by any of the Acquired Companies in violation of Sections
7.04 and 7.05 hereof or relating to any of the Spin-off Assets.
"Permits" of a Person shall mean all rights, franchises, permits,
authorities, licenses, certificates of approval or authorizations, including,
without limitation, licenses and other authorizations issuable by a
Governmental
A-7
<PAGE>
Authority, which pursuant to applicable Legal Requirements are necessary to
permit such Person lawfully to conduct and operate its business as currently
conducted and to own and use its assets.
"Permitted Lien" shall mean with respect to any Lien on the assets and
properties of the Acquired Companies any (i) Liens for Taxes not yet
delinquent for which adequate reserves, as are required by GAAP, have been
established on the Financial Statements and (ii) minor interests, none of
which is substantial in amount, materially detracts from the value of such
assets or property or materially impairs the use thereof in the operation of
the businesses of the Acquired Companies.
"Permitted Monthly Subscribers" shall mean for a given month the number of
Subscribers set forth on Schedule B hereto with respect to such period.
"Person" shall mean an individual, partnership, corporation, joint venture,
trust, unincorporated organization or association or other legal entity.
"Post-Closing Adjustment" shall have the meaning set forth in Section
14.03(d).
"Post-Closing Financial Statements" shall have the meaning ascribed thereto
in Section 14.03(a).
"Pre-Closing Balance Sheet Date" shall mean the last day of the calendar
month preceding the Pre-Closing Balance Sheet Delivery Date.
"Pre-Closing Balance Sheet Delivery Date" shall mean the tenth day preceding
the Closing Date.
"Pre-Closing Financial Statements" shall have the meaning ascribed thereto
in Section 7.09(a) hereof.
"Principal Shareholders" shall mean Videoway and Videotron Canada.
"Proceedings" shall have the meaning ascribed thereto in Section 9.02(d)
hereof.
"Proxy Statement" shall mean the proxy statement relating to the TTI
Shareholders' Meeting included in the Registration Statement.
"PTG" shall have the meaning ascribed thereto in the introduction to this
Agreement.
"PTG Common Stock" shall have the meaning ascribed thereto in the fourth
recital to this Agreement.
"PTG Common Stock Closing Price" shall mean the average closing sales price
on the New York Stock Exchange Composite Tape (as reported in The Wall Street
Journal) for a share of PTG Common Stock for a period of twenty Business Days
prior to the Closing Date.
"PTG Expense" shall mean, with respect to each Channel that does not at the
Closing Date meet the FCC Conditions, cash expenditures incurred by PTG
through the Cure Period to satisfy the FCC Conditions with respect to such
Channel (to a maximum of $2 million per Channel in the Northern Bay Area
System, the Southern Bay Area System and the San Diego System, $1 million per
Channel in the Tampa System, $0.5 million per Channel in the Seattle System
and $0.25 million per Channel in the Spokane, Greenville and Victorville
Systems), including, without limitation, the fees and expenses of Covington &
Burling, the fees and expenses of engineers and other professional
consultants, and any amounts paid to any third parties to resolve such FCC
issues.
"Qualified Plans" shall have the meaning set forth in Section 3.16(b)
hereof.
"Registration Statement" shall have the meaning set forth in Section 8.01
hereof.
A-8
<PAGE>
"Related Facilities" shall mean any facility licensed by the FCC in
conjunction with or in support of the operation of the Channels or the System,
including without limitation, private operational fixed microwave facilities.
"Related Facilities License" shall mean the license granted by the FCC to
operate a Related Facility.
"Responsible Personnel" shall mean Michael J. Fitzpatrick, President and
Chief Executive Officer of Pacific Telesis Enterprises, and Lee G. Camp,
President and Chief Executive Officer of Pacific Telesis Enhanced Services.
"Restricted Securities" shall have the meaning set forth in Section 8.02
hereof.
"San Diego System" shall have the meaning ascribed to it in Section 3.13(h)
hereof.
"Seattle System" shall have the meaning ascribed to it in Section 3.13(j)
hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Sellers" shall mean TTI and Videoway
"Southern Bay Area System" shall have the meaning ascribed to it in Section
3.13(k) hereof.
"Spin-off" shall have the meaning ascribed thereto in Section 9.04 hereof.
"Spin-off Assets" shall have the meaning ascribed thereto in Section 9.04
hereof.
"Spin-off Liabilities" shall have the meaning ascribed thereto in Section
9.04 hereof.
"Spokane System" shall have the meaning ascribed thereto in Section 3.13(e)
hereof.
"Subsidiary," with respect to any Person, shall mean any corporation,
limited liability company, partnership, or other entity, of which securities
or other interests having the power to elect a majority of that entity's board
of directors or similar governing body, or otherwise having the power to
direct the business and policies of that entity, are owned, directly or
indirectly, by such Person.
"Subscriber" shall mean, with respect to the System, a Person at any given
time contracting with WHI or VBAI or any of their respective Subsidiaries for
wireless cable services and who is (A) monthly receiving signals supplied by
WHI or VBAI or any of their respective Subsidiaries and (B) has committed to
pay for such signals, directly or indirectly, under subscriptions with WHI or
VBAI or any of their respective Subsidiaries; provided, however, that the term
"Subscriber" shall exclude all subscribers of the SMATV operations of BAC
being spun-off in the Spin-off.
"Subscriber Adjustment" shall mean the product of (i) $1,000 times (ii) the
Net Incremental Subscribers Added.
"Subscriber Deterioration Post-Closing Adjustment" shall mean the product of
(i) $1,000 times (ii) the negative change, if any, in the number of
Subscribers between September 1, 1995 and the Closing Date.
"Subscriber Agreement" shall mean any agreement between a Subscriber and any
of the Acquired Companies.
"System" shall mean, collectively, the MMDS, MDS and ITFS microwave
distribution, reception and/or operating systems used or to be used to
transmit on the Channels, pursuant to the FCC Licenses, the Channel
A-9
<PAGE>
Leases, Related Facilities Licenses and the other System Agreements, a
wireless cable service in Victorville, San Francisco, San Jose, San Diego,
Tampa, Seattle, Spokane and Greenville; provided, however that the System
shall not include any of the Spin-off Assets or the Spin-off Liabilities.
"System Agreements" shall mean all FCC Licenses, Channel Leases, Leases,
programming agreements, retransmission agreements and other material
agreements of WHI and VBAI or any of their Subsidiaries relating to the
Channels.
"Tampa System" shall have the meaning ascribed thereto in Section 3.13(d)
hereof.
"Taxes" means all taxes, charges, fees, levies, or other assessments imposed
by any United States federal, state, or local taxing authority, or by any
foreign taxing authority, including (but not limited to) income, gross
receipts, excise, sales, use, property, payroll, license, ad valorem,
withholding, social security, national insurance (or other similar
contributions or payments), franchise, net worth, capital, or other taxes
(including any interest, fines, penalties, or additions to tax attributable to
or imposed on or with respect to any such taxes, charges, fees, levies, or
other assessments).
"Tax Return" means any return, report, information return, or other document
(including any related or supporting information and, where applicable, profit
and loss accounts and balance sheets) with respect to Taxes (including any
returns related to Benefit Plans maintained by a Person or any of its
Subsidiaries).
"Telecommunications Equipment" shall mean equipment, other than Customer
Premises Equipment, used by a carrier to provide telecommunications services.
"Transfer Applications" means the applications filed with the FCC seeking to
assign or transfer control of the FCC Licenses to an entity designated by PTG.
"Transferred Shares" shall mean the shares of WHI Stock, VBAI Stock and
Videotron Stock.
"TTI" shall have the meaning ascribed thereto in the introduction to this
Agreement.
"TTI Acquisition" shall mean TTI Acquisition Corp., a Delaware corporation.
"TTI Shareholder" shall have the meaning ascribed thereto in the
introduction of this Agreement.
"TTI Shareholders' Meeting" shall have the meaning ascribed thereto in
Section 9.05 hereof.
"TWTV-Spokane" shall mean Transworld Wireless TV-Spokane, Inc., a Delaware
corporation.
"VBAI" shall have the meaning ascribed thereto in the introduction to this
Agreement.
"VBAI Stock" shall have the meaning ascribed to it in the fourth recital to
this Agreement.
"Victorville System" shall have the meaning ascribed to it in Section
3.13(f) hereof.
"Videoway" shall have the meaning ascribed thereto in the introduction to
this Agreement.
"Videotron Canada" shall have the meaning ascribed thereto in the
introduction to this Agreement.
"Videotron Cash Amount" shall mean the excess of all inter-company
indebtedness of WHI and VBAI (including accrued interest) owed to Videotron
USA as of the Closing Date over the aggregate Outstanding Indebtedness as of
the Closing Date of Videotron USA to Videotron International Ltee.
"Videotron Contracts" shall have the meaning ascribed thereto in Section
4.16(b) hereof.
A-10
<PAGE>
"Videotron Financial Statements" shall have the meaning ascribed thereto in
Section 4.05 hereof.
"Videotron Stock" shall have the meaning ascribed to it in the fifth recital
to this Agreement.
"Videotron USA" shall have the meaning ascribed thereto in the introduction
to this Agreement.
"WHI" shall have the meaning ascribed thereto in the introduction to this
Agreement.
"WHI San Diego" shall mean WHI-San Diego, Inc., a California corporation.
"WHI Stock" shall have the meaning ascribed to it in the fourth recital to
this Agreement.
1.02 Construction. This Agreement is the result of arm's-length negotiations
between, and has been reviewed by, each party hereto and its counsel. Each
party agrees that any ambiguity of this Agreement shall not be interpreted
against the party drafting the particular clause which is in question.
1.03 Other Definitional Provisions. The meanings given to terms herein shall
be equally applicable to both the singular and plural forms of such terms. Any
references to Articles, Sections, Exhibits or Schedules contained herein
shall, unless otherwise so specified, refer to the Article, Section, Exhibit
or Schedule of the same number contained in this Agreement. A masculine
pronoun whenever used herein shall be construed to include the feminine or
neuter where appropriate.
A-11
<PAGE>
ARTICLE II
EXCHANGE OF STOCK
2.01 Number of Shares of PTG Common Stock to Be Exchanged. The total number
of shares of PTG Common Stock exchangeable for the WHI Stock, the VBAI Stock
and the Videotron Stock pursuant to this Agreement shall be, subject to the
provisions in Section 2.02 and 2.03 hereof and any adjustments as set forth in
Section 14.03 hereof, equal to the quotient of (a) the difference between (i)
One Hundred Seventy Million Dollars ($170,000,000); plus 75% of the Subscriber
Adjustment; plus any Assumed Interest on Shareholder Debt; plus any Approved
Expenditures; and (ii) the sum of the Distribution Adjustment; all Outstanding
Indebtedness as of the Closing Date; the Outstanding Liabilities as of the
Closing Date; the Videotron Cash Amount; and the FCC Adjustment; divided by
(b) the PTG Common Stock Closing Price. Subject to any adjustments as set
forth in Section 14.03 hereof, Schedule A attached hereto lists each Seller,
the number of Transferred Shares to be exchanged by such Seller and the number
of shares of PTG Common Stock to be received by such Seller, provided that
such number of shares of PTG Common Stock shall be set forth on Schedule A on
the Closing Date. In addition, on the Closing Date, there shall be a direct
payment by PTG of an additional number of shares of PTG Common Stock delivered
to TTI in an amount equal to the quotient of $5,000,000 divided by the PTG
Common Stock Price. In addition, on the Closing Date, so long as the FCC
Adjustment is less than $14 million, there shall be a direct payment by PTG of
an additional number of shares of PTG Common Stock delivered to Videoway in an
amount equal to the quotient of $1,120,000 divided by the PTG Common Stock
Price.
2.02 Exchanges of PTG Common Stock for the Transferred Shares. Subject to
the terms and conditions of this Agreement, (a) TTI agrees to assign and
transfer to Newco I and Videoway agrees to assign and transfer to Newco II,
and Newco I or Newco II, as the case may be, agrees to acquire and accept from
each of the Sellers at the Closing, all of such Seller's Transferred Shares,
in each case as described in Section 2.01, subject to certain adjustments set
forth in Section 14.03 hereof, and (b) PTG agrees to issue and deliver to each
of the Sellers and each of the Sellers agrees to acquire and accept from PTG
at the Closing, subject to certain adjustments set forth in Section 14.03
hereof and to Section 2.03 below, in exchange for such Seller's Transferred
Shares, one or more certificates registered in such Seller's name representing
the number of shares of PTG Common Stock set forth on Schedule A hereto,
provided that no fractional share of PTG Common Stock shall be transferred to
a Seller, but any fractional share of PTG Common Stock resulting from the
applicable calculations shall be rounded to the nearest whole share.
2.03 Delivery of Certain Shares into Escrow. Notwithstanding Sections 2.01
and 2.02 above, shares of PTG Common Stock having a value of $11,000,000
(based on the PTG Common Stock Closing Price) to be issued to Videoway and
shares of PTG Common Stock having a value of $6,000,000 (based on the PTG
Common Stock Closing Price) to be issued to TTI shall be deposited into an
escrow pursuant to the terms and conditions of the Escrow Agreement. Such
shares of PTG Common Stock shall be delivered out of such escrow in accordance
with the terms and conditions of the Escrow Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE PRINCIPAL SHAREHOLDERS
Except as expressly set forth in the Disclosure Schedule, the Sellers and
the Principal Shareholders represent and warrant to PTG, Newco I and Newco II
that the following statements are true and correct:
3.01 Corporate Organization. Each of WHI and VBAI and each of their
respective Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation. Each of WHI
and VBAI and each of their respective Subsidiaries has full power and
authority to carry on its business as it is now being conducted and to own the
properties and assets it now owns, and is duly qualified or licensed to do
business as a foreign corporation in good standing in every jurisdiction in
which its ownership of
A-12
<PAGE>
property or the conduct of its business requires such qualification or
licensing except where the failure to be so licensed or qualified would not
have a material adverse effect on the Financial Status of such Person, on the
System or on the ability of such Person to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. No amendment or other
document relating to the Certificate of Incorporation of WHI has been filed in
the Office of the Secretary of State of Delaware since November 12, 1993. No
amendment or other document relating to the Certificate of Incorporation of
VBAI has been filed in the office of the Secretary of State of Florida since
May 2, 1994. No amendment or other document relating to the charter of any
Subsidiary of WHI or VBAI has been filed in the offices of the Secretary of
State of their respective states of incorporation except as set forth in the
Disclosure Schedule under the caption "Subsidiaries." The copies of the Bylaws
and corporate minutes of WHI, VBAI and their Subsidiaries delivered to PTG on
or before the date hereof are true, correct and complete copies of the Bylaws
and corporate minutes of WHI, VBAI and their Subsidiaries.
3.02 Execution, Delivery and Enforceability of Agreement. Each of WHI and
VBAI has all requisite power and authority (corporate and other) to enter into
this Agreement and to perform its obligations under this Agreement. Each of
WHI and VBAI has taken all corporate actions necessary to be taken by it to
authorize the execution and delivery of this Agreement and the performance of
the transactions contemplated hereby. This Agreement has been executed and
delivered by each of WHI and VBAI and constitutes the legal, valid and binding
obligation of each of WHI and VBAI, enforceable against each of them in
accordance with its terms.
3.03 Capitalization.
(a) The entire authorized capital stock of WHI consists of 50,000 shares
of Common Stock, $.001 par value and no shares of Preferred Stock. As of
the date hereof, 9,284 shares of such Common Stock held of record by the
Persons listed on Schedule A in the respective amounts indicated therein
and no shares of Preferred Stock are issued and outstanding. All of the
outstanding shares of Common Stock of WHI have been validly issued, fully
paid and are nonassessable, and none were issued in violation of the
preemptive or similar rights (whether statutory or contractual) of any
Person. None of such shares were issued, offered or sold by WHI in
violation of any applicable federal or state securities laws or the rules
and regulations thereunder. WHI has no outstanding options, warrants,
debentures or other securities convertible into or exchangeable or
exercisable for shares of capital stock of WHI, and there are no
outstanding contracts, commitments or arrangements by which WHI is or may
become bound to issue, repurchase, retire or otherwise acquire (contingent
or otherwise) any shares of capital stock of WHI or any security
convertible into or exchangeable for any of its capital stock. WHI is not a
party to any voting trust or other agreement, contract or obligation
(whether written or oral) with respect to the voting of the capital stock
of WHI and, to the Knowledge of the Sellers and the Principal Shareholders,
there are no such voting trusts or other agreements, contracts or
obligations (whether written or oral) with respect to the voting of the
capital stock of WHI.
(b) The entire authorized capital stock of VBAI consists of 1,000 shares
of Common Stock, $.01 par value, and no shares of Preferred Stock. As of
the date hereof, 1,000 shares of such Common Stock are held of record by
the Persons listed on Schedule A in the respective amounts indicated
therein and no shares of Preferred Stock are issued and outstanding. All of
the outstanding shares of Common Stock of VBAI have been validly issued,
fully paid and are nonassessable, and none were issued in violation of the
preemptive or similar rights (whether statutory or contractual) of any
Person. None of such shares were issued, offered or sold by VBAI in
violation of any applicable federal or state securities laws or the rules
and regulations thereunder. VBAI has no outstanding options, warrants,
debentures or other securities convertible into or exchangeable or
exercisable for shares of capital stock of VBAI, and there are no
outstanding contracts, commitments or arrangements by which VBAI is or may
become bound to issue, repurchase, retire or otherwise acquire (contingent
or otherwise) any shares of capital stock of VBAI or any security
convertible into or exchangeable for any of its capital stock. VBAI is not
a party to any voting trust or other agreement, contract or obligation
(whether written or oral) with respect to the voting of the capital
A-13
<PAGE>
stock of VBAI and, to the Knowledge of the Sellers and the Principal
Shareholders, there are no such voting trusts or other agreements,
contracts or obligations (whether written or oral) with respect to the
voting of the capital stock of VBAI.
3.04 Subsidiaries.
(a) WHI has no Subsidiaries other than BAC, TWTV-Spokane, TTI
Acquisition, WHI-San Diego and Desert Winds Comm, Inc. All of the
outstanding shares of the capital stock of each Subsidiary of WHI have been
validly issued and are fully paid and nonassessable and are owned,
beneficially and of record, by WHI, free and clear of any Liens, except
that 60 shares of Common Stock of BAC, representing 6% of the outstanding
capital stock of BAC, are owned of record by the Minority Shareholders. In
addition, neither WHI nor any of its Subsidiaries owns, directly or
indirectly, any capital stock or equity securities of any other corporation
or has any direct or indirect equity or ownership interest in any other
business corporation, partnership, joint venture or entity, other than the
Subsidiaries listed above, except for shares in investment companies
generally known as "money market" or "mutual" funds. Schedule 3.04 of the
Disclosure Schedule contains the name, jurisdiction of incorporation or
organization, authorized shares or equity capital and number and percentage
of outstanding shares or equity interests of each Subsidiary of WHI. There
are no agreements, contracts or obligations (whether written or oral),
options, rights or other commitments of any character relating to the
issuance of any securities by any Subsidiary of WHI. None of the securities
issued, offered or sold by any Subsidiary of WHI was issued, offered or
sold in violation of any applicable federal or state securities laws or the
rules and regulations promulgated thereunder.
(b) VBAI has no Subsidiaries. In addition, VBAI does not own, directly or
indirectly, any capital stock or equity securities of any other corporation
or has any direct or indirect equity or ownership interest in any business
corporation, partnership, joint venture or entity other than the
Subsidiaries listed above, except for shares in investment companies
generally known as "money market" or "mutual" funds.
3.05 Financial Statements. The Sellers have furnished to PTG complete and
accurate copies of: (i) audited consolidated financial statements of WHI and
its Subsidiaries as of and for the period from November 9, 1993 (date of
inception) through August 31, 1994, including an audited consolidated balance
sheet of WHI and its Subsidiaries as of the end of such period and audited
consolidated statements of operations, changes in shareholders equity and
statement of cash flows of WHI and its Subsidiaries for such period, together
with the opinion thereon of Deloitte & Touche LLP, independent certified
public accountants; (ii) unaudited consolidated financial statements of WHI
and its Subsidiaries for the fiscal year ended August 31, 1995, including an
unaudited consolidated balance sheet as of the end of such period and
unaudited consolidated statements of operations, changes in shareholders
equity and statement of cash flows of WHI and its Subsidiaries for the fiscal
year then ended; (iii) unaudited consolidated financial statements of WHI and
its Subsidiaries for the one month period ended September 30, 1995, including
an unaudited consolidated balance sheet as of September 30, 1995 and unaudited
consolidated statements of operations, changes in shareholders equity and
statement of cash flows of WHI and its Subsidiaries for such period; (iv)
audited financial statements of VBAI as of and for the period from November
19, 1993 (date of inception) through August 31, 1994, including an audited
balance sheet of VBAI as of the end of such period and audited statements of
operations, changes in shareholders equity and statement of cash flows of VBAI
for such period, together with an opinion thereon of Deloitte and Touche LLP,
independent certified public accountants; (v) unaudited financial statements
of VBAI for the fiscal year ended August 31, 1995, including an unaudited
balance sheet as of the end of such period and unaudited statements of
operations, changes in shareholders equity and statement of cash flows of VBAI
for such fiscal year; (vi) unaudited financial statements of VBAI for the one-
month period ended September 30, 1995, including an unaudited balance sheet as
of and for the one-month period ended September 30, 1995 and unaudited
statements of operations, changes in shareholders' equity and cash flows of
VBAI for such one-month period; and (vii) unaudited pro-forma balance sheets
and pro-forma statements of operations and cash flows of each of WHI and VBAI
as of and for the fiscal year ended August 31, 1995 and as of and for the one
month period ended September 30, 1995 reflecting the exclusion of the Spin-off
Assets, the Spin-off Liabilities, all inter-company indebtedness, the
Outstanding Indebtedness and the Outstanding Liabilities (the financial
statements referred to
A-14
<PAGE>
in this Section 3.05 being collectively referred to as the "Financial
Statements"). The Financial Statements have been prepared in accordance with
GAAP applied on a consistent basis during the respective periods, except as
therein noted and except that the unaudited financial statements do not
contain footnotes and are subject to normal year-end adjustments. The
Financial Statements present fairly the financial position of WHI, VBAI and
their respective Subsidiaries as of such dates and the results of their
operations and cash flows for such periods. Neither WHI or VBAI nor any of
their respective Subsidiaries had, as of the dates of the respective Financial
Statements, any obligation or liability, individually or in the aggregate, of
the nature required to be disclosed in financial statements prepared in
accordance with GAAP that is not disclosed by the respective Financial
Statements referred to above, except that the unaudited financial statements
do not contain footnotes and are subject to normal year-end adjustments and
the pro-forma financial statements are not prepared in accordance with GAAP.
3.06 No Adverse Changes. From the Balance Sheet Date to the date of this
Agreement, there has been no material adverse change in (i) the Financial
Status of either WHI or VBAI or any of their respective Subsidiaries or, (ii)
any of the Tampa System, Spokane System, Victorville System, Greenville
System, San Diego System, Seattle System, Northern Bay Area System or Southern
Bay Area System. As of the date of this Agreement, neither the Sellers nor the
Principal Shareholders have Knowledge of any loss contingency of either WHI or
VBAI or any of their respective Subsidiaries within the meaning of Statement
of Financial Accounting Standards No. 5 which has not been disclosed in the
Financial Statements of such Persons referred to in Section 3.05 above or
which has not been disclosed pursuant to this Agreement which has or would
reasonably be expected to have a material adverse effect on (i) the Financial
Status of either WHI or VBAI or any of their respective Subsidiaries or (ii)
any of the Tampa System, Spokane System, Victorville System, Greenville
System, San Diego System, Seattle System, Northern Bay Area System or Southern
Bay Area System.
3.07 No Violation. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by WHI and VBAI will not
(a) violate any provision of WHI's or VBAI's or any of their Subsidiaries'
respective Certificates of Incorporation, Bylaws or other charter documents,
(b) violate, or constitute a default under, or permit the termination or
acceleration of the maturity of, any indebtedness for borrowed money of WHI or
VBAI or any of their Subsidiaries, (c) except as set forth on Schedule 3.08 of
the Disclosure Schedule under the caption "Consents," violate, or constitute a
default under, or permit the termination of, or trigger a right of first
refusal under, or cause the loss of any rights or options under any Permit,
System Agreement or other Contract, (d) result in the creation or imposition
of any Lien upon any of the assets or properties of WHI or VBAI or their
Subsidiaries or (e) violate any Legal Requirement to which WHI or VBAI or any
of their Subsidiaries is subject.
3.08 Consents and Approvals. Except as set forth on Schedule 3.08 of the
Disclosure Schedule under the caption "Consents," the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Sellers, the Acquired Companies and the Principal
Shareholders do not require the consent, approval, license or authorization
of, notice to, or declaration, filing or registration with, any third party or
Governmental Authority and will not result in any breach or default which
could result in the termination of, the impairment or forfeiture of any rights
under or any payments being made with respect to any of the Permits, FCC
Licenses, Channel Licenses, Related Facilities Licenses, System Agreements or
other Contracts.
3.09 Compliance with Legal Requirements.
(a) Each of WHI, VBAI and their Subsidiaries has conducted its business
and operated the System in material compliance with all Legal Requirements.
Except as specified in the Disclosure Schedule, the assets and properties
of WHI and VBAI and their Subsidiaries and their uses (other than the Spin-
Off Assets) conform in all material respects to all applicable Legal
Requirements currently required to be complied with in the business and
operations of WHI and VBAI and their Subsidiaries (including the operation
of the System).
A-15
<PAGE>
(b) Neither WHI or VBAI nor any of their Subsidiaries have received any
written or, to the Knowledge of the Sellers and the Principal Shareholders,
oral citations, complaints, consent orders, compliance schedules or other
similar enforcement orders or received any other written or, to the
Knowledge of the Sellers and the Principal Shareholders, oral notice from
any Governmental Authority (including the FCC and FAA) or Person regarding
the violation of, or failure to comply with, any Legal Requirements
relating to the operations or any assets or properties of WHI and VBAI and
their Subsidiaries, or the obligation on the part of WHI, VBAI or any of
their Subsidiaries to undertake or bear the cost of any remedial action.
(c) Neither WHI or VBAI nor any of their Subsidiaries is currently, or at
any time in the past has, engaged in the design, development or manufacture
of Customer Premises Equipment or Telecommunications Equipment or engaged
in the provision to third parties of Interexchange telecommunications
services, including transport, switching and routing.
(d) To the Knowledge of the Sellers and the Principal Shareholders, there
has been (i) no spill, discharge, leak, emission, injection, escape,
dumping, storage, deposit or other release by WHI, VBAI or any of their
Subsidiaries (or any other Person) onto or under the properties owned or
occupied at any time by WHI, VBAI or any of their Subsidiaries or from such
properties into (x) the environment surrounding such properties or (y)
elsewhere of any solid wastes, toxic wastes, hazardous wastes or other
hazardous, toxic or dangerous materials or substances and (ii) no violation
of any other Environmental Law or regulation that would reasonably be
expected to result in the incurrence of an Environmental Liability in an
amount exceeding $100,000.
(e) With respect to each transmitter site, WHI, VBAI or their respective
Subsidiaries have applied, or caused the application to be filed, for
authorization from the FAA, if required by the FAA rules and regulations,
to construct and operate a transmitter at such site. To the Knowledge of
the Sellers and the Principal Shareholders, each transmitter site is and
has been constructed, lighted and painted in accordance with the terms of
the applicable Permits, FCC Rules and FAA rules and regulations.
3.10 Absence of Certain Changes. Between the Balance Sheet Date and the date
of this Agreement, each of WHI, VBAI and their Subsidiaries has conducted its
business only in the Ordinary Course of Business and none of such companies
has:
(a) incurred any increase in indebtedness for borrowed money over the
level thereof reflected in the Financial Statements (except for inter-
company indebtedness or indebtedness owing to Videotron International Ltee
disclosed in Schedule 3.10 of the Disclosure Schedule) or granted any
security interest in any of its assets or other property to secure any
obligation for borrowed money;
(b) issued or sold any capital stock;
(c) received any written or, to the Knowledge of the Sellers and the
Principal Shareholders, oral notices of a default or breach of any System
Agreement or other Contract;
(d) waived, compromised or permitted to lapse any claims or rights of
substantial value, or sold, transferred or otherwise disposed of any assets
or other properties (including any System Agreement or other Contract),
except in the Ordinary Course of Business;
(e) adopted or amended in any respect any Benefit Plan or bonus, profit
sharing, deferred compensation, incentive, stock option or stock purchase,
paid time off for sickness or other plan, program or arrangement for the
benefit of employees, consultants or directors, or granted any general
increase in the compensation of employees (including any such increase
pursuant to any bonus, profit sharing or other compensation or incentive
plan, program or commitment) or any increase in the compensation payable or
to become payable to any officer or director;
(f) made any capital commitments in excess of $100,000 in the aggregate;
(g) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock, or directly or indirectly
redeemed, purchased or otherwise acquired any shares of its capital stock;
A-16
<PAGE>
(h) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any other agreement or
arrangement with, any of its executive officers, directors or other
Affiliates, except for (i) normal business advances to employees consistent
with past practice and (ii) payment of compensation to officers;
(i) suffered any damage, destruction, loss or claim to or against any
property or asset with an aggregate value in excess of $100,000, whether or
not covered by insurance;
(j) initiated or maintained any proceedings with respect to its sale,
merger, consolidation, liquidation or reorganization other than pursuant to
the terms of this Agreement and in connection with the Spin-Off;
(k) terminated, amended or modified any System Agreement or other
Contract; or
(l) agreed, whether in writing or otherwise, to take any action described
in this Section 3.10.
3.11 Availability of Assets and Title.
(a) Except as described in Schedule 3.11 in the Disclosure Schedule under
the title "Assets" (which may incorporate the list under the caption "Spin-
Off Assets" in Schedule 9.04 of the Disclosure Schedule), which disclosure
constitutes all assets of WHI, VBAI and their Subsidiaries not being
transferred to Newco I or Newco II at the Closing, the assets and
properties owned or leased by WHI, VBAI and their Subsidiaries (after
giving effect to the sale or other disposition of the Spin-Off Assets)
constitute all of the assets and properties used in their businesses
(including, but not limited to, all assets and properties used in
connection with the operation of the System), such assets constitute all of
the assets necessary to continue the operations of WHI, VBAI and their
Subsidiaries as currently being conducted and such assets are, in all
material respects, in reasonably good and serviceable condition (normal
wear and tear excepted).
(b) WHI, VBAI and their Subsidiaries have good and valid title to all of
the properties and assets owned by them, including the properties and
assets reflected in the Financial Statements (other than those disposed of
since the Balance Sheet Date in the Ordinary Course of Business or in
connection with the sale or other disposition of the Spin-Off Assets), and
WHI, VBAI and their Subsidiaries have good and valid leasehold interests in
all other properties and assets held under lease by them, in each case free
and clear of all Liens other than Permitted Liens.
3.12 Permits. WHI, VBAI and their Subsidiaries own, hold or possess all
Permits. WHI, VBAI and their Subsidiaries are in compliance with all of their
respective material obligations with respect to such Permits, and to the
Knowledge of the Sellers and the Principal Shareholders, no event has occurred
which permits, or upon the giving of notice or lapse of time or otherwise
would permit, revocation or termination of any such Permit. All Permits are
listed on Schedule 3.12 of the Disclosure Schedule under the caption
"Permits". Except as set forth in Schedule 3.12 of the Disclosure Schedule,
each of the Permits is valid and is in full force and effect and there are no
existing proceedings, complaints or investigations pending, or to the
Knowledge of the Sellers and the Principal Shareholders, threatened before or
by any Governmental Authority relating to any of such Permits or to the right
or ability of WHI, VBAI or their Subsidiaries to maintain, acquire or
otherwise hold such Permits.
3.13 FCC Licenses; Channel Leases; System Agreements; and The System.
(a) Schedule 3.13 of the Disclosure Schedule under the title "The System
Agreements" lists all System Agreements other than FCC Licenses and other
than any Spin-off Assets. Except as set forth in Schedule 3.13 of the
Disclosure Schedule under the title "System Agreement and FCC License
Defects," (i) each of such System Agreements constitutes a legal, valid and
binding obligation of WHI, VBAI or one of their Subsidiaries and is in full
force and effect, (ii) neither WHI or VBAI nor any of their Subsidiaries
has assigned its rights and interests under any of such System Agreements,
(iii) neither WHI or VBAI nor any of their Subsidiaries is in breach or
default under any of such System Agreements, which breach or default could
result in the termination of, the impairment or forfeiture of any rights
under or any payments being made with respect to any of such System
Agreements, nor has an event occurred with respect to any of such System
Agreements which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute such a breach
or default under such System Agreement,
A-17
<PAGE>
(iv) to the Knowledge of Sellers and the Principal Shareholders, no third
party has any rights to assert any interest in any such System Agreements,
and (v) there are no contractual restrictions relating to any of such
System Agreements which would reasonably be expected to materially
adversely affect the Colocation of the Channels, including the items listed
in clause (h) of the definition of FCC Conditions. The Sellers and the
Principal Shareholders have delivered to PTG complete and accurate copies
of each of such System Agreements and none of such have been amended in any
respect.
(b) Schedule 3.13 of the Disclosure Schedule under the title "The FCC
Licenses" lists all FCC Licenses. As of the date of this Agreement, except
as set forth in Schedule 3.13 of the Disclosure Schedule under the title
"System Agreement and FCC License Defects," (i) each of such FCC Licenses
constitutes a legal, valid and binding obligation of WHI, VBAI or one of
their Subsidiaries and is in full force and effect, (ii) neither WHI or
VBAI nor any of their Subsidiaries has assigned its rights and interests
under any of such FCC Licenses, (iii) neither WHI or VBAI nor any of their
Subsidiaries is in breach or default under any of such FCC Licenses, which
breach or default could result in the termination of, the impairment or
forfeiture of any rights under or any payments being made with respect to
any of such FCC Licenses, nor has an event occurred with respect to any of
such FCC Licenses which (whether with or without notice, lapse of time or
the happening or occurrence of any other event) would constitute such a
breach or default under such FCC License, (iv) to the Knowledge of Sellers
and the Principal Shareholders, no third party has any rights to assert any
interest in any such FCC Licenses, and (v) there are no contractual
restrictions relating to any of such FCC Licenses which would reasonably be
expected to materially adversely affect the Colocation of the Channels,
including the items listed in clause (h) of the definition of FCC
Conditions. As of the date of this Agreement, the Sellers and the Principal
Shareholders have delivered to PTG complete and accurate copies of each of
such FCC Licenses and none of such have been amended in any respect.
(c) As of the date of this Agreement, Schedule 3.13 of the Disclosure
Schedule under the title "The System Channels" accurately lists, with
respect to the System, all Channels, and accurately describes the status of
each FCC License, Channel License and Related Facility License (indicating
the expiration date of the license, the construction and renewal deadlines,
whether there are any pending petitions to deny, pending competing or
conflicting applications, pending informal objections, pending renewal
applications, pending renewal challenges, enforcement actions or written
inquiries, special temporary authorizations, extensions of construction
deadlines (or requests thereof), the status of each Colocation Application
(indicating whether there are any pending interference issues, outstanding
consent letters, petitions to deny, pending competing or conflicting
applications, informal objections or waiver requests, the relevant
Colocation Site and the power requested) and whether the Colocation
Application has been accepted for filing or cut-off pursuant to the FCC
Rules and the deadline for filing timely petitions to deny. The Channels
are being operated in material compliance with the terms and conditions of
their respective FCC Licenses, Channel Licenses, Related Facilities
Licenses and other Permits and with all other Legal Requirements. To the
Knowledge of the Sellers and the Principal Shareholders, there are no
interference issues relating to Colocation in any of the markets beyond a
50-mile radius of the Colocation Site in that market, except as set forth
on Schedule 3.13 of the Disclosure Schedule under the title "The System
Channels."
(d) Complete and correct copies of all of the Colocation Applications
(with the FCC file date stamped thereon), Channel Licenses, Related
Facilities Licenses, FCC Licenses and pending applications filed with the
FCC relating to the System and other Permits owned, held or possessed by
WHI, VBAI or their Subsidiaries, have heretofore been made available to
PTG.
(e) With respect to the System in Tampa Bay, Florida (the "Tampa
System"), all of the assets, Permits and System Agreements relating thereto
are owned by VBAI.
(f) With respect to the System in Spokane, Washington (the "Spokane
System"), all of the assets, Permits and System Agreements relating thereto
are owned by TWTV-Spokane.
(g) With respect to the System in Victorville, California (the
"Victorville System"), all of the assets, Permits and System Agreements
relating thereto are owned by TTI Acquisition.
(h) With respect to the System in Greenville, South Carolina (the
"Greenville System"), all of the assets, Permits and System Agreements
relating thereto are owned by TTI Acquisition.
A-18
<PAGE>
(i) With respect to the System in San Diego, California (the "San Diego
System"), all of the assets, Permits and System Agreements relating thereto
are owned by WHI-San Diego.
(j) With respect to the systems in Santa Rosa and Gilroy, California, all
of the assets, Permits and System Agreements relating thereto are owned by
BAC.
(k) With respect to the System in the Northern San Francisco-Bay Area,
California (the "Northern Bay Area System"), all of the assets, Permits and
System Agreements relating thereto are owned by BAC.
(l) With respect to the System in Southern San Francisco-Bay Area,
California (the "Southern Bay Area System"), all of the assets, Permits and
Systems Agreements relating thereto are owned by BAC.
(m) With respect to the system in Seattle, Washington (the "Seattle
System"), all of the assets, Permits and System Agreements relating thereto
are owned by WHI.
(n) As of September 1, 1995 and September 30, 1995, the Tampa System had
approximately 5,422 and 6,260 Subscribers, respectively. As of September 1,
1995 and September 30, 1995, the Spokane System had approximately 5,911 and
6,321 Subscribers, respectively.
3.14 Litigation. Except as set forth in the Disclosure Schedule:
(a) as of the date of this Agreement, there are no actions at law, suits
in equity or claims pending or, to the Knowledge of the Sellers and the
Principal Shareholders, threatened against, WHI, VBAI or any of their
Subsidiaries, their respective officers, directors, partners, employees or
shareholders or their respective businesses or properties (including
pursuant to the Communications Act or FCC Rules) or their respective
Benefit Plans and, to the Knowledge of the Sellers and the Principal
Shareholders, there is no reasonable basis for any action, suit or claim
which would reasonably be expected to result in a material adverse change
in the Financial Status of WHI, VBAI or any of their Subsidiaries or in any
of the Tampa System, Spokane System, Victorville System, Greenville System,
San Diego System, Seattle System, Northern Bay Area System, Southern Bay
Area System;
(b) there are no governmental proceedings or investigations (in which any
subpoena, request for information or other notice, paper or demand has been
served upon the Sellers or any of its Subsidiaries, or any of their
officers, directors or employees) pending against WHI, VBAI or any of their
Subsidiaries;
(c) there is no action, suit or proceeding pending or, to the Knowledge
of the Sellers and the Principal Shareholders, threatened which questions
the legality or propriety of the transactions contemplated by this
Agreement;
(d) neither WHI, VBAI or any of their Subsidiaries is a party to or bound
by, and the properties and assets of such companies are not subject to, any
judgments, writs, decrees, injunctions or orders of any Governmental
Authority; and
(e) to the Knowledge of the Sellers and the Principal Shareholders,
neither WHI or VBAI nor any of their Subsidiaries, is engaged in any
present dispute with any of its present or former officers, directors,
employees, partners, joint venturers or shareholders, as the case may be,
or any representative thereof.
3.15 Taxes. Except as set forth in the Disclosure Schedule:
(a) WHI, VBAI and each of their Subsidiaries and their Benefit Plans have
timely filed with the appropriate Governmental Authorities all Tax Returns
required to be filed by or with respect to WHI, VBAI and each of their
Subsidiaries or their respective operations or assets, in each case, for
all periods ending on or before the Closing Date, except for Tax Returns
not yet due to be filed. All such Tax Returns are complete and correct and
copies thereof have been delivered to PTG.
(b) All Taxes shown on such Tax Returns, all Taxes required to be paid on
an estimated or installment basis, all Taxes required to be withheld, and
all Taxes claimed to be due by any taxing authority from or with respect to
WHI, VBAI, their Subsidiaries or any of their Benefit Plans or their
respective operations or assets, in each case, on or before the Closing
Date have been timely paid or withheld, or will be timely paid or withheld
before the Closing Date as required by law. The provisions for Taxes in the
Financial Statements are sufficient for all accrued and unpaid Taxes as of
the dates of the Financial Statements.
A-19
<PAGE>
(c) There are no Liens for Taxes upon the assets of WHI, VBAI or any of
their Subsidiaries except Liens for current Taxes not yet delinquent.
(d) No deficiencies or assessments for any Taxes have been asserted,
proposed, or assessed against WHI, VBAI or any of their Subsidiaries or any
of their Benefit Plans by the IRS or any other taxing authority which
remain unpaid. Neither WHI or VBAI nor any of their Subsidiaries has
received any notice of deficiency, assessment, or proposed deficiency or
assessment, from any federal, state, local, or foreign taxing authority.
(e) There are no outstanding agreements, consents, or waivers extending
the statutory period of limitations applicable to the assessment of any
Taxes or deficiencies in taxes against WHI, VBAI or any of their
Subsidiaries or any of their Benefit Plans or with respect to their
respective operations or assets (including the System). No power of
attorney granted by WHI, VBAI or any of their Subsidiaries with respect to
any matter relating to Taxes is currently in force.
(f) Neither WHI or VBAI nor any of their Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes.
(g) No property of WHI, VBAI or any of their Subsidiaries is "tax exempt"
property or property that will be required to be treated as being owned by
another person, within the meaning of Sections 168(h) and 168(f)(8) of the
Code as amended and in effect immediately before the enactment of the Tax
Reform Act of 1986.
(h) None of WHI, VBAI or their Subsidiaries have made or become obligated
to make, and none of such companies will become obligated as a result of
any event connected with any transaction contemplated herein to make, any
"excess parachute payment" as defined in Section 280G of the Code (without
regard to subsection (b)(4) thereof).
(i) Neither WHI or VBAI nor any of their Subsidiaries has filed a consent
to the application of Code Section 341(f).
(j) Neither WHI or VBAI nor any of their Subsidiaries is or ever has been
a "United States real property holding corporation" within the meaning of
Code Section 897(c)(2).
(k) The Distribution Adjustment, together with a reasonably detailed
calculation of such Adjustment, will be set forth, prior to Closing, in
Schedule 3.15(k) of the Disclosure Schedule Supplement under the caption
"Distribution Adjustment."
3.16 Employee Benefit Plans.
(a) Each employee benefit plan (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
maintained or contributed to by WHI, VBAI or any of their Subsidiaries for
employees or former employees of WHI, VBAI or any of their Subsidiaries
(each a "Benefit Plan" and collectively the "Benefit Plans") has been
established and operated in accordance with its terms and in material
compliance with all applicable Legal Requirements, including but not
limited to, ERISA and the Code. PTG has been provided with true and
complete copies, with respect to each Benefit Plan, of all plan documents,
trust agreements, summary plan descriptions, insurance contracts,
investment management agreements and third-party service agreements and all
other material documents currently in effect and affecting the operation of
the Benefit Plans and copies of the two most recent annual reports, if any,
on Form 5500 required to be filed in connection with any Benefit Plan or
related trust, including all schedules thereto and any opinions of any
independent accountants relating thereto. All required governmental filings
have been timely made with respect to each Benefit Plan. No Benefit Plan is
currently (i) being audited or, to the Knowledge of the Sellers and the
Principal Shareholders, investigated or under review by the IRS, the U.S.
Department of Labor or the Pension Benefit Guaranty Corporation, nor (ii)
subject to any pending or, to the Knowledge of the Sellers and the
Principal Shareholders, threatened claim or suit other than normal
uncontested claims for benefits for employees or former employees or their
dependents. Neither WHI, VBAI or any of their Subsidiaries nor any of their
officers, directors, employees or agents is currently subject to any
pending or, to the Knowledge of the Sellers and the Principal
A-20
<PAGE>
Shareholders, threatened investigation, claim or suit with respect to any
Benefit Plan nor has engaged in any transaction with respect to which such
Person could be subject to a material civil penalty under Section 502(i) or
(l) of ERISA or a material tax imposed under Section 4975 of the Code. No
event has occurred and no condition exists that would reasonably be
expected to result in a material tax with respect to any Benefit Plan under
Section 4980B of the Code or Sections 601 through 608 of ERISA ("COBRA").
(b) Each Benefit Plan that is intended to qualify under Section 401(a) of
the Code is designated in Schedule 3.16(b) of the Disclosure Schedule under
the title "Benefit Plans" as being a qualified plan (the Benefit Plans so
designated being hereinafter referred to as the "Qualified Plans"). WHI or
VBAI has either received or timely applied for a favorable determination
letter from the IRS with respect to the qualification of each of the
Qualified Plans, true and correct copies of the most recently issued
determination letters, if received, have been delivered to PTG, and no
event has occurred and no condition exists that would reasonably be
expected to materially adversely affect the qualified status of any of the
Qualified Plans.
(c) There is no other corporation, trade or business that would be
treated, together with WHI, VBAI or any of their Subsidiaries, as a single
entity under Section 414 of the Code. Neither WHI or VBAI nor any of their
Subsidiaries has ever maintained, contributed to or been obligated to
contribute to any defined benefit pension plan (as defined in Section 3(2)
of ERISA) or multiemployer plan (as defined in Sections 3(37) and
4001(a)(3) of ERISA) subject to Section 412 of the Code or Title IV or
ERISA.
(d) All contributions, premiums or other payments due from WHI, VBAI or
any of their Subsidiaries to (or under) any Benefit Plan to provide
benefits for any individuals associated with the businesses of WHI, VBAI
and their Subsidiaries have been fully paid or adequately provided for on
the books and Financial Statements of WHI, VBAI and their Subsidiaries.
Except as required by COBRA or other applicable law, neither WHI or VBAI
nor any of their Subsidiaries provides post-retirement or post-employment
benefits requiring charges under Statements of Financial Standards Numbers
106 and 112. Except as required by COBRA, neither WHI or VBAI nor any of
their Subsidiaries is a party to any agreement, contract or obligation
(whether written or oral) with any current or former employee (either
individually or to employees as a group) that such current or former
employee(s) would be provided (at cost to WHI, VBAI or any of their
Subsidiaries) with life insurance or other employee welfare benefits
(within the meaning of Section 3(1) of ERISA) upon or after their
retirement or other termination of employment.
(e) No payment that is owed or may become due to any employee, officer or
director of WHI, VBAI or any of their Subsidiaries will be non-deductible
or subject to tax under Section 280G or Section 4999 of the Code, nor will
WHI, VBAI or any of their Subsidiaries be required to "gross up" or
otherwise compensate any person because of the imposition of any excise tax
on a payment to such person caused by the completion of the transactions
contemplated by this Agreement.
(f) The consummation of the transactions contemplated by this Agreement
will not result in the payment, vesting or acceleration of any benefit to
employees, officers or directors of WHI, VBAI or any of their Subsidiaries
under the Benefit Plans or any other employment agreements or arrangements.
3.17 Contracts.
(a) Except as set forth in Schedule 3.17 of the Disclosure Schedule under
the title "Contracts" (which Schedule excludes any Spin-Off Assets),
neither WHI or VBAI nor any of their Subsidiaries is a party to or bound
by:
(i) any note, bond, debenture or other evidence of indebtedness, or
any contract, agreement, commitment or understanding under which any of
such companies has borrowed any money or issued any note, bond,
debenture or other evidence of indebtedness, or any mortgage, pledge,
security agreement, deed of trust, financing statement or other
document granting any Lien or any guaranty or endorsement (other than
endorsements for collection in the ordinary course of business) of, or
other contingent obligations in respect of, indebtedness for borrowed
money or other liabilities or obligations of others;
A-21
<PAGE>
(ii) any contract, agreement, commitment or arrangement relating to
any joint venture, partnership or sharing of profits or losses with any
person or permitting any Person to utilize any technology, know-how or
proprietary information of any of such companies;
(iii) any contract, agreement, commitment, arrangement or
understanding for the future purchase by such companies of any
materials, equipment, services, or supplies, which (w) involves the
payment of more than $100,000, (x) continues for a period of more than
six months, (y) by its terms requires any of such companies to purchase
the entire output of a supplier or (z) provides that any supplier will
be the exclusive supplier of any such companies;
(iv) any contract, agreement, commitment, arrangement or
understanding for the sale or other disposition by any of such
companies of any of their assets or properties other than in the
Ordinary Course of Business or involving the payment or receipt by any
of such companies of more than $5,000 over the term thereof, or for the
merger or consolidation of any of such companies with any other person
or entity;
(v) any contract, agreement, commitment, arrangement or understanding
containing covenants purporting to limit the freedom of any of such
companies to compete in any line of business or in any geographic area
or to require any of such companies to maintain any information as
confidential; or
(vi) any contract, agreement, commitment, arrangement or
understanding not elsewhere specifically disclosed pursuant to this
Agreement involving the payment or receipt by any of such companies of
more than $100,000 per year or $250,000 over the term thereof.
(b) Copies of all agreements or instruments identified in Schedule 3.17
of the Disclosure Schedule under the title "Contracts" (herein collectively
called "Contracts") have been made available to PTG. Except as set forth in
Schedule 3.17 of the Disclosure Schedule under the title "Contract
Defects," (i) each of such Contracts constitutes a legal, valid and binding
obligation of WHI, VBAI or one of their Subsidiaries and is in full force
and effect, (ii) WHI, VBAI and their Subsidiaries have fulfilled and
performed in all material respects their obligations under each of the
Contracts required to be performed prior to the date hereof, and none of
them is in breach or default under, nor is there, to the Knowledge of the
Sellers and the Principal Shareholders, alleged to the Sellers, the
Principal Shareholders, WHI, VBAI or any of their Subsidiaries to be any
basis for termination of, any of the Contracts, (iii) to the Knowledge of
the Sellers and the Principal Shareholders, no other party to any of the
Contracts has materially breached or defaulted thereunder, and no event has
occurred which, with the passage of time or the giving of notice or both,
would constitute such a default or breach by WHI, VBAI or any of their
Subsidiaries, and (iv) neither WHI or VBAI nor any of their Subsidiaries is
currently renegotiating any of the Contracts or paying liquidated damages
in lieu of performance thereunder.
(c) Complete and correct copies of the forms of all Subscriber Agreements
used by WHI, VBAI or any of their Subsidiaries have heretofore been
delivered to PTG. A complete and correct list of all Subscribers as of
recent date have heretofore been delivered to PTG. Each Subscriber
Agreement relating to such Subscribers is in full force and effect as of
the date of such list.
3.18 Employees and Affiliated Agreements.
(a) Except as set forth in Schedule 3.18 of the Disclosure Schedule under
the title "Employees," neither WHI or VBAI nor any of their Subsidiaries is
a party to or bound by any written or, to the Knowledge of the Sellers and
the Principal Shareholders, oral (i) employee collective bargaining
agreement, employment agreement, consulting, advisory or service agreement,
deferred compensation agreement, confidentiality agreement or covenant not
to compete; (ii) contract or agreement with any officer, director or
employee (other than employment agreements disclosed in response to clause
(i)); or (iii) Benefit Plan or bonus, profit sharing, deferred
compensation, incentive, stock option or stock purchase, or paid time off
for sickness plan, program or arrangement with respect to their employees.
Except as set forth in Schedule 3.18 of the Disclosure Schedule under the
title "Employees," neither WHI or VBAI nor any of their Subsidiaries is a
party to or bound by any written or, to the Knowledge of the Sellers and
the Principal Shareholders,
A-22
<PAGE>
oral severance plan or program or other severance arrangement for their
employees. The consummation of the transactions contemplated by this
Agreement will not result in any severance liability to any employee of
WHI, VBAI or any of its Subsidiaries.
(b) Set forth in Schedule 3.18 of the Disclosure Schedule under the title
"Employees" are (i) the name of each of the officers and directors and
other key employees (i.e. those employees who earn in excess of $50,000) of
WHI, VBAI and their Subsidiaries and (ii) the base annual salary level as
of the date hereof and projections for the current fiscal year of other
incentive compensation (including bonuses) for each person whose name is
set forth under such title in the Disclosure Schedule. Schedule 3.18 of the
Disclosure Schedule under the title "Employees" lists as of the date hereof
the names of all other employees of WHI, VBAI and their Subsidiaries, the
annual rates of compensation and the job titles for all such employees.
(c) Except as set forth in Schedule 3.18 of the Disclosure Schedule under
the title "Employees," to the Knowledge of the Sellers and the Principal
Shareholders, (i) no officer, director or Affiliate of WHI, VBAI or any of
their Subsidiaries has a direct or indirect interest in the business of
competitors, suppliers or customers of such companies, and for which any of
such companies will continue to make payments or be obligated in any
respect beyond the Closing and (ii) none of WHI, VBAI or any of their
Subsidiaries, to the Knowledge of the Sellers and the Principal
Shareholders, has used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to political
activity, made any direct or indirect unlawful payments to government
officials or others from corporate funds or established or maintained any
unlawful or unrecorded funds, violated any of the provisions of The Foreign
Corrupt Practices Act of 1977, or any rules or regulations thereunder,
received any illegal discounts or rebates or been the subject of any
investigation by the SEC or any other Governmental Authority.
(d) Except as set forth in Schedule 3.18 of the Disclosure Schedule under
the title "Employees," neither WHI or VBAI nor any of their Subsidiaries
has engaged in any unfair labor practice, unlawful employment practice or
unlawful discriminatory practice in the conduct of its business. Except as
set forth in Schedule 3.18 of the Disclosure Schedule under the title
"Employees," WHI, VBAI and their Subsidiaries have complied in all material
respects with all applicable Legal Requirements relating to prices, wages,
hours and collective bargaining and have complied in all material respects
with all applicable Legal Requirements relating to the payment and
withholding of taxes and have withheld all amounts required by law or
agreement to be withheld from the wages or salaries of employees and are
not liable for any arrears of wages or any taxes or penalties for failure
to comply with any of the foregoing. Except as set forth in Schedule 3.18
of the Disclosure Schedule under the title "Employees," the relations of
WHI, VBAI and their Subsidiaries with their respective employees are
satisfactory and none of such companies is a party to or, to the Knowledge
of the Sellers or the Principal Shareholders, threatened with any dispute
or controversy with a union or with respect to unionization or collective
bargaining, involving any of such companies. Schedule 3.18 of the
Disclosure Schedule under the title "Employees" sets forth all union
organizing or election activities involving any nonunion employees of WHI,
VBAI or any of their Subsidiaries which are in progress or threatened as of
the date hereof.
(e) Except as set forth in Schedule 3.18 of the Disclosure Schedule under
the title "Employees," neither WHI or VBAI nor any of their Subsidiaries
has made any written or, to the Knowledge of the Sellers and the Principal
Shareholders, oral agreement with or promise to any employee, officer or
consultant regarding continued employment by WHI, VBAI, any of their
Subsidiaries or PTG after the Closing Date.
3.19 Proprietary Rights. Except as set forth in Schedule 3.19 of the
Disclosure Schedule under the caption "Proprietary Rights," each of WHI, VBAI
and their Subsidiaries holds all patents, patent applications, trademarks,
service marks, trade names, corporate names, copyrights, trade secrets or
other proprietary rights necessary to the conduct of its or any of its
Subsidiaries' business as now conducted. The Disclosure Schedule under such
caption lists all proprietary rights, including those which have been licensed
to third parties and those proprietary rights which are licensed from third
parties other than software purchased off-the-shelf. Each of WHI, VBAI and
their Subsidiaries has taken all action reasonably necessary to protect the
proprietary rights set forth under such caption. Neither WHI or VBAI nor any
of their Subsidiaries have received written notice of any
A-23
<PAGE>
infringement, misappropriation, or conflict from any third party with respect
to such companies' proprietary rights which are listed; to the Knowledge of
the Sellers and the Principal Shareholders, neither WHI or VBAI nor any of
their Subsidiaries have infringed, misappropriated or otherwise taken any
actions which conflict with any proprietary rights of any third parties; and
no claim by any third party contesting the validity of any proprietary rights
listed under such caption is currently outstanding against WHI, VBAI or any of
their Subsidiaries, or to the Knowledge of the Sellers and the Principal
Shareholders, is threatened. Except as set forth on the Disclosure Schedule
under the title "Proprietary Rights," neither the Sellers nor the Principal
Shareholders have any Knowledge of the infringing use of any of such
trademarks, trade names or other proprietary rights or the infringement of any
of such copyrights and patents by any other Person. Except as set forth in the
Disclosure Schedule, any computer software and other technology or proprietary
rights developed or acquired (other than by license) by WHI, VBAI or any of
their Subsidiaries in connection with the establishment of the System under
the title "Proprietary Rights" shall become or remain the sole and exclusive
property of WHI or VBAI at Closing and no other Person (including any
employee, director, officer or agent of WHI, VBAI or any of their
Subsidiaries) shall have any further rights therein.
3.20 Insurance. WHI, VBAI and each of their Subsidiaries have, with respect
to their respective properties and businesses, insurance of such a nature,
with such terms and in such amounts as would reasonably be maintained with
respect to similar properties and a similar business. Schedule 3.20 of the
Disclosure Schedule under the title "Insurance" identifies (indicating policy
owners, carriers and effective dates) all policies of insurance, including
insurance providing benefits for employees, owned, held or maintained by or
for the benefit of WHI, VBAI or any of their Subsidiaries or under which any
of such companies is a named insured on the date hereof. All such policies are
in full force and effect and no notice of cancellation or termination has been
received with respect to such insurance except as set forth on the Disclosure
Schedule under such caption.
3.21 Real Property.
(a) Neither WHI or VBAI nor any of their Subsidiaries owns any real
property other than fixtures.
(b) Schedule 3.21 of the Disclosure Schedule under the title "Real
Property Leases" identifies each lease, sublease, material easement, grant
or similar instrument, including site leases for transmission and receiving
equipment (showing the annual rental, expiration date, renewal and purchase
options, if any, and the location of the real property covered by such
lease or other agreement) under which WHI, VBAI or any of their
Subsidiaries has the rights to use, hold or operate any real property owned
by a third party, other than any Spin-off Assets or Spin-off Liabilities
(collectively, the "Leases") (the property covered by the agreements
described in this Section being referred to herein as the "Leased
Property").
(c) Except as disclosed in Schedule 3.21 of the Disclosure Schedule under
the title "Real Property Leases," the Leases (i) are each in full force and
effect and are each legal, valid and binding obligations of WHI, VBAI or
their Subsidiaries, as the case may be, and (ii) will continue in effect
after the Closing without the consent, approval or act of, or the making of
any filing with, any other party. Neither WHI or VBAI nor any of their
Subsidiaries under any such Lease or agreement is in default in any
material respect or has received any notice of default thereunder which has
not been cured. To the Knowledge of the Sellers and the Principal
Shareholders, no other party to any such Lease is in material default
thereunder. Except as disclosed in the Disclosure Schedule under the title
"Real Property Leases," WHI, VBAI and their Subsidiaries have valid (except
with respect to the interest of lessors in leasehold improvements)
leasehold interests in the Leased Property, free and clear of all Liens
created by WHI, VBAI or any of their Subsidiaries, and, to the Knowledge of
the Sellers and the Principal Shareholders, free and clear of all Liens,
except Permitted Liens.
(d) Except as set forth in Schedule 3.21 of the Disclosure Schedule under
the title "Real Property Leases," there are no security deposits held by
WHI, VBAI or any of their Subsidiaries under any of the Leases and there
are no arrearages in rent or additional rent under any of such Leases.
Neither WHI or VBAI nor any of their Subsidiaries, subleases or sublicenses
any real property.
A-24
<PAGE>
3.22 Personal Property. Schedule 3.22 of the Disclosure Schedule under the
title "Personal Property" contains a detailed list of all machinery,
equipment, vehicles, furniture and other personal property owned and in
current use by WHI, VBAI or any of their Subsidiaries having an original
purchase price per item in excess of $5,000 and not expensed by WHI, VBAI or
any of their Subsidiaries at the time of purchase or fully depreciated before
August 31, 1995.
3.23 Personal Property Leases. Schedule 3.23 of the Disclosure Schedule
under the title "Personal Property Leases" identifies each lease or other
agreement or right under which WHI, VBAI or any of their Subsidiaries is
lessee of, or holds or operates, any machinery, equipment, vehicle or other
tangible personal property owned by a third party and having lease or rent
payment in excess of $25,000 per year (indicating in each case the annual
rental, the expiration date thereof and the type of property covered). Each of
such leases or agreements is in full force and effect and will continue in
effect after the Closing without the consent, approval or act of, or the
making of any filing with, any other party.
3.24 Disclosure. No representation or warranty of WHI, VBAI, the Sellers or
the Principal Shareholders contained in this Agreement and no statement of
WHI, VBAI, the Sellers or the Principal Shareholders contained in the
Disclosure Schedule or, if applicable, the Disclosure Schedule Supplement
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements made herein or therein, with respect to
the respective subject matters of such representations, warranties or
statements, in light of the circumstances under which they were made, not
misleading.
3.25 Information Supplied. None of the information supplied or to be
supplied by Sellers or the Principal Shareholders for inclusion in the
Registration Statement to be filed with the SEC by PTG in connection with the
issuance of the PTG Common Stock, including the Proxy Statement included
therein, at the date such information is supplied and at the time of the TTI
Shareholders' Meeting, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading or will, in the
case of the Registration Statement at the time the Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
3.26 HSR Act. The Sellers, the Principal Shareholders and PTG and any
Persons in control of such Persons within the meaning of the HSR Act may be
required to file under the HSR Act in order to consummate the transactions
contemplated hereby. With the possible exception of such Persons, no Person is
required, in order to consummate the transactions contemplated hereby in
accordance with the HSR Act, to file under the HSR Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VIDEOWAY, VIDEOTRON CANADA AND VIDEOTRON USA
Except as expressly set forth in the Disclosure Schedule, Videoway,
Videotron Canada and Videotron USA, jointly and severally, represent and
warrant to PTG, Newco I and Newco II that the following statements are true
and correct:
4.01 Corporate Organization. Each of Videotron USA, Videoway and Videotron
Canada is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each of Videotron
USA, Videoway and Videotron Canada has full power and authority to carry on
its business as it is now being conducted and to own the properties and assets
it now owns, and is duly qualified or licensed to do business as a foreign
corporation in good standing in every jurisdiction in which its ownership of
property or the conduct of its business requires such qualification or
licensing except where the failure to be so licensed or qualified would not
have a material adverse effect on the Financial Status of such company, on the
System or on
A-25
<PAGE>
the ability of such company to consummate the transactions contemplated
hereby. No amendment or other document relating to the Certificate of
Incorporation of Videotron USA has been filed in the Office of the Secretary
of State of Delaware since April 7, 1995. The copies of the Bylaws and
corporate minutes of Videotron USA delivered to PTG on or before the date
hereof are true, correct and complete copies of the Bylaws and corporate
minutes of Videotron USA.
4.02 Execution, Delivery and Enforceability of Agreement. Each of Videotron
USA, Videoway and Videotron Canada has all requisite power and authority
(corporate and other) to enter into this Agreement and to perform its
obligations under this Agreement. Each of Videotron USA, Videoway and
Videotron Canada has taken all corporate actions necessary to be taken by it
to authorize the execution and delivery of this Agreement and the performance
of the transactions contemplated hereby. This Agreement has been executed and
delivered by each of Videotron USA, Videoway and Videotron Canada and
constitutes the legal, valid and binding obligation of each of Videotron USA,
Videoway and Videotron Canada, enforceable against each of them in accordance
with its terms. On or prior to the Closing Date, the Escrow Agreement will
have been duly executed and delivered by Videoway and Videotron Canada and
will constitute the legal, valid and binding obligation of Videoway and
Videotron Canada, enforceable against each of them in accordance with its
terms.
4.03 Capitalization. The entire authorized capital stock of Videotron USA
consists of 5,000 shares of Common Stock, $.01 par value, and 5,000 shares of
Class A Common Stock, $.01 par value. As of the date hereof, 3,000 shares of
such Class A Common Stock held of record by Videoway and no shares of Common
Stock are issued and outstanding. All of the outstanding shares of Class A
Common Stock of Videotron USA have been validly issued, fully paid and are
nonassessable, and none were issued in violation of the preemptive or similar
rights (whether statutory or contractual) of any Person. None of such shares
were issued, offered or sold by Videotron USA in violation of any applicable
federal or state securities laws or the rules and regulations thereunder.
Videotron USA has no outstanding options, warrants, debentures or other
securities convertible into or exchangeable or exercisable for shares of
capital stock of Videotron USA, and there are no outstanding contracts,
commitments or arrangements by which Videotron USA is or may become bound to
issue, repurchase, retire or otherwise acquire (contingent or otherwise) any
shares of capital stock of Videotron USA or any security convertible into or
exchangeable for any of its capital stock. Videotron USA is not a party to any
voting trust or other agreement, contract or obligation (whether written or
oral) with respect to the voting of the capital stock of Videotron USA and, to
the Knowledge of Videoway and Videotron Canada, there are no such voting
trusts or other agreements, contracts or obligations (whether written or oral)
with respect to the voting of the capital stock of Videotron USA.
4.04 Subsidiaries. Videotron USA has no Subsidiaries other than WHI and VBAI
and their Subsidiaries. Videotron USA does not own, directly or indirectly,
any capital stock or equity securities of any other corporation nor does it
have any direct or indirect interest in any other business corporation,
partnership, joint venture or entity other than the Subsidiaries listed above
and other than a 20% interest in the capital stock of Dakota Licensing Company
(the "Licensing Company"). The Licensing Company has no assets, liabilities or
operations.
4.05 Financial Statements. Videoway and Videotron Canada have furnished to
PTG complete and accurate copies of: (i) unaudited unconsolidated financial
statements of Videotron USA as of and for the period from November 9, 1993
(date of inception) through August 31, 1994, including an unaudited balance
sheet of Videotron USA as of the end of such period and unaudited statements
of operations, changes in shareholders equity and cash flows of Videotron USA
for such period, (ii) unaudited unconsolidated financial statements of
Videotron USA for the fiscal year ended August 31, 1995, including an
unaudited balance sheet as of the end of such period and unaudited statements
of operations, changes in shareholders equity and cash flows of Videotron USA
for such fiscal year, and (iii) unaudited unconsolidated financial statements
of Videotron USA for the one-month period ended September 30, 1995 including
an unaudited balance sheet as of September 30, 1995 and unaudited statements
of operations, changes in shareholders equity and cash flows of Videotron USA
for such period (the financial statements referred to in this Section 4.05
being collectively referred to as the "Videotron
A-26
<PAGE>
Financial Statements"). The Videotron Financial Statements have been prepared
in accordance with GAAP applied on a consistent basis during the respective
periods, except as therein noted and except that they do not contain
footnotes. The Videotron Financial Statements present fairly the financial
position of Videotron USA as of such dates and the results of its operations
and its cash flows for such periods. As of the respective dates of the
Videotron Financial Statements, Videotron USA had no obligation or liability,
individually or in the aggregate, of the nature required to be disclosed in
financial statements prepared in accordance with GAAP that is not disclosed by
the respective Financial Statements referred to above.
4.06 No Adverse Changes. From the Balance Sheet Date to the date of this
Agreement, there has been no material adverse change in the Financial Status
of Videotron USA. As of the date of this Agreement, neither Videoway nor
Videotron Canada has Knowledge of any loss contingency of Videotron USA within
the meaning of Statement of Financial Accounting Standards No. 5 which has not
been disclosed in the Videotron Financial Statements referred to in Section
4.05 above or which has not been disclosed pursuant to this Agreement which
has or may have a material adverse effect on the Financial Status of Videotron
USA.
4.07 No Violation. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Videotron USA,
Videoway and Videotron Canada will not (a) violate any provision of the
Certificate of Incorporation, Bylaws or other charter documents of Videotron
USA, Videoway or Videotron Canada, (b) violate, or constitute a default under,
or permit the termination or acceleration of the maturity of, any indebtedness
for borrowed money of Videotron USA, Videoway or Videotron Canada, (c) except
as set forth on Schedule 3.08 of the Disclosure Schedule under the caption
"Consents," violate, or constitute a default under, or permit the termination
of, or trigger a right of first refusal under, or cause the loss of any rights
or options under (i) any Permit, System Agreement or other Contract or (ii)
any material agreement or instrument to which Videotron USA, Videoway or
Videotron Canada is a party or by which it or its properties is bound, (d)
result in the creation or imposition of any Lien upon any of the assets or
properties of Videotron USA, Videoway or Videotron Canada or (e) violate any
Legal Requirement to which Videotron USA, Videoway or Videotron Canada is
subject.
4.08 Consents and Approvals. Except as set forth on Schedule 3.08 of the
Disclosure Schedule under the caption "Consents," the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by Videotron USA, Videoway and Videotron Canada do not
require the consent, approval, license, or authorization of, notice to, or
declaration, filing or registration with, any third party or Governmental
Authority and will not result in any material breach or default under any
material agreement to which Videotron USA, Videoway or Videotron Canada is a
party to which it or its properties is bound.
4.09 Compliance with Legal Requirements.
(a) Videotron USA has conducted its business in material compliance with
all Legal Requirements. The assets and properties of Videotron USA and
their uses conform in all material respects to all applicable Legal
Requirements currently required to be complied with in the business and
operations of Videotron USA.
(b) Videotron USA has not received any written or, to the Knowledge of
Videoway and Videotron Canada, oral citations, complaints, consent orders,
compliance schedules or other similar enforcement orders or received any
other written or, to the Knowledge of Videoway and Videotron Canada, oral
notice from any Governmental Authority (including the FCC) or Person
regarding the violation of, or failure to comply with, any Legal
Requirements relating to the operations or any assets or properties of
Videotron USA or the obligation on the part of Videotron USA to undertake
or bear the cost of any remedial action.
(c) Videotron USA is not engaged currently, or at any time in the past
has it engaged, in the design, development or manufacture of Customer
Premises Equipment or Telecommunications Equipment or engaged in the
provision to third parties of Interexchange telecommunications services,
including transport, switching and routing.
A-27
<PAGE>
(d) To the Knowledge of Videoway and Videotron Canada, there has been (i)
no spill, discharge, leak, emission, injection, escape, dumping, storage,
deposit or other release by Videotron USA (or any other Person) onto or
under the properties owned or occupied at any time by Videotron USA or from
such properties into (x) the environment surrounding such properties or (y)
elsewhere of any solid wastes, toxic wastes, hazardous wastes or other
hazardous, toxic or dangerous materials or substances and (ii) no violation
of any other Environmental Law or regulation that would reasonably be
expected to result in the incurrence of an Environmental Liability in an
amount exceeding $100,000.
4.10 Absence of Certain Changes. Between the Balance Sheet Date and the date
of this Agreement, Videotron USA has conducted its business only in the
Ordinary Course of Business and has not:
(a) incurred any increase in indebtedness for borrowed money over the
level thereof reflected in the Videotron Financial Statements (except for
inter-company indebtedness or indebtedness owing to Videotron International
Ltee) or granted any security interest in any of its assets or other
property to secure any obligation for borrowed money;
(b) issued or sold any capital stock;
(c) received any written or, to the Knowledge of Videoway and Videotron
Canada, oral notices of a default or breach of any Videotron Contract;
(d) waived, compromised or permitted to lapse any claims or rights of
substantial value, or sold, transferred or otherwise disposed of any assets
or other properties;
(e) adopted or amended in any respect any Benefit Plan or bonus, profit
sharing, deferred compensation, incentive, stock option or stock purchase,
paid time off for sickness or other plan, program or arrangement for the
benefit of employees, consultants or directors, or granted any general
increase in the compensation of employees (including any such increase
pursuant to any bonus, profit sharing or other compensation or incentive
plan, program or commitment) or any increase in the compensation payable or
to become payable to any officer or director;
(f) made any capital commitments in excess of $100,000 in the aggregate;
(g) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock, or directly or indirectly
redeemed, purchased or otherwise acquired any shares of its capital stock;
(h) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any other agreement or
arrangement with, any of its executive officers, directors or other
Affiliates, except for (i) normal business advances to employees consistent
with past practice, (ii) payment of compensation to officers and (iii)
advances to WHI and VBAI and certain notes receivables with Affiliates
which will be repaid at Closing;
(i) suffered any damage, destruction, loss or claim to or against any
property or asset with an aggregate value in excess of $100,000, whether or
not covered by insurance;
(j) initiated or maintained any proceedings with respect to its sale,
merger, consolidation, liquidation or reorganization other than pursuant to
the terms of this Agreement;
(k) terminated, amended or modified any Videotron Contract; or
(l) agreed, whether in writing or otherwise, to take any action described
in this Section 4.10.
4.11 Availability of Assets and Title.
(a) The only assets and properties of Videotron USA are (i) 4,642 shares
of Common Stock of WHI; (ii) 800 shares of Common Stock of VBAI; (iii) the
20% interest in the Licensing Company; (iv) loan and interest receivables
from WHI and VBAI in the amount, as of September 30, 1995, of approximately
$54,096,731; and (v) loan receivables from Affiliates which will be repaid
at Closing. The only liability of Videotron USA is outstanding indebtedness
to Videotron International Ltee in the amount, as of September 30, 1995, of
approximately $32,728,988.
A-28
<PAGE>
(b) Except as set forth on Schedule 4.11 of the Disclosure Schedule,
Videotron USA owns of record and beneficially such shares of WHI and VBAI
Stock, free and clear of all Liens and not subject to any agreements,
contracts or obligations (whether written or oral) among any Persons with
respect to the voting or transfer of such shares other than this Agreement.
4.12 Permits.
(a) Videotron USA owns, holds or possesses all Permits. Videotron USA is
in compliance with all of its material obligations with respect thereto,
and no event has occurred which permits, or upon the giving of notice or
lapse of time or otherwise would permit, revocation or termination of any
of the foregoing.
(b) Complete and correct copies of all of the Permits owned, held or
possessed by Videotron USA have heretofore been delivered to PTG and are
listed in the Disclosure Schedule under Section 4.12 thereof.
(c) Each of the Permits owned, held or possessed by Videotron USA is
valid and in full force and effect and there are no existing proceedings,
complaints or investigations pending, or to the knowledge of Videoway and
Videotron Canada, threatened before or by any Governmental Authority
relating to any such Permits or to the right or ability of Videotron USA to
maintain, acquire or otherwise hold such Permits.
4.13 Litigation. Except as set forth on Schedule 4.13 of the Disclosure
Schedule:
(a) as of the date of this Agreement, there are no actions at law, suits
in equity or claims pending or, to the Knowledge of Videoway and Videotron
Canada, threatened against, Videotron USA, its officers, directors,
partners, employees or shareholders or its business or properties, and, to
the Knowledge of Videoway and Videotron Canada, there is no reasonable
basis for any action, suit or claim;
(b) there are no governmental proceedings or investigations (in which any
subpoena, request for information or other notice, paper or demand has been
served upon Videoway, Videotron Canada or Videotron USA, or any of their
officers, directors, partners or employees) pending against Videotron USA;
(c) there is no action, suit or proceeding pending or, to the Knowledge
of Videoway and Videotron Canada, threatened which questions the legality
or propriety of the transactions contemplated by this Agreement;
(d) Videotron USA is not a party to or bound by, and the properties and
assets of Videotron USA are not subject to, any judgments, writs, decrees,
injunctions or orders of any Governmental Authority; and
(e) to the Knowledge of Videoway and Videotron Canada, Videotron USA is
not engaged in any present dispute with any of its present or former
officers, directors, employees, partners, joint venturers or shareholders,
as the case may be, or any representative thereof.
4.14 Taxes. Except as set forth in the Disclosure Schedule:
(a) Videotron USA has timely filed with the appropriate Governmental
Authorities all Tax Returns required to be filed by or with respect to
Videotron USA or its operations or assets, in each case, for all periods
ending on or before the Closing Date, except for Tax Returns not yet due to
be filed. All such Tax Returns are complete and correct and copies thereof
have been delivered to PTG.
(b) All Taxes shown on such Tax Returns, all Taxes required to be paid on
an estimated or installment basis, all Taxes required to be withheld, and
all Taxes claimed to be due by any taxing authority from or with respect to
Videotron USA or its operations or assets, in each case, on or before the
Closing Date have been timely paid or withheld, or will be timely paid or
withheld before the Closing Date as required by law. The provisions for
Taxes in the Videotron Financial Statements are sufficient for all accrued
and unpaid Taxes as of the dates of the Videotron Financial Statements.
(c) There are no Liens for Taxes upon the assets of Videotron USA except
Liens for current Taxes not yet delinquent.
(d) No deficiencies or assessments for any Taxes have been asserted,
proposed, or assessed against Videotron USA by the IRS or any other taxing
authority which remain unpaid. Videotron USA has not
A-29
<PAGE>
received any notice of deficiency, assessment, or proposed deficiency or
assessment, from any federal, state, local, or foreign taxing authority.
(e) There are no outstanding agreements, consents, or waivers extending
the statutory period of limitations applicable to the assessment of any
Taxes or deficiencies in taxes against Videotron USA or with respect to its
operations or assets. No power of attorney granted by Videotron USA with
respect to any matter relating to Taxes is currently in force.
(f) Videotron USA is not a party to any agreement providing for the
allocation or sharing of Taxes.
(g) No property of Videotron USA is "tax exempt" property or property
that will be required to be treated as being owned by another person,
within the meaning of Sections 168(h) and 168(f)(8) of the Code as amended
and in effect immediately before the enactment of the Tax Reform Act of
1986.
(h) Videotron USA has not made or become obligated to make, and will not
become obligated as a result of any event connected with any transaction
contemplated herein to make, any "excess parachute payment" as defined in
Section 280G of the Code (without regard to subsection (b)(4) thereof).
(i) Videotron USA has not filed a consent to the application of Code
Section 341(f).
(j) Videotron USA is not and never has been a "United States real
property holding corporation" within the meaning of Code Section 897(c)(2).
4.15 Employee Benefit Plans.
(a) Videotron USA has never established, maintained, contributed to or
been obligated to contribute to a Benefit Plan. Neither Videotron USA nor
any of its officers, directors, employees or agents is currently subject to
any pending or, to the Knowledge of Videoway and Videotron Canada,
threatened investigation, claim or suit with respect to any Benefit Plan
nor has any of such Persons engaged in any transaction with respect to
which such Person could be subject to a material civil penalty under
Section 502(i) or (l) of ERISA or a material tax imposed under Section 4975
of the Code. No event has occurred and no condition exists that could
result in a material tax with respect to any Benefit Plan COBRA.
(b) There is no other corporation, trade or business that would be
treated, together with Videotron USA, as a single entity under Section 414
of the Code. Videotron USA has never maintained, contributed to or been
obligated to contribute to any defined benefit pension plan (as defined in
Section 3(2) of ERISA) or multiemployer plan (as defined in Sections 3(37)
and 4001(a)(3) of ERISA) subject to Section 412 of the Code or Title IV or
ERISA.
(c) No contributions, premiums or other payments are due from Videotron
USA to (or under) any Benefit Plan. Except as required by COBRA or other
applicable law, Videotron USA does not provide post-retirement or post-
employment benefits requiring charges under Statements of Financial
Standards Numbers 106 and 112. Except as required by COBRA, Videotron USA
is not a party to any agreement, contract or obligation (whether written or
oral) with any current or former employee (either individually or to
employees as a group) that such current or former employee(s) would be
provided (at cost to Videotron USA) with life insurance or other employee
welfare benefits (within the meaning of Section 3(1) of ERISA) upon or
after their retirement or other termination of employment.
(d) No payment that is owed or may become due to any employee, officer or
director of Videotron USA will be non-deductible or subject to tax under
Section 280G or Section 4999 of the Code, nor will Videotron USA be
required to "gross up" or otherwise compensate any person because of the
imposition of any excise tax on a payment to such person caused by the
completion of the transactions contemplated by this Agreement.
4.16 Contracts.
(a) Except as set forth in Schedule 4.16 of the Disclosure Schedule under
the title "Videotron Contracts," Videotron USA is not a party to or bound
by:
(i) any note, bond, debenture or other evidence of indebtedness, or
any contract, agreement, commitment or understanding under which any of
such companies has borrowed any money or issued
A-30
<PAGE>
any note, bond, debenture or other evidence of indebtedness, or any
mortgage, pledge, security agreement, deed of trust, financing
statement or other document granting any Lien or any guaranty or
endorsement (other than endorsements for collection in the ordinary
course of business) of, or other contingent obligations in respect of,
indebtedness for borrowed money or other liabilities or obligations of
others;
(ii) any contract, agreement, commitment, arrangement or
understanding relating to any joint venture, partnership or sharing of
profits or losses with any person or permitting any Person to utilize
any technology, know-how or proprietary information of Videotron USA;
(iii) any contract, agreement, commitment, arrangement or
understanding for the future purchase by Videotron USA of any
materials, equipment, services, or supplies, which (w) involves the
payment of more than $100,000, (x) continues for a period of more than
six months, (y) by its terms requires Videotron USA to purchase the
entire output of a supplier or (z) provides that any supplier will be
the exclusive supplier of any Videotron USA;
(iv) any contract, agreement, commitment, arrangement or
understanding for the sale or other disposition by Videotron USA of any
of its assets or properties other than in the Ordinary Course of
Business, or for the merger or consolidation of Videotron USA with any
other person or entity;
(v) any contract, agreement, commitment, arrangement or understanding
containing covenants purporting to limit the freedom of Videotron USA
to compete in any line of business or in any geographic area or to
require Videotron USA to maintain any information as confidential; or
(vi) any contract, agreement, commitment, arrangement or
understanding not elsewhere specifically disclosed pursuant to this
Agreement involving the payment or receipt by Videotron USA of more
than $100,000 per year or $250,000 over the term thereof.
(b) Copies of all agreements or instruments identified in Schedule 4.16
of the Disclosure Schedule under the title "Videotron Contracts" (herein
called the "Videotron Contracts") have been made available to PTG. Except
as set forth in Schedule 4.16 of the Disclosure Schedule under the title
"Videotron Contract Defects," (i) each of such Videotron Contracts
constitutes a legal, valid and binding obligation of Videotron USA and is
in full force and effect, (ii) Videotron USA has fulfilled and performed in
all material respects its obligations under each of the Videotron Contracts
required to be performed prior to the date hereof, and Videotron USA is not
in, or, to the Knowledge of Videoway and Videotron Canada, alleged to
Videotron USA, Videoway or Videotron Canada to be in, breach or default
under, nor is there, to the Knowledge of Videoway and Videotron Canada,
alleged to be any basis for termination of, any of the Videotron Contracts,
(iii) to the Knowledge of Videoway and Videotron Canada, no other party to
any of the Videotron Contracts has materially breached or defaulted
thereunder, and no event has occurred which, with the passage of time or
the giving of notice or both, would constitute such a default or breach by
Videotron USA, and (iv) Videotron USA is not renegotiating any of the
Videotron Contracts or paying liquidated damages in lieu of performance
thereunder.
4.17 Employees and Affiliated Agreements.
(a) Videotron USA is not a party to or bound by any written or, to the
Knowledge of Videoway and Videotron Canada, oral (i) employee collective
bargaining agreement, employment agreement, consulting, advisory or service
agreement, deferred compensation agreement, confidentiality agreement or
covenant not to compete; (ii) contract or agreement with any officer,
director or employee (other than employment agreements disclosed in
response to clause (i)); or (iii) Benefit Plan or bonus, profit sharing,
deferred compensation, incentive, stock option or stock purchase, or paid
time off for sickness plan, program or arrangement with respect to its
employees. Videotron USA is not a party to or bound by any written or, to
the Knowledge of Videoway and Videotron Canada, oral severance plan or
program or other severance arrangement for their employees.
(b) Videotron USA has no employees.
A-31
<PAGE>
(c) To the Knowledge of Videoway and Videotron Canada, (i) no officer,
director or Affiliate (other than WHI, VBAI or any of their respective
Affiliates) of Videotron USA has a direct or indirect interest in the
business of competitors, suppliers or customers of Videotron USA, and for
which Videotron USA will continue to make payments or be obligated in any
respect beyond the Closing and (ii) neither Videotron USA nor, to the
Knowledge of Videoway and Videotron Canada, any officer or director of
Videotron USA has used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to political
activity, made any direct or indirect unlawful payments to government
officials or others from corporate funds or established or maintained of
any unlawful or unrecorded funds, violated any of the provisions of The
Foreign Corrupt Practices Act of 1977, or any rules or regulations
thereunder, received any illegal discounts or rebates or been the subject
of any investigation by the SEC or any other Governmental Authority.
(d) Videotron USA has not engaged in any unfair labor practice, unlawful
employment practice or unlawful discriminatory practice in the conduct of
its business. Videotron USA has complied in all material respects with all
applicable Legal Requirements relating to prices, wages, hours and
collective bargaining and has complied in all material respects with all
applicable Legal Requirements relating to the payment and withholding of
taxes and has withheld all amounts required by law or agreement to be
withheld from the wages or salaries of employees and is not liable for any
arrears of wages or any taxes or penalties for failure to comply with any
of the foregoing. The relations of Videotron USA with its employees are
satisfactory and Videotron USA is not a party to or, to the Knowledge of
Videoway and Videotron Canada, threatened with any dispute or controversy
with a union or with respect to unionization or collective bargaining,
involving Videotron USA. Schedule 4.17 of the Disclosure Schedule under the
title "Videotron Employees" sets forth all union organizing or election
activities involving any nonunion employees of Videotron USA which are in
progress or threatened as of the date hereof.
(e) Videotron USA has not made any written or, to the Knowledge of
Videoway and Videotron Canada, oral agreement with or promise to any
employee, officer or consultant regarding continued employment by Videotron
USA or PTG after the Closing Date.
4.18 Proprietary Rights. Other than the service mark, trade name and
corporate name "Videotron" and the Videotron logo set forth on Schedule 4.18
of the Disclosure Schedule, Videotron USA holds no proprietary rights.
Videotron USA has not received written notice of any infringement,
misappropriation, or conflict from any third party with respect to its
proprietary rights; to the Knowledge of Videoway and Videotron Canada,
Videotron USA has not infringed, misappropriated or otherwise taken any
actions which conflict with any proprietary rights of any third parties; and
no claim by any third party contesting the validity of any proprietary right
of Videotron USA is currently outstanding, or to the Knowledge of Videoway and
Videotron Canada, is threatened.
4.19 Insurance. Videotron USA has, with respect to its properties and
businesses, insurance of such a nature, with such terms and in such amounts as
would reasonably be maintained with respect to similar properties and a
similar business. Schedule 4.19 of the Disclosure Schedule under the title
"Videotron Insurance" identifies (indicating policy owners, carriers and
effective dates) all policies of insurance, including insurance providing
benefits for employees, owned, held or maintained by or for the benefit of
Videotron USA or under which Videotron USA is a named insured on the date
hereof. All such policies are in full force and effect and no notice of
cancellation or termination has been received with respect to such insurance
except as set forth on the Disclosure Schedule under such caption.
4.20 Real Property.
(a) Videotron USA does not own any real property.
(b) Videotron USA does not lease, hold or operate any real property owned
by a third party. There is no lease, sublease, material easement, grant or
similar instrument relating to or affecting real property or any interest
therein to which Videotron USA is a party or by which its assets is bound.
A-32
<PAGE>
4.21 Personal Property. Videotron does not own any machinery, equipment,
vehicles, furniture or other personal property having an original purchase
price per item in excess of $5,000 and not expensed by Videotron USA at the
time of purchase or fully depreciated before August 31, 1995.
4.22 Personal Property Leases. Videotron USA does not lease, hold or operate
any machinery, equipment, vehicle or other tangible personal property owned by
a third party.
4.23 Ownership of Stock. Videoway owns of record and beneficially the number
of shares of Class A Common Stock of Videotron USA indicated opposite its name
in Schedule A hereto, with full right and authority to deliver such shares
hereunder, and upon delivery of such shares hereunder in exchange for the
Videotron Cash Amount and shares of PTG Common Stock, Newco will receive good
title thereto, free and clear of all Liens and not subject to any agreements,
contracts, obligations, promises or undertakings (whether written or oral)
among any Persons with respect to the voting or transfer of such shares other
than those arising under agreements to which PTG is a party.
4.24 Disclosure. No representation or warranty of Videotron USA, Videoway or
Videotron Canada contained in this Agreement and no statement of Videotron
USA, Videoway or Videotron Canada contained in the Disclosure Schedule or the
Disclosure Schedule Supplement, if applicable, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements made herein or therein, with respect to the respective subject
matters of such representations, warranties or statements, in light of the
circumstances under which they were made, not misleading.
4.25 Information Supplied. None of the information supplied or to be
supplied by Videotron USA for inclusion in the Registration Statement to be
filed with the SEC by PTG in connection with the issuance of the PTG Common
Stock, including the Proxy Statement included therein, at the date such
information is supplied and at the time of the TTI Shareholders' Meeting,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading or will, in the case
of the Registration Statement at the time the Registration Statement becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TTI
Except as expressly set forth in the Disclosure Schedule, TTI represents and
warrants to PTG, Newco I and Newco II that the following statements are true
and correct:
5.01 Corporate Organization. TTI is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. TTI has full power and authority to carry on its business as it
is now being conducted and to own the properties and assets it now owns, and
is duly qualified or licensed to do business as a foreign corporation in good
standing in every jurisdiction in which its ownership of property or the
conduct of its business requires such qualification or licensing except where
the failure to be so qualified or licensed would not have a material adverse
effect on the Financial Status of TTI, on the System or on the ability of TTI
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. No amendment or other document relating to the
Certificate of Incorporation of TTI has been filed in the Office of the
Secretary of State of Pennsylvania since .
5.02 Execution, Delivery and Enforceability of Agreement. TTI has all
requisite power and authority (corporate and other) to enter into this
Agreement and to perform its or his obligations hereunder. TTI has taken all
corporate actions necessary to be taken by it to authorize the execution and
delivery of this Agreement and
A-33
<PAGE>
the transactions contemplated hereby, except that the approval of the
shareholders of TTI has not yet been obtained. This Agreement has been
executed and delivered by TTI and constitutes the legal, valid and binding
obligation of TTI, enforceable against it in accordance with its terms. On or
prior to the Closing Date, the Escrow Agreement will have been duly executed
and delivered by TTI and will constitute the legal, valid and binding
obligation of TTI, enforceable against it in accordance with its terms.
5.03 No Violation. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by TTI will not (a)
violate any provision of TTI's Certificate of Incorporation or Bylaws, (b)
violate, or constitute a default under, or permit the termination or
acceleration of the maturity of, any indebtedness for borrowed money of TTI,
(c) except as set forth on Schedule 3.08 of the Disclosure Schedule under the
caption "Consents," violate, or constitute a default under, or permit the
termination of, or trigger a right of first refusal under, or cause the loss
of any rights or options under (i) any System Agreement or Contract or (ii)
any material agreement, understanding or instrument to which TTI is a party or
by which it or its properties is bound, (d) result in the creation or
imposition of any Lien upon any of the assets or properties of TTI or any of
its Subsidiaries or (e) violate any Legal Requirement to which TTI or any of
its Subsidiaries is subject.
5.04 Consents and Approvals. Except as set forth on Schedule 3.08 of the
Disclosure Schedule, the execution, delivery and performance by TTI of this
Agreement and the consummation by TTI of the transactions contemplated hereby
do not require the consent, approval, license or authorization of, notice to,
or declaration, filing or registration with, any third party or Governmental
Authority and will not result in the breach, default, impairment or forfeiture
of any rights under any material agreements, contract, instrument, obligation,
promise or undertaking (whether written or oral) to which TTI is a party or by
which it or its properties is bound.
5.05 Litigation. Except as set forth on Schedule 5.05 of the Disclosure
Schedule, there is no action, suit or proceeding pending or, to the Knowledge
of TTI, threatened which questions the legality or propriety of the
transactions contemplated by this Agreement.
5.06 Ownership of Stock. TTI owns of record and beneficially the number of
shares of Common Stock of WHI and VBAI indicated opposite its name in Schedule
A hereto, with full right and authority to deliver such shares hereunder, and
upon delivery of such shares hereunder in exchange for shares of PTG Common
Stock, Newco will receive good title thereto, free and clear of all Liens and
not subject to any agreements, contracts or obligations (whether written or
oral) among any Persons with respect to the voting or transfer of such shares
other than those arising under agreements to which PTG is a party.
5.07 Disclosure. No representation or warranty of TTI contained in this
Agreement and no statement of TTI contained in the Disclosure Schedule or the
Disclosure Schedule Supplement, if any, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements made herein or therein, with respect to the respective subject
matters of such representations, warranties or statements, in light of the
circumstances under which they were made, not misleading.
5.08 Information Supplied. None of the information supplied or to be
supplied by TTI for inclusion in the Registration Statement to be filed with
the SEC by PTG in connection with the issuance of the PTG Common Stock,
including the Proxy Statement included therein, at the date such information
is supplied and at the time of the TTI Shareholders' Meeting, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading or will, in the case of the Registration Statement at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
A-34
<PAGE>
ARTICLE VA
REPRESENTATIONS AND WARRANTIES OF F. LORENZO CRUTCHFIELD AND LANCE V.
D'AMBROSIO
F. Lorenzo Crutchfield, severally as to himself, and Lance V. D'Ambrosio,
severally and as to himself, represent and warrant to PTG, Newco I and Newco
II that the following statements are true and correct:
5.01A Execution, Delivery and Enforceability of Agreement. This Agreement
has been executed and delivered by such shareholder and constitutes the legal,
valid and binding obligation of such shareholder, enforceable against him in
accordance with its terms.
5.02A No Violation. The execution and delivery and the consummation of the
transactions contemplated hereby by such shareholder will not (a) violate, or
constitute a default under, or permit the termination or acceleration of the
maturity of, any indebtedness for borrowed money of such shareholder, (b)
except as set forth on Schedule 3.08 of the Disclosure Schedule under the
caption "Consents," violate, or constitute a default under, or permit the
termination of, or trigger a right of first refusal under, or cause the loss
of any rights or options under (i) any System Agreement or Contract or (ii)
any material agreement, understanding or instrument to which such shareholder
is a party or by which he or his properties is bound, (c) result in the
creation or imposition of any Lien upon any of the assets or properties of
such shareholder or (d) violate any Legal Requirement to which is subject.
5.03A Consents and Approvals. Except as set forth on Schedule 3.08 of the
Disclosure Schedule, the execution, delivery and performance by such
shareholder of this Agreement and the consummation by such shareholder of the
transactions contemplated hereby do not require the consent, approval, license
or authorization of, notice to, or declaration, filing or registration with,
any third party or Governmental Authority and will not result in the breach,
default, impairment or forfeiture of any rights under any material agreements,
contract or obligation (whether written or oral) to which such shareholder is
a party or by which he or his properties is bound.
5.04A Litigation. There is no action, suit or proceeding pending against
such shareholder which questions the legality or propriety of the transactions
contemplated by this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PTG AND NEWCO
PTG, Newco I and Newco II hereby jointly and severally represent and warrant
to each of the Sellers, the Principal Shareholders and the TTI Shareholder
that the following statements are true and correct:
6.01 Corporate Organization. Each of PTG, Newco I and Newco II is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, and is duly qualified or licensed to
do business as a foreign corporation in good standing in every jurisdiction in
which its ownership of property or the conduct of its business requires such
qualification or licensing, except where the failure to be so qualified or
licensed would have a material adverse effect on the Financial Status of PTG,
Newco I or Newco II, as the case may be, or on its ability to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
6.02 Capitalization. The entire authorized capital stock of PTG consists of
one billion, one hundred million (1,100,000,000) shares of PTG Common Stock,
$0.10 par value and fifty million (50,000,000) shares of PTG preferred stock,
$0.10 par value. As of September 30, 1995, 428,399,646 shares of PTG Common
Stock were issued and outstanding. All of the shares of PTG Common Stock
issuable to the Sellers pursuant to this Agreement will be, when issued,
validly issued, fully paid and nonassessable, free of any Liens, except for
restrictions under Rule 145. All of the shares of PTG Common Stock issuable to
the Sellers pursuant to this Agreement will be, when issued, voting stock.
A-35
<PAGE>
6.03 SEC Filings. Since January 1, 1993, PTG has filed all proxy statements
or reports required to be filed by it with the SEC pursuant to the Exchange
Act. As of its filing date, each such statement or report complied in form in
all material respects to all requirements of the Exchange Act. PTG has
delivered to the Sellers a copy of its Annual Report on Form 10-K for the year
ended December 31, 1994, its Proxy Statement, including 1994 Consolidated
Financial Statements (the "PTG Proxy Statement"), its Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995, its Current
Report on Form 8-K dated September 7, 1995 and its Current Report on Form 8-K
dated April 19, 1995. As of its filing date, no such report or statement filed
pursuant to the Exchange Act contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
6.04 No Adverse Changes. From June 30, 1995 to the date of this Agreement,
except to the extent disclosed in any reports or statements filed pursuant to
the Exchange Act as of or prior to the date hereof, there has been no material
adverse change in the Financial Status of PTG. As of the date of this
Agreement, PTG knows of no loss contingency within the meaning of Statement of
Financial Accounting Standards No. 5 which has not been disclosed in the
financial statements of PTG referred to in Section 6.08 or which has not been
publicly disclosed which may have a material adverse effect on the Financial
Status of PTG.
6.05 Authorization. Each of PTG, Newco I and Newco II has all requisite
power and authority (corporate and other) to enter into this Agreement and to
perform its obligations under this Agreement. Each of PTG, Newco I and Newco
II has taken all corporate action required to be taken by law and its
Certificate of Incorporation and Bylaws to authorize and approve the execution
and delivery of this Agreement, the performance of its obligations hereunder
and the consummation of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by each of PTG, Newco I and Newco II and
is the valid and binding obligation of each of PTG, Newco I and Newco II,
enforceable against each of them in accordance with its terms. On or prior to
the Closing Date, the Escrow Agreement will have been duly executed and
delivered by PTG and will constitute the legal, valid and binding obligation
of PTG, enforceable against it in accordance with its terms.
6.06 No Violation. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by PTG, Newco I and Newco
II will not (a) violate any provision of PTG's, Newco I's or Newco II's
Certificate of Incorporation or Bylaws, (b) violate, or constitute a default
under, or permit the termination or acceleration of the maturity of, any
indebtedness for borrowed money of PTG, Newco I or Newco II, (c) violate, or
constitute a default under, or permit the termination of, any material
agreement, understanding or instrument to which PTG, Newco I or Newco II is a
party or by which it or its properties is bound, (d) result in the creation of
any Lien upon any of the assets or properties of PTG, Newco I or Newco II, or
(e) violate any Legal Requirements to which PTG, Newco I or Newco II is
subject, provided, that neither PTG, Newco I nor Newco II may acquire or
operate Interexchange Facilities without obtaining a waiver of the MFJ.
6.07 Consents and Approvals. Except for the filings under the HSR Act, the
required approval of the FCC with respect to the transfer of the FCC Licenses
to a PTG-designated entity hereunder, the filing of the Registration Statement
with, and the obtaining of such orders from, the SEC and the various state
"blue sky" authorities, the making of such reports under the Exchange Act as
are required in connection with the transactions contemplated by this
Agreement and as set forth in the proviso of Section 6.06(e) above, no
consent, approval, license or authorization of, notice to, or declaration,
filing or registration with, any third party or Governmental Authority is
required to be made or obtained by PTG, Newco I or Newco II in connection with
the execution, delivery and performance of this Agreement by PTG, Newco I or
Newco II or the consummation by them of the transactions contemplated hereby.
6.08 Financial Statements of PTG. The consolidated balance sheets of PTG as
of December 31, 1994 and 1993 and the related statements of income,
stockholders' equity and cash flows for each of the three years ended December
31, 1994 and the independent accountant's report thereon of Coopers & Lybrand,
L.L.P., contained in
A-36
<PAGE>
the PTG Proxy Statement, including 1994 Consolidated Financial Statements, and
the consolidated balance sheets for the quarters ended March 31, 1995 and June
30, 1995 and the related statements of income, stockholders' equity and cash
flows for each of such periods contained in the PTG Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995, have been
prepared in accordance with GAAP during the periods involved (except as
therein described and except that the unaudited financial statements do not
contain footnotes and are subject to normal year-end adjustments) and fairly
present the consolidated financial position of PTG as of the dates thereof and
the consolidated results of its operations, changes in stockholders' equity
and its cash flows for the periods then ended.
6.09 Litigation. There is no action, suit or proceeding pending or, to the
Knowledge of PTG, threatened against PTG, Newco I or Newco II which questions
the legality or propriety of the transactions contemplated by this Agreement
or which would result in a material adverse change to the Financial Status of
PTG.
6.10 Disclosure. No representations or warranties of PTG, Newco I or Newco
II contained in this Agreement contains any untrue statement of a material
fact or omits to state any material fact necessary to make the statements
therein, with respect to the respective subject matters of such
representations, warranties or statements, in light of the circumstances under
which they were made, not misleading.
6.11 Information Supplied. None of the information supplied or to be
supplied by PTG, Newco I or Newco II for inclusion in the Registration
Statement, including the Proxy Statement contained therein, at the time such
information is supplied and at the time of the TTI Shareholders' Meeting,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or will, in the case
of the Registration Statement, at the time the Registration Statement becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
6.12 Investment Intent. Each of Newco I and Newco II is acquiring the
respective Transferred Shares being transferred to it hereunder for its own
account and not with a view to the distribution or resale thereof.
ARTICLE VII
ACTIONS PRIOR TO THE CLOSING DATE BETWEEN THE DATE OF THIS AGREEMENT AND THE
CLOSING DATE:
7.01 Investigation of the Acquired Companies by PTG. PTG and its officers,
employees and authorized representatives (including, without limitation,
independent public accountants and attorneys) shall be afforded complete
access upon reasonable prior notice during normal business hours to the
offices, properties, employees and business and financial records (including
computer files, retrieval programs, work papers and similar documentation) of
the Acquired Companies to the extent PTG shall deem necessary, and shall be
furnished such additional information concerning the Acquired Companies and
the operation of their businesses as shall be reasonably requested, including
all such information as shall be reasonably necessary to enable PTG or its
representatives to verify the accuracy of the representations and warranties
contained in Articles III, IV, V and VA, to verify that the covenants of this
Article VII and in Article IX hereof have been complied with and to determine
whether the conditions set forth in Article X have been satisfied. PTG agrees
that such investigation shall be conducted in such a manner as not to
interfere unreasonably with the operations of the Acquired Companies. No
investigation made by PTG or its representatives hereunder (or any Knowledge
acquired or capable of being acquired in connection therewith) shall affect
PTG's right to indemnification, reimbursement or other remedies based on the
representations, warranties, covenants and obligations of any of the parties
hereto; provided, however, that PTG shall not be entitled to base a claim for
indemnification on alleged falsity of a representation or warranty herein if
Sellers or the Principal Shareholders shall carry the burden of proving that
PTG's Responsible Personnel had actual knowledge of the falsity of said
representation or warranty at the time of execution of this Agreement.
A-37
<PAGE>
7.02 Litigation. Each party shall promptly notify the other of any action,
suit or proceeding that shall be instituted or threatened against such party
to restrain, prohibit or otherwise challenge the legality of any transaction
contemplated by this Agreement and shall use its Best Efforts to diligently
oppose such action, suit or proceeding. The Sellers and the Principal
Shareholders shall promptly notify PTG of any lawsuit, claim, proceeding or
investigation that is instituted, or, to their Knowledge, threatened against
any of the Acquired Companies or any of their respective Affiliates which
would have been listed on the Disclosure Schedule if such lawsuit, claim,
proceeding or investigation had arisen prior to the date hereof.
7.03 Consents and Approvals.
(a) The Sellers and the Principal Shareholders shall use their Best
Efforts and PTG shall reasonably cooperate with Sellers in Sellers' efforts
to obtain all consents and amendments from parties to Contracts, System
Agreements and other agreements. The Sellers, the Principal Shareholders
and PTG shall use their Best Efforts to obtain all consents, amendments or
Permits from Governmental Authorities, which are necessary and required by
the terms thereof, this Agreement, or otherwise for the due and punctual
consummation of the transactions contemplated by this Agreement.
(b) Promptly after the date of this Agreement, the Sellers, the Principal
Shareholders and PTG shall file with the FCC the Transfer Applications or
such other documents as may be necessary or advisable to obtain
authorization for the transfer of control at the Closing of the FCC
Licenses and related transmission facilities to an entity designated by PTG
and any amendments to pending applications for the FCC Licenses to make an
entity designated by PTG the applicant as of the Closing, to the extent
such amendments are permitted by the FCC Rules and regulations (the "FCC
Orders"). The Sellers, the Principal Shareholders and PTG shall use their
respective Best Efforts to prosecute such filings with diligence and shall
diligently oppose any objections to such approvals to the end that each of
the FCC Orders may be obtained and become a "Final Action" (as defined
below) as soon as practicable. The term "Final Action" shall mean an action
of the FCC that has not been reversed, stayed, enjoined, set aside,
annulled, or suspended, with respect to which no timely petition for
reconsideration or administrative or judicial appeal or sua sponte action
of the FCC with comparable effect is pending, and as to which the time for
filing any such petition or appeal (administrative or judicial) or for the
taking of any such sua sponte action of the FCC has expired.
(c) The Sellers, the Principal Shareholders and PTG shall use their
respective Best Efforts to obtain from each of the holders of the FCC
Licenses an executed channel lease, in form satisfactory to PTG in its sole
discretion, leasing the FCC Licenses held by such holder commencing from
the Closing Date. If such lease is so obtained, PTG may, in its sole
discretion, elect to forego transferring the FCC Licenses in accordance
with subsection (b) above and waive the condition set forth in Section
10.15 hereof.
(d) The Sellers and the Principal Shareholders shall cooperate with and
assist PTG and its authorized representatives in order to provide an
efficient transfer of the control or assignment and management of the FCC
Licenses and related transmission facilities and to avoid any undue
interruption in the activities and operations of the business following the
transfer of control of such FCC Licenses and related transmission
facilities to such PTG-designated entity in accordance with FCC Rules. The
Sellers and the Principal Shareholders shall use their respective Best
Efforts to deliver to PTG as many Channels as reasonably possible at the
Closing so long as the option underlying the license is exercisable prior
to Closing. The Sellers shall submit for cancellation to the FCC the
experimental license for the Coeur D'Alene repeater prior to Closing.
7.04 Operations of WHI and VBAI Prior to the Closing Date.
(a) WHI and VBAI shall, and the Sellers and the Principal Shareholders
shall cause such companies to, operate and carry on such companies' and
their Subsidiaries' businesses in the Ordinary Course of Business, except
as contemplated in connection with the Spin-Off. Consistent with the
foregoing, WHI and VBAI shall, and the Sellers and the Principal
Shareholders shall cause WHI and VBAI to, keep and maintain the properties
of WHI, VBAI and their Subsidiaries (other than the Spin-Off Assets) in
reasonably good operating condition, normal wear and tear excepted, and
repair and shall use their Best Efforts consistent
A-38
<PAGE>
with good business practice to maintain the business organization of WHI,
VBAI and their Subsidiaries intact and to use their Best Efforts to
preserve the goodwill of the suppliers, contractors, licensors, employees,
customers, distributors and others having business relations with WHI, VBAI
or any of their respective Subsidiaries. In addition, WHI and VBAI shall,
and the Sellers and the Principal Shareholders shall cause WHI and VBAI to,
timely make all payments due under the Channel Leases, the FCC Licenses and
the System Agreements and to pay all other obligations in a timely manner
substantially in accordance with their terms.
(b) Notwithstanding Section 7.04(a), except as expressly contemplated by
this Agreement (including the Spin-Off) or except with the express written
approval of PTG, neither WHI or VBAI nor any of their respective
Subsidiaries shall, and the Sellers and the Principal Shareholders shall
not permit WHI or VBAI nor any such Subsidiary to:
(i) amend or propose any amendment to WHI's or VBAI's or any such
Subsidiary's Certificate of Incorporation or Bylaws;
(ii) make any change in the business or the operations of WHI, VBAI
or any of their Subsidiaries that is not in the Ordinary Course of
Business or make any expenditure except in accordance with a budget or
budgets approved in writing by PTG from time to time, which approval
will be given if in the reasonable judgment of PTG such expenditure is
necessary to maintaining the value to PTG of the assets being acquired
(which expenditures in any case shall not exceed an average of $400,000
per month), or as otherwise expressly approved in writing by PTG;
(iii) make any capital expenditure or enter into any contract or
commitment therefor, including any expenditure relating to head end,
receiver, transmitter, encoding or other transmitter related equipment,
except in accordance with a budget or budgets approved in writing by
PTG from time to time, which approval will be given if in the
reasonable judgment of PTG such expenditure is necessary to maintaining
the value to PTG of the assets being acquired (which expenditures in
any case shall not exceed an average of $400,000 per month) or as
otherwise expressly approved in writing by PTG;
(iv) purchase, or agree to purchase, any real property or other
assets, except in accordance with a budget or budgets approved in
writing by PTG from time to time, which approval will be given if in
the reasonable judgment of PTG such expenditure is necessary to
maintaining the value to PTG of the assets being acquired (which
expenditures in any case shall not exceed an average of $400,000 per
month) or as otherwise expressly approved in writing by PTG;
(v) sell, lease, transfer or otherwise dispose of, or mortgage or
pledge, or impose or suffer to be imposed any Lien (other than
Permitted Liens) on, any of the properties of WHI, VBAI or any of their
Subsidiaries, or interfere in any material respect with the use or
enjoyment of the property subject thereto;
(vi) issue, deliver, or agree (actually or contingently) to issue or
deliver (whether pursuant to any option or otherwise), or grant or
modify any option, warrant or other right to purchase or otherwise
acquire, any shares of the capital stock of WHI, VBAI or any of their
Subsidiaries or any security convertible into or exchangeable for, any
shares of such capital stock, or issue or agree to issue any bonds,
notes, or other securities, except in connection with the acquisition
of the 6% interest in BAC from the Minority Shareholders provided that
neither PTG nor any of the Acquired Companies suffers any adverse
consequence as a result thereof, including any adverse tax consequences
or restrictions not otherwise contemplated by this Agreement on PTG's
ability to sell any of the assets of the Acquired Companies acquired
hereunder; and provided further that, if the Minority Shareholders
agree to exchange their interest in WHI Stock for PTG Common Stock, the
Minority Shareholders shall agree to become a party to this Agreement
and exchange their shares of WHI Stock for shares of PTG Common Stock
hereunder and that such Minority Shareholders shall acknowledge and
agree to hold PTG harmless from any claims that the Minority
Shareholders have incurred taxes as a result of the transaction;
A-39
<PAGE>
(vii) create, incur or assume, or agree to create, incur or assume,
any indebtedness (other than indebtedness to Videotron USA), or enter
into any contract, agreement, or other commitment which, if in
existence on the date hereof, would have been required to be listed on
the Disclosure Schedule hereto, or make any change or modification in
any of the System Agreements or other Contracts;
(viii) split, combine or reclassify any shares of the capital stock
of WHI, VBAI or any of their Subsidiaries; retire, redeem or otherwise
acquire any shares of the capital stock of WHI, VBAI or any of their
Subsidiaries except in connection with the acquisition of the 6%
interest in BAC from the Minority Shareholders, provided that neither
PTG nor any of the Acquired Companies suffers any adverse consequence
as a result thereof, including any adverse tax consequences or
restrictions not otherwise contemplated by this Agreement on PTG's
ability to sell any of the assets of the Acquired Companies acquired
hereunder; or declare, set aside or pay any dividends or make any other
distributions (whether in cash, stock or other property) in respect of
the capital stock of WHI, VBAI or any of their Subsidiaries, or agree
to any of the foregoing;
(ix) fail to maintain in force, or make any change in the insurance
contemplated by Section 3.20 hereto (or substantially equivalent
replacement coverage) as being maintained by WHI, VBAI and any of their
Subsidiaries;
(x) other than in the Ordinary Course of Business, pay any claim or
discharge or satisfy any Lien or pay any obligation or liability or
waive any right or cancel any debt owed to or claims held by WHI, VBAI
or any of their Subsidiaries, except that VBAI may retire outstanding
debentures in the amount of approximately $65,000 and that a Subsidiary
of WHI may retire a loan in the amount of approximately $5,000;
(xi) solicit or enter into any negotiation or transaction relating to
the merger or consolidation of, or sale of any shares of capital stock
of, or the sale, lease or other disposition of a substantial portion of
the properties or business of WHI, VBAI or any of their Subsidiaries
other than the Spin-Off provided that any agreements entered into in
connection with the Spin-Off comply with the requirements of Section
9.04 hereof;
(xii) agree to any settlement in any action, suit, claim, proceeding
or investigation;
(xiii) make any change in the methods of accounting or accounting
practices applied in the preparation of the Financial Statements;
(xiv) make any change in the compensation or other terms and
conditions of employment of the employees of WHI, VBAI or any of their
Subsidiaries except pursuant to previously scheduled increases
disclosed to PTG in the Disclosure Schedule;
(xv) institute any increase in the benefits provided under any
Benefit Plan or bonus, profit sharing, deferred compensation,
incentive, stock option or stock purchase, or paid time off for
sickness plan, program or arrangement with respect to employees of WHI,
VBAI or any of their Subsidiaries or make any change in the operations
of any of the Benefit Plans or in the documents constituting or
affecting any of the Benefit Plans; or
(xvi) issue any communication to employees or authorized
representatives of employees of WHI, VBAI or any of their Subsidiaries
with respect to compensation, benefits or employment continuation or
opportunity following the Closing.
7.05 Operations of Videotron USA
(a) Videotron USA shall, and Videoway and Videotron Canada shall cause
Videotron USA to, operate and carry on its business only in the Ordinary
Course of Business. Consistent with the foregoing, Videotron USA shall, and
Videoway and Videotron Canada shall cause Videotron USA to, keep and
maintain the properties of Videotron USA in reasonably good operating
condition and repair and shall use their Best Efforts consistent with good
business practice to maintain the business organization of Videotron USA
intact.
A-40
<PAGE>
(b) Notwithstanding Section 7.05(a), except as expressly contemplated by
this Agreement (including the contemplated incurrence and payment of
additional indebtedness from Videotron International Ltee and the making of
additional loans to WHI and VBAI) or except with the express written
approval of PTG, Videotron USA shall not, and Videoway and Videotron Canada
shall not permit Videotron USA to:
(i) amend or propose any amendment to Videotron USA's Certificate of
Incorporation or Bylaws;
(ii) make any change in the business or the operations of Videotron
USA that is not in the Ordinary Course of Business or make any
expenditure;
(iii) make any capital expenditure or enter into any contract or
commitment therefor;
(iv) purchase, or agree to purchase, any real property or purchase,
or agree to purchase, any assets;
(v) sell, lease, transfer or otherwise dispose of or mortgage or
pledge, or impose or suffer to be imposed any Lien on, any of the
properties of Videotron USA, or interfere in any respect with the use
or enjoyment of the property subject thereto;
(vi) issue, deliver, or agree (actually or contingently) to issue or
deliver (whether pursuant to any option or otherwise), or grant or
modify any option, warrant or other right to purchase or otherwise
acquire, any shares of the capital stock of Videotron USA or any
security convertible into or exchangeable for, any shares of such
capital stock, or issue or agree to issue any bonds, notes, or other
securities;
(vii) create, incur or assume, or agree to create, incur or assume,
any indebtedness, or enter into any contract, agreement, or other
commitment, or make any change or modification in any of the Videotron
Contracts;
(viii) split, combine or reclassify any shares of the capital stock
of Videotron USA; retire, redeem or otherwise acquire any shares of the
capital stock of Videotron USA; or declare, set aside or pay any
dividends or make any other distributions (whether in cash, stock or
other property) in respect of the capital stock of Videotron USA, or
agree to any of the foregoing;
(ix) pay any claim or discharge or satisfy any Lien or pay any
obligation or liability or waive any right or cancel any debt owed to
or claims held by Videotron USA;
(x) solicit or enter into any negotiation or transaction relating to
the merger or consolidation of, or sale of any shares of capital stock
of, or the sale, lease or other disposition of a substantial portion of
the properties or business of Videotron USA;
(xi) agree to any settlement in any action, suit, claim, proceeding
or investigation;
(xii) make any change in the methods of accounting or accounting
practices applied in the preparation of the Videotron Financial
Statements;
(xiii) make any change in the compensation or other terms and
conditions of employment of the employees of Videotron USA;
(xiv) institute any increase in the benefits provided under any
Benefit Plan or bonus, profit sharing, deferred compensation,
incentive, stock option or stock purchase, or paid time off for
sickness plan, program or arrangement with respect to employees of
Videotron USA or make any change in the operations of any of the
Benefit Plans or in the documents constituting or affecting any of the
Benefit Plans; or
(xv) issue any communication to employees or authorized
representatives of employees of Videotron USA with respect to
compensation, benefits or employment continuation or opportunity
following the Closing.
7.06 No Other Offers. None of the Acquired Companies (or any of their
respective directors, officers, employees, agents or representatives) nor any
of the Sellers or Principal Shareholders will solicit, encourage or entertain
proposals from or enter into negotiations with or furnish any nonpublic
information to any other person
A-41
<PAGE>
or entity regarding the possible sale of any of the Acquired Companies'
respective businesses, assets or stock. Each of WHI, VBAI and Videotron USA
shall notify PTG promptly of any proposals by third parties with respect to
the acquisition of all or any portion of any of the Acquired Companies'
respective businesses, assets or stock and furnish PTG the material terms
thereof.
7.07 No Announcements. None of the parties hereto shall, without the
approval of the other, make any press release or other announcement concerning
the transactions contemplated by this Agreement or disclose the terms of this
Agreement, except as and to the extent that any such party shall be so
obligated by law, in which case the other parties shall be advised and the
parties shall use their Best Efforts to cause a mutually agreeable release or
announcement to be issued. The parties agree to cause a mutually agreeable
release or announcement to be issued upon execution and delivery of this
Agreement by all parties hereto.
7.08 Antitrust Law Compliance. PTG, the Sellers and the Principal
Shareholders, to the extent required by law, shall file, and Sellers shall use
their Best Efforts to cause F. Lorenzo Crutchfield and Andre Chagnon to file,
if so required under the HSR Act, with the Federal Trade Commission and the
Antitrust Division of the Department of Justice the notifications and other
information required to be filed under the HSR Act, or any rules and
regulations promulgated thereunder, with respect to the transactions
contemplated hereby. Each party warrants that the filings it makes under the
HSR Act shall, in all material respects, be true and accurate and in
accordance with the requirements of the HSR Act. Each party agrees to make
available to the others any information required to satisfy the notification
and filing requirements of the HSR Act. Information exchanged pursuant to this
provision shall receive the confidential treatment specified in Section 16.02
of this Agreement.
7.09 Subsequent Financial Statements.
(a) Prior to the Closing, the Acquired Companies shall, and the Sellers
and the Principal Shareholders shall cause the Acquired Companies to,
deliver to PTG, no later than 30 days after the end of each monthly period
beginning on the Balance Sheet Date through the Closing Date, unaudited
financial statements of the Acquired Companies as of the last day of such
monthly period and for the monthly period then ended and for the period
from the Balance Sheet Date to the end of such monthly period. Each set of
financial statements (including the Pre-Closing Financial Statements) shall
consist of a balance sheet and statements of operations, changes in
shareholders' equity and cash flows and shall be adjusted to reflect the
exclusion of the Spin-Off Assets, the Spin-Off Liabilities, any
intercompany indebtedness, any Outstanding Indebtedness and any Outstanding
Liabilities. On the Pre-Closing Balance Sheet Delivery Date, each of the
Acquired Companies shall deliver unaudited financial statements as of the
Pre-Closing Balance Sheet Date and covering the period from the Balance
Sheet Date to the Pre-Closing Balance Sheet Date (collectively, the "Pre-
Closing Financial Statements").
(b) The Sellers shall deliver to PTG on or prior to the Closing a
statement (the "Officers' Certificate") certified by officers of each of
the Acquired Companies setting forth in reasonable detail, the calculation,
as of the Closing Date, of the Outstanding Indebtedness, the Assumed
Interest on Shareholder Debt, if any, the Distribution Adjustment, the FCC
Adjustment, the Outstanding Liabilities, the Subscriber Adjustment, the PTG
Common Stock Closing Price and the aggregate number of shares of PTG Common
Stock to be exchanged on the Closing Date. Schedule A shall be completed by
the parties hereto on the Closing Date. Any inaccuracies in such
calculation shall be adjusted for in the Post-Closing Adjustment.
7.10 Cooperative Efforts; FCC Adjustment; MFJ Compliance.
(a) The Sellers and Principal Shareholders shall use Best Efforts to seek
FCC grant of the Colocation Applications and the Transfer Applications, and
shall use Best Efforts to cause all FCC Licenses, Channel Licenses, Channel
Leases and Related Facility Licenses to satisfy the FCC Conditions, and
shall use Best Efforts to cause the operations of the Channels to be, at
Closing, in material compliance with all FCC Licenses, Channel Licenses,
Channel Leases and other Legal Requirements, and PTG shall cooperate in
connection therewith. Sellers shall use Best Efforts to obtain and cause to
be filed all necessary no objection letters for the Colocation Applications
prior to any deadline established by the FCC for filing such no
A-42
<PAGE>
objections letters. The Sellers and the Principal Shareholders shall
cooperate with and assist PTG and its authorized representatives in order
to provide an efficient transfer of the control and management of the
Acquired Companies' businesses and to avoid any undue interruption in the
activities and operations of the Acquired Companies' businesses following
the Closing Date in accordance with FCC Rules and policies.
(b) There shall be an adjustment to the purchase price as set forth below
if, at the Closing Date, WHI, VBAI or their Subsidiaries do not have rights
to transmit, pursuant to FCC Licenses or Channel Leases for Channel
Licenses that in each case meet the FCC Conditions, on at least the
following number of Channels: (a) with respect to the Northern Bay Area
System, the Southern Bay Area System and the San Diego System, 55 such
Channels, with the purchase price decreased by the product of number of
Channels less than 55 so delivered at Closing and $2.0 million; (b) with
respect to the Tampa System, 27 such Channels, with the purchase price
decreased by the product of the number of Channels less than 27 so
delivered at Closing and $1.0 million; (c) with respect to the Seattle
System, 12 such Channels, with the purchase price decreased by the product
of the number of Channels less than 12 so delivered at Closing and $0.50
million; (d) with respect to the Spokane System, 31 such Channels, with the
purchase price decreased by the product of the number of Channels less than
31 so delivered at Closing and $0.25 million; (e) with respect to the
Greenville System, 25 such Channels, with the purchase price decreased by
the product of the number of Channels less than 25 so delivered and $0.25
million; and (f) with respect to the Victorville System, 20 such Channels,
with the purchase price decreased by the product of the number of Channels
less than 20 so delivered at Closing and $0.25 million; provided, however,
that in no event shall such adjustments exceed $15 million in the
aggregate. The purchase price adjustments set forth above are referred to
as the "FCC Adjustment." If a Closing occurs and an FCC Adjustment has been
deducted from the purchase price, Sellers shall be provided an opportunity
to satisfy any FCC Conditions with respect to a Channel if such FCC
Conditions are so cured no later than the later of March 31, 1996 or thirty
days after the Closing Date (the "Cure Period"). If such Channel is so
cured during the "Cure Period," then any FCC Adjustment deducted from the
purchase price pursuant to Section 2.01 hereof shall be deemed cured for
purposes of the calculation of the Post-Closing Adjustment set forth in
Section 14.03.
(c) PTG may, in its sole discretion, incur PTG Expenses from the date of
Closing through the Cure Period. Such PTG Expenses shall be included in the
Post-Closing Adjustment as contemplated by Section 14.03.
(d) If required by the MFJ, PTG, the Sellers and Principal Shareholders
shall each use their Best Efforts to cooperate in the transfer of any
Interexchange Facilities to a third party prior to Closing. If any approval
under the MFJ including a waiver to acquire and operate Interexchange
Facilities should become necessary to obtain prior to the Closing, PTG
shall use its Best Efforts to obtain such approval prior to the Closing or
otherwise comply with the MFJ, and the Sellers and Principal Shareholders
shall cooperate in connection therewith.
7.11 Acquisition of Minority Shares of BAC. The Sellers and Principal
Shareholders shall use their Best Efforts to cause the acquisition of the
shares of BAC's Common Stock held by the Minority Shareholders prior to the
Closing.
7.12 Disclosure Schedule Supplement. Between the date of this Agreement and
the Closing Date, the Sellers and the Principal Shareholders shall notify the
Buyer in writing in a supplement to the Disclosure Schedule (the "Disclosure
Schedule Supplement") in form reasonably acceptable to PTG if any of the
Sellers or the Principal Shareholders become aware of any fact or condition
arising after the date of this Agreement that causes or constitutes a breach
of any of Sellers' or the Principal Shareholders' representations and
warranties contained herein (including in the Disclosure Schedule). The
parties acknowledge that the intent of this provision is to allow the Sellers
and the Principal Shareholders to update the Disclosure Schedule to reflect
occurrences after the date of this Agreement, primarily with respect to issues
relating to pending FCC matters relating to the Channels. To the extent that
any such Disclosure Schedule Supplement shall not disclose any event or
condition that, individually or in the aggregate, could be reasonably likely
to have a material adverse effect on the Financial
A-43
<PAGE>
Status of the Acquired Companies, on the System, or on any of the Tampa
System, the Northern Bay Area System or the Southern Bay Area System (other
than any actions, proceedings and objections involving American Telecasting
Inc., Gavilon or Affiliates of ATI), such Disclosure Schedule Supplement shall
be deemed accepted by PTG and the relevant Section of the Disclosure Schedule
shall be deemed amended accordingly thereby; provided, however, that to the
extent that the event or condition disclosed in the Disclosure Schedule
Supplement occurred prior to the date hereof, PTG shall have recourse to the
indemnification provisions of Article XV with respect to any Loss or Expense
relating to such disclosed event or condition. In all other cases, the updated
Section, as so amended, will be used for purposes of determining whether there
is a breach or misrepresentation.
7.13 Tax-Free Reorganization. TTI, the TTI Shareholder, PTG and Newco I
intend that the Exchange between TTI and Newco I described in the fourth
recital to this Agreement (the "TTI Exchange") qualify as a tax-free
reorganization within the meaning of Section 368(a)(1)(C) of the Code;
provided, however, that no party hereunder makes any representations or
warranties that such Exchange so qualifies. TTI, the TTI Shareholder, PTG, and
Newco I agree not to take a position on a Tax Return or before any
Governmental Authority that is inconsistent with the tax treatment described
in this Section 7.13 unless required by a final and binding determination or
resolution by a Governmental Authority with appropriate jurisdiction. In
furtherance of the intent to qualify the TTI Exchange as a tax-free
reorganization, PTG and Newco I represent and covenant to TTI and the TTI
Shareholder and TTI and the TTI Shareholder represent and covenant to PTG and
Newco as follows:
(a) Representations and Covenants of PTG and Newco I:
(i) PTG's principal reasons for participating in the TTI Exchange are
bona fide business purposes not related to taxes.
(ii) Prior to the TTI Exchange, PTG will be in "Tax Control" of Newco
I. As used herein, "Tax Control" of a corporation shall consist of
direct ownership of shares of stock possessing at least eighty percent
(80%) of the total combined voting power of all classes of stock of
such corporation entitled to vote and at least eighty percent (80%) of
the total number of shares of all other classes of stock of such
corporation. For purposes of determining Tax Control, a person shall
not be considered to own shares of voting stock if rights to vote such
shares (or rights to restrict or otherwise control the voting of such
shares) are held by a third party (including a voting trust) other than
an agent of such person.
(iii) PTG will not cause Newco I to issue additional shares of
capital stock after the TTI Exchange, or take any other action that
would result in PTG not being in Tax Control of Newco I.
(iv) PTG has no plan or intention to reacquire from the former TTI
Shareholders any shares of PTG Common Stock to be issued pursuant to
the TTI Exchange.
(v) Except for transfers described in (S)368(a)(2)(C) of the Code,
PTG will not cause Newco I to, directly or indirectly, sell or
otherwise dispose of the assets acquired from TTI pursuant to a plan or
intent existing at the time of the TTI Exchange, except for (a) assets
disposed of in the Ordinary Course of Business, or (b) assets disposed
of where the proceeds therefrom will be used in connection with
operating wireless cable television systems, TTI's historic business
activity.
(b) Representations and Covenants of TTI:
(i) Pursuant to the terms of this Agreement, Newco I will acquire
substantially all of the assets of TTI. Specifically, at least ninety
percent (90%) of the fair market value of the net assets and at least
seventy percent (70%) of the fair market value of the gross assets held
by TTI immediately prior to the TTI Exchange will be acquired by Newco
I in the TTI Exchange. For the purpose of determining the percentage of
TTI's net and gross assets held by TTI immediately prior to the TTI
Exchange, the following assets will be treated as property held by TTI
immediately prior to the TTI Exchange: (a) assets disposed of by TTI
prior to the TTI Exchange and in contemplation thereof (including,
without limitation, any asset disposed of by TTI, other than in the
ordinary course of business, pursuant to a plan or intent existing
during the period beginning with the commencement of negotiations
(whether formal or informal) with PTG regarding the TTI Exchange and
ending at the closing of the
A-44
<PAGE>
TTI Exchange (the "Pre-Exchange Period")); (b) assets used by TTI to
pay expenses or liabilities incurred in connection with the TTI
Exchange; and (c) assets used to make distribution, redemption or other
payments in respect of shares of TTI stock or rights to acquire such
stock (including payments treated as such for tax purposes) that are
made in contemplation of the TTI Exchange or that are related thereto.
(ii) Other than in the Ordinary Course of Business, TTI has made no
transfer of any of its assets (including any distribution of assets
with respect to, or in redemption of, stock) (a) in contemplation of
the TTI Exchange or (b) during the Pre-Exchange Period.
(iii) Except with respect to the Spin-off Assets, for purposes of
Treasury Regulation (S)1.368-1(d), TTI operates or is deemed to operate
at least one significant historic business line and/or owns or is
deemed to own a significant portion of its historic business assets.
Pursuant to the TTI Exchange, TTI will transfer at least one
significant historic business line and/or a significant portion of its
historic business assets to Newco I.
(iv) TTI's principal reasons for participating in the TTI Exchange
are bona fide business purposes not related to taxes.
(v) TTI has no Knowledge of, and believes that there does not exist,
any plan or intention on the part of shareholders (or any shareholder)
of TTI to engage in a sale, exchange, transfer, distribution, pledge,
disposition or any other transaction which would result in a reduction
in the risk of ownership or a direct or indirect disposition (a "Sale")
of shares of PTG stock to be received in the plan of liquidation
pursuant to the TTI Exchange that would reduce the ownership of all TTI
shareholders of such stock to a number of shares having an aggregate
fair market value, as of the closing of the TTI Exchange, of less than
fifty percent (50%) of the aggregate fair market value, of TTI stock
outstanding immediately prior to the consummation of the TTI Exchange.
(vi) All of the WHI Stock and VBAI Stock owned by TTI will be
exchanged solely for shares of PTG voting stock. Thus, TTI intends that
no consideration be paid or received (directly or indirectly, actually
or constructively) for the TTI assets being transferred to Newco I in
the Exchange other than shares of PTG voting stock.
(vii) TTI and the TTI Shareholder will pay separately its or his own
expenses relating to the TTI Exchange;
(viii) TTI has adopted a plan of complete liquidation pursuant to
which TTI will liquidate and distribute the PTG Common Stock (other
than those subject to the Escrow Agreement) received in the TTI
Exchange to the TTI Shareholders as soon as reasonably possible after
the TTI Exchange and in no event later than twelve months after the TTI
Exchange.
(c) Representations and Covenants of the TTI Shareholder:
The TTI Shareholder does not have any plan or intention to engage in
a sale, exchange, transfer, distribution, pledge, disposition, or any
other transaction which would result in a reduction in the risk of
ownership or a direct or indirect disposition of shares of PTG stock to
be received in the plan of liquidation pursuant to the TTI Exchange
that would reduce the TTI Shareholder's ownership of such stock to a
number of shares having an aggregate fair market value, as of the
closing of the TTI Exchange, of less than seventy percent (70%) of the
aggregate fair market value of TTI stock owned by the TTI Shareholder
immediately prior to the consummation of the TTI Exchange and the TTI
Shareholder has no knowledge of, and believes that there does not
exist, any plan or intention on the part of shareholders (or any
shareholder) of TTI to engage in a sale, exchange, transfer,
distribution, pledge, disposition or any other transaction which would
result in a reduction in the risk of ownership or a direct or indirect
disposition (a "Sale") of shares of PTG stock to be received in the
plan of liquidation pursuant to the TTI Exchange that would reduce the
ownership of all TTI shareholders of such stock to a number of shares
having an aggregate fair market value, as of the closing of the TTI
Exchange, of less than fifty percent (50%) of the aggregate fair market
value, of TTI stock outstanding immediately prior to the consummation
of the TTI Exchange.
7.14 NYSE Listing. PTG shall use its Best Efforts to cause the shares of PTG
Common Stock to be issued in the Exchange to be listed on the New York Stock
Exchange, upon official notice of issuance.
A-45
<PAGE>
ARTICLE VIII
REGISTRATION STATEMENT; TRANSFER RESTRICTIONS
8.01 Registration Statement. As promptly as practicable after the date of
this Agreement, the Sellers and the Principal Shareholders shall provide to
PTG and its counsel for inclusion in a Registration Statement on Form S-4 (the
"Registration Statement") in form and substance satisfactory to PTG and its
counsel, such information concerning the Acquired Companies, the Sellers, the
Principal Shareholders and the TTI Shareholder and their respective
operations, capitalization, share ownership and other material as PTG or its
counsel may reasonably request. As promptly as practicable after the date of
this Agreement, TTI shall provide to PTG and its counsel for inclusion in the
Registration Statement an opinion of an investment banker, in form
satisfactory to PTG and its counsel, as to the fairness of the transaction
from the point of view of the TTI Shareholders. As promptly as practicable
after receipt of such information and opinion, PTG shall prepare and file with
the SEC the Registration Statement, in which the Proxy Statement will be
included as a prospectus. Each of PTG and the Sellers and the Principal
Shareholders shall use its Best Efforts to respond to any comments of the SEC,
to have the Registration Statement declared effective under the Securities Act
as promptly as practicable after such filing and to cause the Proxy Statement
to be mailed to TTI's shareholders at the earliest practicable time. PTG, the
Sellers and the Principal Shareholders will notify each other promptly of the
receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff or any other government officials for amendments or
supplements to the Registration Statement or the Proxy Statement or for
additional information and will supply each other with copies of all
correspondence between itself or any of its representatives, on the one hand,
and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Registration Statement, the Proxy Statement or the
Exchange. The Proxy Statement and the Registration Statement shall comply in
all material respects with all applicable Legal Requirements. Whenever any
event occurs which should be set forth in an amendment or supplement to the
Proxy Statement or the Registration Statement, the Sellers, the Principal
Shareholders or PTG, as the case may be, shall promptly inform each other of
such occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to shareholders of TTI, such amendment or
supplement. The Proxy Statement shall include the unanimous recommendation of
the Board of Directors of TTI that the shareholders of TTI approve the
Exchange.
8.02 145 Affiliates. Schedule 8.02 of the Disclosure Schedule sets forth
those persons who are, in Sellers' reasonable judgment, "affiliates" of the
Acquired Companies within the meaning of Rule 145 (each such person, together
with the persons identified below, "145 Affiliate") promulgated under the
Securities Act ("Rule 145"), including without limitation, the TTI
Shareholder.
8.03 Limited Resales. The Acquired Companies shall use their Best Efforts to
deliver or cause to be delivered to PTG, promptly after the execution of this
Agreement, from each of the 145 Affiliates identified in Schedule 8.02 an
Affiliate Agreement in which each 145 Affiliate will agree that PTG shall be
entitled to place appropriate legends on the certificates evidencing any PTG
Common Stock to be received by such 145 Affiliates pursuant to the terms of
this Agreement (the "Restricted Securities"), and to issue appropriate stop
transfer instructions to the transfer agent for PTG Common Stock, consistent
with the terms of such 145 Affiliates Agreements and that each 145 Affiliate
agrees and acknowledges that the provisions of Rule 145 currently limit such
145 Affiliate's public resales of Restricted Securities, in the manner set
forth in subsections (a), (b) and (c) below:
(a) Unless and until the restriction "Cut-off" provisions of Rule
145(d)(2) or Rule 145(d)(3) set forth below become available, public
resales of Restricted Securities may only be made by a 145 Affiliate in
compliance with the requirements of Rule 145(d)(1). Rule 145(d)(1) permits
such resales only: (i) while PTG meets the public information requirements
of Rule 144(c); (ii) in broker's transactions or in transactions with a
market maker; and (iii) where the aggregate number of Restricted Securities
sold at any time together with all sales of restricted PTG Common Stock
sold for such 145 Affiliate's account during the preceding three-month
period does not exceed the greater of (A) 1% of the PTG Common Stock
outstanding or (B) the average weekly volume of trading in PTG Common Stock
on all national securities
A-46
<PAGE>
exchanges, or reported through the automated quotation system of a
registered securities association, during the four calendar weeks preceding
the date of receipt of the order to execute the sale.
(b) A 145 Affiliate may make unrestricted sales of Restricted Securities
pursuant to Rule 145(d)(2) if: (i) a period of at least two years
(determined pursuant to Rule 144(d) under the Securities Act) has elapsed
since the date the Restricted Securities were acquired from PTG in the
Exchange; (ii) such 145 Affiliate is not an affiliate of PTG; and (iii) PTG
meets the public information requirements of Rule 144(c).
(c) A 145 Affiliate may make unrestricted sales of Restricted Securities
pursuant to Rule 145(d)(3) if a period of at least three years (determined
pursuant to Rule 144(d) under the Securities Act) has elapsed since the
date the Restricted Securities were acquired from PTG in the Exchange and
such Rule 145 Affiliate is not, and has not been for the last three months,
an affiliate of PTG.
(d) PTG acknowledges that the provisions of this Section will be
satisfied as to any sale by a 145 Affiliate of the Restricted Securities
pursuant to Rule 145(d) by a broker's letter and a letter from the 145
Affiliate with respect to that sale stating that each of the above-
described requirements of Rule 145(d)(1) has been met or is inapplicable by
virtue of Rule 145(d)(2) or Rule 145(d)(3); provided, however, that PTG has
no reasonable basis to believe that such sales were not made in compliance
with such provisions of Rule 145(d).
The restrictions set forth in the Affiliate Agreement shall be subject to
any changes in Rule 145 that are or become effective after the Closing Date.
8.04 Legends. Stop transfer instructions will be given to PTG's transfer
agent with respect to certificates evidencing the Restricted Securities and
there will be placed on the certificates evidencing the Restricted Securities
legends stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD,
PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE OTHER CONDITIONS SPECIFIED IN THAT CERTAIN AFFILIATES AGREEMENT
DATED AS OF AMONG PACIFIC TELESIS GROUP AND THE SHAREHOLDER, A COPY OF
WHICH AFFILIATES AGREEMENT MAY BE INSPECTED BY THE HOLDER OF THIS
CERTIFICATE AT THE OFFICES OF PACIFIC TELESIS GROUP. PACIFIC TELESIS GROUP
WILL FURNISH, WITHOUT CHARGE, A COPY THEREOF TO THE HOLDER OF THIS
CERTIFICATE UPON WRITTEN REQUEST THEREFOR."
PTG agrees to remove promptly such stop transfer instructions and legend
upon full compliance with this Agreement by the 145 Affiliate, including,
without limitation, a sale or transfer of PTG Common Stock permitted under
Section 8.03(c) above.
8.05 Videotron Share Release. The Principal Shareholders agree that any
shares of PTG Common Stock received by Videoway in the Exchange shall be
subject to the following resale restrictions: (i) Videoway shall not sell more
than 400,000 shares of PTG Common Stock over a five-day trading period; (ii)
Videoway shall not sell more than 100,000 shares of PTG Common Stock in a
given trading day; and (iii) once the aggregate number of shares of PTG Common
Stock held by Videoway equals less than 500,000 (excluding any shares held
pursuant to the Escrow Agreement), Videoway may sell up to 200,000 shares per
day with no weekly restrictions.
A-47
<PAGE>
ARTICLE IX
OTHER AGREEMENTS OF THE PARTIES
The parties hereto additionally covenant and agree that:
9.01 Further Documents and Assurances.
(a) Each of the Sellers, the Principal Shareholders and the Acquired
Companies agrees to execute, acknowledge and deliver or cause to be
delivered, both before and after the Closing, such other deeds, documents,
affidavits and certificates as may be reasonably necessary and required
from time to time to confirm this Agreement and the performance of the
obligations of such Persons under the terms hereof, in such form and
substance as shall be reasonably satisfactory to PTG; provided that such
documents shall not expand the representations and warranties or
obligations of any of such Persons hereunder.
(b) PTG agrees to execute, acknowledge and deliver or cause to be
delivered, both before and after the Closing, such other deeds, documents,
affidavits and certificates as may be reasonably necessary and required
from time to time to confirm this Agreement and the performance of the
obligations of PTG under the terms hereof, in such form and substance as
shall be reasonably satisfactory to the Sellers; provided that such
documents shall not expand the representations and warranties or
obligations of PTG hereunder.
(c) Each party hereby agrees to use its Best Efforts to consummate the
transactions contemplated hereby at the earliest practicable time.
9.02. Tax Returns and Related Matters of WHI, VBAI and their
Subsidiaries. The following provisions shall govern the allocation of
responsibility for the Tax Returns of WHI, VBAI and their Subsidiaries and
related matters.
(a) Tax Returns. The Sellers and the Principal Shareholders shall cause
Deloitte & Touche or KPMG Peat Marwick LLP to prepare and the Sellers and
the Principal Shareholders shall timely file all Tax Returns not already
filed for WHI, VBAI and their Subsidiaries for all tax periods ended or
ending on or before the Closing Date and shall cause Deloitte & Touche or
KPMG Peat Marwick LLP to prepare on a pro forma basis all tax returns for
WHI, VBAI and their Subsidiaries, for the interim period described in the
last sentence of Section 9.02(c) hereof. Such tax returns shall be prepared
based upon the calculation of the Distribution Adjustment set forth in
Section 3.15(k) hereof. Sellers shall be responsible for the preparation
and timely filing of all Tax Returns for WHI, VBAI and their Subsidiaries
for all tax periods prior to the Closing Date. PTG shall be responsible for
the preparation and timely filing of all Tax Returns for all tax periods
ending after the Closing Date. The Sellers (or their designees) shall send
a copy of all Tax Returns and any pro forma tax returns as to which they
are responsible to PTG for its review and comment and, if required,
appropriate execution, at least thirty (30) days prior to the filing
thereof; provided, however, that in the event of any dispute concerning any
item reported on such Tax Returns or pro forma tax returns, the
determination of an independent accounting firm selected mutually by PTG
and the Sellers that the tax treatment proposed by the Sellers is
reasonable shall be final and binding on the parties; provided, further,
however, that if PTG reasonably objects to any position taken on such Tax
Returns or pro forma tax returns, then such returns shall be prepared based
upon the position determined by PTG but, in such event, the indemnification
under Section 9.02 hereof, except for the indemnification set forth in
Section 9.02(b)(ii)(D), shall be calculated based on the position
originally taken on such returns.
(b) Tax Indemnity. Subject and pursuant to the provisions of Article XV,
from and after the Closing Date, PTG, its Subsidiaries and the Acquired
Companies shall be indemnified and held harmless (i) in respect of the
Distribution Adjustment to the extent not taken into account under Section
2.01 hereof and (ii) from any and all Taxes (including without limitation
any obligation to contribute to the payment of a Tax determined on a
consolidated, combined or unitary basis with respect to a group of
corporations that includes or included any of WHI, VBAI or their
Subsidiaries) which are imposed on any of WHI, VBAI or their Subsidiaries
in respect of its income, business, property or operations or for which any
of WHI, VBAI or their Subsidiaries may otherwise be liable (A) for any pre-
closing period, (B) resulting by reason of the
A-48
<PAGE>
several liability of WHI, VBAI or their Subsidiaries pursuant to Treasury
Regulations section 1.1502-6 or any analogous state, local or foreign law
or regulation or by reason of any of WHI, VBAI or their Subsidiaries having
been a member of any consolidated, combined or unitary group on or prior to
the Closing Date, (C) in respect of any post-closing period, attributable
to any election, change in accounting method, or other action taken by any
of WHI, VBAI or their Subsidiaries in respect to any pre-closing period
that has the effect of shifting any item of income or gain properly
attributable to a pre-closing period to a post-closing period, or (D) to
the extent not taken into account under (A) above, in respect of any post-
closing period, attributable to any items of income or gain of an entity
treated as a partnership in which any of WHI, VBAI or their Subsidiaries is
a partner, to the extent such items are properly attributable to periods of
the "partnership" ending on or before the Closing Date.
(c) Apportionment of Taxes between Pre-Closing and Post-Closing
Periods. In order appropriately to apportion any Taxes relating to a period
that includes (but that would not, but for this section, close on) the
Closing Date, the parties hereto will, to the extent permitted by
applicable law, elect with the relevant Governmental Authority to treat for
all purposes the Closing Date as the last day of a taxable period of WHI,
VBAI and their Subsidiaries, and such period (in addition to any period
that actually ends on or before the Closing Date) shall be treated as a
short period and a pre-closing period for purposes of this Agreement. In
any case where applicable law does not permit WHI, VBAI and their
Subsidiaries to treat the Closing Date as the last day of a short period,
then for purposes of this Agreement, the portion of each such Tax that is
attributable to the operations of WHI, VBAI and their Subsidiaries for such
period shall be the Tax that would be due with respect to the interim
period, if such interim period were a short period, any such interim period
shall be treated as a short period and pre-closing period for purposes of
this Agreement.
(d) Contest. The Sellers (or their designee) shall have the sole right to
represent the interests of Sellers in and to control, compromise or settle
any tax audit or administrative or court proceeding (collectively,
"Proceedings") relating to Tax Returns which they have filed pursuant to
Section 9.02(a) and to employ counsel of their choice to represent them in
such Proceedings at their expense at all times keeping PTG informed as to
the progress and positions taken and to be taken in connection with such
Proceedings; provided, however, that the Sellers shall not settle,
compromise or abandon without PTG's prior written consent any claim for Tax
which PTG determines in its sole discretion would have an adverse effect
upon PTG or any of its Subsidiaries, including any of the Acquired
Companies, in any post-closing period to any extent (including, without
limitation, imposition of income tax deficiencies, the reduction of asset
basis or cost adjustments, the lengthening of any amortization or
depreciation periods, the denial of amortization or depreciation
deductions, or the reduction of loss carryforwards). PTG shall have the
sole right to contest any Proceedings relating to Tax Returns for which it
is responsible; provided, however, that PTG shall at all times keep the
Sellers informed of the progress and positions taken and to be taken in any
such Proceedings to the extent that such Proceedings could affect, in PTG's
reasonable good faith judgment, the liability of the Sellers under this
Section 9.02 and PTG shall consider in good faith any reasonable
suggestions regarding such positions and litigation strategy offered by the
Sellers, and PTG shall not settle, compromise or abandon any dispute
concerning an item reported on the pro forma tax returns for which the
Sellers are responsible under Section 9.02(a) hereof without the prior
written consent of the Sellers if the Sellers determine in good faith that
the settlement, compromise or abandonment of such dispute would increase
the liability of the Sellers under Section 9.02(b) hereof for the specific
amount in dispute; provided, however, that if such consent is not given,
the matter shall be settled, compromised or abandoned only upon the
determination of a nationally recognized independent accounting firm
selected by PTG.
(e) Cooperation. Each of the Sellers, the Principal Shareholders and PTG
agree to provide the other party with such cooperation, access to relevant
books and records and information of WHI, VBAI or any of their Subsidiaries
as the other party reasonably may request in connection with (i) the
preparation of any Tax Return of any of WHI, VBAI or any of their
Subsidiaries, (ii) determining any Taxes or right to a refund of any Taxes
of any of WHI, VBAI or any of their Subsidiaries, (iii) responding to an
examination of Tax Returns of any of WHI, VBAI or any of their
Subsidiaries, and (iv) defending against or compromising or settling any
Proceeding in respect of Taxes assessed or proposed to be assessed against
any of WHI, VBAI or any of their Subsidiaries.
A-49
<PAGE>
9.03. Tax Returns and Related Matters of Videotron USA. The following
provisions shall govern the allocation of responsibility for the Tax Returns
of Videotron USA and related matters.
(a) Tax Returns. Videoway or Videotron Canada shall cause Deloitte &
Touche to prepare and Videoway or Videotron Canada shall timely file all
Tax Returns not already filed for Videotron USA, for all tax periods ended
or ending on or before the Closing Date and shall cause Deloitte & Touche
to prepare on a pro forma basis all tax returns for Videotron USA, for the
interim period described in the last sentence of Section 9.03(c) hereof.
Such tax returns shall be prepared based upon the calculation of the
Distribution Adjustment set forth in Section 3.15(k) hereof. Videoway or
Videotron Canada shall be responsible for the preparation and timely filing
of all Tax Returns of Videotron USA for all tax periods prior to the
Closing Date. PTG shall be responsible for the preparation and timely
filing of all Tax Returns for all tax periods ending after the Closing
Date. Videoway or Videotron Canada (or their designees) shall send a copy
of all Tax Returns and any pro forma tax returns as to which they are
responsible to PTG for its review and comment and, if required, appropriate
execution, at least thirty (30) days prior to the filing thereof; provided,
however, that in the event of any dispute concerning any item reported on
such Tax Returns or pro forma tax returns, the determination of an
independent accounting firm mutually selected by PTG and the Sellers that
the tax treatment proposed by the Sellers is reasonable shall be final and
binding on the parties; provided, further, however, that if PTG reasonably
objects to any position taken on such Tax Returns or pro forma tax returns,
then such returns shall be prepared based upon the position determined by
PTG but, in such event, the indemnification under Section 9.03 hereof,
except for the indemnification set forth in Section 9.03(b)(ii)(D), shall
be calculated based on the position originally taken on such returns.
(b) Tax Indemnity. Subject and pursuant to the provisions of Article XV,
from and after the Closing Date, PTG, its Subsidiaries and the Acquired
Companies shall be indemnified and held harmless (i) in respect of the
Distribution Adjustment to the extent not taken into account under Section
2.01 hereof and (ii) from any and all Taxes (including without limitation
any obligation to contribute to the payment of a Tax determined on a
consolidated, combined or unitary basis with respect to a group of
corporations that includes or included Videotron USA) which are imposed on
Videotron USA in respect of its income, business, property or operations or
for which Videotron USA may otherwise be liable (A) for any pre-closing
period, (B) resulting by reason of the several liability of Videotron USA
pursuant to Treasury Regulations section 1.1502-6 or any analogous state,
local or foreign law or regulation or by reason of Videotron USA having
been a member of any consolidated, combined or unitary group on or prior to
the Closing Date, (C) in respect of any post-closing period, attributable
to any election, change in accounting method, or other action taken by
Videotron USA in respect to any pre-closing period that has the effect of
shifting any item of income or gain properly attributable to a pre-closing
period to a post-closing period, or (D) to the extent not taken into
account under (A) above, in respect of any post-closing period,
attributable to any items of income or gain of an entity treated as a
partnership in which Videotron USA is a partner, to the extent such items
are properly attributable to periods of the "partnership" ending on or
before the Closing Date.
(c) Apportionment of Taxes between Pre-Closing and Post-Closing
Periods. In order appropriately to apportion any Taxes relating to a period
that includes (but that would not, but for this section, close on) the
Closing Date, the parties hereto will, to the extent permitted by
applicable law, elect with the relevant Governmental Authority to treat for
all purposes the Closing Date as the last day of a taxable period of
Videotron USA, and such period (in addition to any period that actually
ends on or before the Closing Date) shall be treated as a short period and
a pre-closing period for purposes of this Agreement. In any case where
applicable law does not permit Videotron USA to treat the Closing Date as
the last day of a short period, then for purposes of this Agreement, the
portion of each such Tax that is attributable to the operations of
Videotron USA for such period shall be the Tax that would be due with
respect to the interim period, if such interim period were a short period,
and any such interim period shall be treated as a short period and pre-
closing period for purposes of this Agreement.
(d) Contest. Videoway and Videotron Canada (or their designee) shall have
the sole right to represent the interests of Videoway and Videotron Canada
in and to control, compromise or settle any
A-50
<PAGE>
Proceedings relating to Tax Returns which they have filed pursuant to
Section 9.03(a) and to employ counsel of their choice to represent them in
such Proceedings at their expense at all times keeping PTG informed as to
the progress and positions taken and to be taken in connection with such
Proceedings; provided, however, that Videoway and Videotron Canada shall
not settle, compromise or abandon without PTG's prior written consent any
claim for Tax which PTG determines in its sole discretion would have an
adverse effect upon PTG or any of its Subsidiaries, including any of the
Acquired Companies, in any post-closing period to any extent (including,
without limitation, imposition of income tax deficiencies, the reduction of
asset basis or cost adjustments, the lengthening of any amortization or
depreciation periods, the denial of amortization or depreciation
deductions, or the reduction of loss carryforwards). PTG shall have the
sole right to contest any Proceedings relating to Tax Returns for which it
is responsible; provided, however, that PTG shall at all times keep
Videoway and Videotron Canada informed of the progress and positions taken
and to be taken in any such Proceedings to the extent that such Proceedings
could affect, in PTG's reasonable good faith judgment, the liability of
Videoway and Videotron Canada under this Section 9.03 and PTG shall
consider in good faith any reasonable suggestions regarding such positions
and litigation strategy offered by Videoway and Videotron Canada, and PTG
shall not settle, compromise or abandon any dispute concerning an item
reported on the pro forma tax returns for which Videoway and Videotron
Canada are responsible under Section 9.03(a) hereof without the prior
written consent of Videoway and Videotron Canada if Videoway and Videotron
Canada determine in good faith that the settlement, compromise or
abandonment of such dispute would increase the liability of Videoway and
Videotron Canada under Section 9.03(b) hereof for the specific amount in
dispute; provided, however, that if such consent is not given, the matter
shall be settled, compromised or abandoned only upon the determination of a
nationally recognized independent accounting firm selected by PTG.
(e) Cooperation. Each of Videoway, Videotron Canada and PTG agree to
provide the other party with such cooperation, access to relevant books and
records and information as such party reasonably may requests of them in
connection with (i) the preparation of any Tax Return of Videotron USA,
(ii) determining any Taxes or right to a refund of any Taxes of Videotron
USA, (iii) responding to an examination of Tax Returns of Videotron USA,
and (iv) defending against or compromising or settling any Proceeding in
respect of Taxes assessed or proposed to be assessed against Videotron USA.
9.04 The Spin-off. Schedule 9.04 of the Disclosure Schedule under the title
"Spin-Off" contains a description of certain assets of WHI and VBAI,
including, without limitation, assets relating to the wireline operations in
the Spokane, Washington and Florida markets and the assets of BAC (other than
those relating to the use of the MMDS, ITFS and MDS spectrum including
transmitters, receivers and head end equipment), that will be transferred by
WHI and VBAI to the Sellers or to a third Person or otherwise transferred
prior to the Closing (the "Spin-Off Assets") by execution and delivery of an
instrument of assignment and a description of all liabilities relating to such
Spin-Off Assets (collectively, the "Spin-Off Liabilities"). Such transferee,
the Principal Shareholders and the Sellers, subject to Article XV, shall, by
execution and delivery of an instrument of assumption and indemnity, assume
and hold PTG, the Acquired Companies and their respective affiliates, agents,
officers, directors, employees, successors and assigns harmless from and
against the Spin-Off Liabilities and any Loss or Expense relating to the
ownership, operating use or control of the Spin-Off Assets, whether such
claims, liabilities or obligations arise prior to or after the date of the
Spin-Off. WHI and VBAI shall deliver to PTG copies of all executed instruments
to effect the Spin-Off pursuant to the provisions of this Section 9.04 on the
Closing Date.
9.05 TTI Shareholders Meeting. TTI shall take all action necessary in
accordance with applicable law to call and convene a meeting of the
shareholders of TTI (the "TTI Shareholders' Meeting") to consider, act upon
and vote upon the adoption and approval of this Agreement and the transactions
contemplated hereby and shall use its Best Efforts to obtain such approval.
The TTI Shareholders' Meeting will be held as promptly as practicable after
the date of this Agreement. TTI shall ensure that TTI Shareholders' Meeting is
called, held and conducted, and that all proxies solicited in connection with
the TTI Shareholders' Meeting are solicited in compliance with applicable law.
TTI shall coordinate and cooperate with PTG with respect to the timing of the
TTI Shareholders' Meeting. TTI shall not change the date of the TTI
Shareholders' Meeting without the prior
A-51
<PAGE>
written consent of PTG, nor shall TTI adjourn the TTI Shareholders' Meeting
without the prior written consent of PTG, unless such adjournment is due to
the lack of a quorum, in which case the Chairman of the TTI Shareholders'
Meeting shall announce at such meeting the time and place of the adjourned
meeting.
9.06 Agreement To Vote Shares and Covenant Not to Sue. (a) The TTI
Shareholder and Lance D'Ambrosio agree that, at every meeting of the
shareholders of TTI called with respect to any of the following, and at every
adjournment thereof, and on every action or approval by written consent of the
shareholders of TTI with respect to any of the following, each of such Persons
shall vote all of the shares of capital stock of TTI held by such Person on
the record date for such meeting or consent: (a) in favor of the adoption and
approval of this Agreement; and (b) against approval of any proposal made in
opposition to or competition with consummation of the transactions
contemplated by this Agreement. The TTI Shareholder and Lance D'Ambrosio agree
not to take any actions contrary to such Person's obligations under this
Agreement. Concurrently with the execution of this Agreement, the TTI
Shareholder and Lance V. D'Ambrosio have executed and delivered to PTG an
irrevocable proxy in the form of Exhibit B hereto.
(b) Each of the TTI Shareholder and Lance V. D'Ambrosio covenants and agrees
that he shall not initiate or maintain any action or proceeding against PTG,
Newco or any of their respective officers, directors, employees, shareholders,
affiliates, successors, agents or assigns alleging any Loss or Expense arising
out of or in any way relating to the adequacy of the disclosure contained in
the Registration Statement relating to TTI (including information concerning
the tax-free reorganization, the fairness of the transaction and the
operations of TTI), the TTI Shareholder or the operations of WHI or VBAI.
9.07 Intentionally Deleted.
9.08 VDT. Through the Closing Date, neither PTG nor its affiliates will
become or seek to become a video programmer over any video dial tone systems
authorized by the FCC within 35 miles of any System or within a BTA of any
System, unless (i) the FCC determines that such "video programmer" status does
not make PTG or its affiliate a "cable operator" for purposes of the wireless-
cable cross-ownership prohibition or (ii) the current statutory wireless-cable
cross-ownership prohibition is eliminated.
9.09 Settlement Agreement. Each of TTI, the TTI Shareholder and the Acquired
Companies hereby agrees that this Agreement shall be deemed to have been
executed effective as of October 31, 1995 for purposes of Section 4.2 of that
certain Settlement Agreement dated as of March 31, 1995 between such parties
and this Agreement and the transactions contemplated hereby shall be deemed to
be a Transaction for purposes of Sections 5.1 and 5.2 thereof.
9.10 Tax Returns of TTI. TTI agrees to provide PTG with such cooperation,
access to TTI Tax Returns, relevant TTI books and records, supporting
documentation and information as PTG reasonably may request in connection with
the preparation of any Tax Return of PTG, Newco I or any of their
subsidiaries.
A-52
<PAGE>
ARTICLE X
CONDITIONS TO OBLIGATIONS OF PTG TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED
HEREBY
The obligations of PTG to consummate the purchase of the Transferred Shares
under this Agreement shall, unless waived in writing by PTG, be subject to the
satisfaction on or before the Closing Date of each of the following
conditions, and the Acquired Companies, the Sellers and the Principal
Shareholders shall use their respective Best Efforts to cause each such
condition to be so satisfied:
10.01 Representations and Warranties True. Each of the representations and
warranties of the Acquired Companies, the Sellers and the Principal
Shareholders contained herein shall be true and correct in all material
respects as of the date made and at and as of the Closing Date as though such
representations and warranties were made at and as of the Closing Date, except
(i) for changes specifically permitted by this Agreement (including to the
extent permitted under Section 7.12 hereof), (ii) resulting from any
transaction expressly consented to in writing by PTG, (iii) to the extent that
the representations and warranties set forth in Sections 3.05, 3.06, 3.10,
3.13(b), 3.13(c), 3.13(n), 3.14(a), 3.17(c), 4.05, 4.06, 4.10, 4.11(a) and
4.13(a) expressly refer to a specific date or dates, or (iv) to the extent
that the representations and warranties set forth in Sections 3.09, 3.12, 4.09
or 4.12 relate to compliance with the Communications Act or the satisfaction
of the FCC Conditions as to the Channels.
10.02 Performance. The Acquired Companies, the Sellers and the Principal
Shareholders shall have performed and complied in all material respects with
each of the covenants, agreements and obligations required by this Agreement
to be performed or complied with by them on or prior to the Closing Date.
10.03 Authorization. All actions necessary to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken; and each of the Sellers shall have full power and right to transfer
their respective Transferred Shares all in accordance with the terms and
conditions set forth in this Agreement.
10.04 No Change in Business. Between the Balance Sheet Date and the Closing
Date, there shall have been (a) no material adverse change in the Financial
Status of the Acquired Companies (provided, however, that a change or
deterioration in the Financial Status of the Acquired Companies as a result of
continuing net operating losses incurred in the Ordinary Course of Business
shall not be deemed to be a material adverse change) or in the System, other
than such changes which are expressly permitted hereunder; (b) no material
adverse change in any of the following: the Tampa System, the Northern Bay
Area System or the Southern Bay Area System, (whether resulting from the loss
of Channels, FCC Licenses, System Agreements or any other Contracts or
otherwise if any such loss results in such a material adverse change); (c) no
loss of Subscribers in each of the Tampa System and the Spokane System in
excess of 25% of the number of Subscribers in each such System as of September
1, 1995; and (d) no lawsuits, claims or proceedings filed against or affecting
any of the Acquired Companies or any of their respective properties or
businesses which may result in a material adverse change in the Financial
Status of the Acquired Companies, in the System, or in any of the Tampa
System, the Southern Bay Area System or the Northern Bay Area System, other
than in each case actions, proceedings and objections filed by American
Telecasting Inc., its Affiliates or Gavilon relating to the Channels.
10.05 Opinion of Counsel for the Sellers and the Principal Shareholders. PTG
shall have received from (i) Cooley Godward Castro Huddleson & Tatum, as
Sellers' counsel for the transaction, (ii) from Kronish, Lieb, Weiner &
Hellman LLP as counsel for the Principal Shareholders, (iii) from Parsons
Behle & Latimer, as counsel to TTI, and/or (iv) such other staff counsel or
other firms as may be appropriate, an opinion or opinions, dated the Closing
Date, in form and substance reasonably satisfactory to PTG and its counsel, to
the effect set forth in Exhibit D hereto. PTG shall have received from Rini,
Coran and Lancellota, as FCC counsel for Sellers and the Principal
Shareholders, an opinion, dated the Closing Date, in form and substance
reasonably satisfactory to PTG and its counsel, to the effect set forth in
Exhibit E hereto.
A-53
<PAGE>
10.06 No Restraint or Litigation. No order, decree or ruling of any
Governmental Authority shall have been entered, and no action, suit or
proceeding before any Governmental Authority shall have been instituted (or
threatened if PTG reasonably believes that such threat will result in
institution of an action, suit or proceeding) by any Governmental Authority,
to restrain, prohibit, challenge or invalidate any of the transactions
contemplated by this Agreement or the right of the Acquired Companies to carry
out their respective businesses or operate the System after the Closing Date,
other than litigation filed by American Telecasting Inc., its Affiliates or
Gavilon relating to the Channels.
10.07 Necessary Governmental Approvals. The waiting periods under the HSR
Act shall have expired or been terminated, and the parties shall have received
all approvals and actions from Governmental Authorities necessary to
consummate the transactions contemplated hereby, including all necessary
approvals and actions under the MFJ and the Communications Act, which are
either required to be obtained prior to the Closing by applicable law or
regulation or are specified to be obtained in the Disclosure Schedule.
10.08 Necessary Consents. The parties shall have received consents, in
substantially the form attached hereto as Exhibit F, to the transactions
contemplated hereby by all third parties to the Channel Leases, System
Agreements and other Contracts listed on Schedule D hereto.
10.09 Resignations. There shall have been delivered to PTG duly signed
resignations, effective as of the Closing Date, of all of the officers and
directors of the Acquired Companies.
10.10 Liens. PTG shall have received reports, satisfactory to PTG, from the
Secretary of State of California, the Secretary of State of Washington, the
Secretary of the State of South Carolina, the Secretary of State of Florida,
the Secretary of State of Oregon and the Secretary of State of any other
jurisdiction in which any assets of the Acquired Companies are located
indicating that there are no Liens of record as of a date no more than five
days before the Closing Date with respect to any asset (other than any of the
Spin-Off Assets) of any of the Acquired Companies, other than Permitted Liens,
those which will be discharged at the Closing as set forth in the Disclosure
Schedule, or those which are approved or accepted in writing by PTG. PTG shall
have received UCC Termination Statements from any secured creditors releasing
all Liens other than Permitted Liens on the assets and properties (other than
any of the Spin-Off Assets) at the Closing.
10.11 Spin-Off. The Spin-Off shall have been completed at least one day
prior to the Closing.
10.12 Other Documents. This Agreement, the Escrow Agreement, the Spectrum
Lease and all other instruments and documents required to be executed and
delivered hereunder to PTG by any of the Acquired Companies, the Sellers or
the Principal Shareholders on or prior to the Closing Date, shall have been
executed and delivered by or on behalf of such Persons.
10.13 Transfer of Interexchange Facilities. Immediately prior to the
Closing, unless PTG has received a waiver of the MFJ from the appropriate
Governmental Authority, the Acquired Companies shall have transferred to a
third party any Interexchange Facilities which any of the Acquired Companies
owns.
10.14 Pre-Closing Balance Sheet and Audited Financials. (a) The Sellers
shall have delivered the Pre-Closing Financial Statements of WHI, VBAI and
their Subsidiaries on the Pre-Closing Balance Sheet Delivery Date, dated as of
the Pre-Closing Balance Sheet Date and Videoway and Videotron Canada have
shall delivered the Pre-Closing Financial Statements of Videotron USA on the
Pre-Closing Balance Sheet Delivery Date, dated as of the Pre-Closing Balance
Sheet Date.
(b) The Sellers shall have delivered audited financial statements of VBAI
as of and for the fiscal year ended August 31, 1995 and audited
consolidated financial statements of WHI and its Subsidiaries as of and for
the fiscal year ended August 31, 1995, in each case together with the
opinions of Deloitte & Touche or KPMG Peat Marwick LLP thereon, and such
financial statements shall be in substantially the same form (with no
substantive changes) as the unaudited financial statements relating to such
companies as of and for such period delivered to PTG pursuant to Section
3.05 on the date of this Agreement.
A-54
<PAGE>
10.15 FCC Approvals. The FCC shall have approved the Transfer Applications,
by issuance of FCC Orders, to assign or transfer control of the FCC Licenses
(other than the San Francisco H-2 Channel and the San Jose H-2 Channel for
which Sellers shall use Best Efforts to seek assignment or transfer to a PTG
designated entity) to the entity designated by PTG pursuant to Section 7.10
hereof.
10.16 Minimum Channel Deliveries. WHI, VBAI or their Subsidiaries shall have
the legal right and authority, including without limitation all necessary
authority from the FCC to transmit through FCC Licenses or Channel Leases on
at least 21 Channels in San Francisco and 21 Channels in San Jose, and (b) the
FCC Licenses, Channel Licenses, Related Facility Licenses and Channel Leases
through which such transmission is to be effected satisfy the FCC Conditions.
WHI, VBAI or their Subsidiaries shall have the legal right and authority,
including without limitation, all necessary authority from the FCC to transmit
through FCC Licenses or Channel Leases on the other Channels and the FCC
Licenses, Channel Licenses, Related Facility Licenses and Channel Leases
through which such transmission is effected shall meet the requirements of
subsections (f) and (g) of the FCC Conditions.
10.17 Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose and no
similar proceeding with respect to the Proxy Statement shall have been
initiated or threatened by the SEC.
10.18 Tax-Free Reorganization. TTI shall have received an opinion from its
counsel, Parsons Behle & Latimer, in form and substance reasonably
satisfactory to PTG and the Sellers to the effect that the TTI Exchange will
constitute a reorganization within the meaning of Section 368(a) of the Code
and such opinion shall have been filed as an exhibit to the Registration
Statement.
10.19 Withdrawal of Arbitration Proceedings. Videotron USA and TTI shall
have each withdrawn the actions filed with the American Arbitration
Association in Chicago, Illinois entitled "Videotron USA, Inc. and Transworld
Telecommunications Inc. and F. Lorenzo Crutchfield."
10.20 Repayment of Affiliate Indebtedness. All indebtedness due to the
Acquired Companies from their respective Affiliates and related parties (other
than the Acquired Companies) shall be paid to the Acquired Companies as of
Closing.
10.21 Other Closing Date Deliveries. In addition to the other deliveries
referenced in this Article X, on the Closing Date, the Sellers shall deliver
to PTG:
(a) Stock Certificates. Stock certificates representing in the aggregate
all (or 100%) of the outstanding shares of WHI, VBAI and Videotron USA,
together with duly executed and witnessed stock powers (in blank) attached
thereto;
(b) Certificates. Such certificates of the Principal Shareholders, the
Sellers and the Acquired Companies' officers and others to evidence
compliance with the conditions specified in Sections 10.01, 10.02, 10.03,
10.04, 10.11, and 10.16 hereof;
(c) Stock Basis. A certificate of each Seller stating such Seller's
federal income tax basis in the stock certificates delivered by such Seller
to PTG;
(d) Books. The books, records, customer lists, files, reports, surveys,
studies, projections, budgets and strategic plans of the Acquired Companies
and their Subsidiaries;
(e) Stock Certificates of Subsidiaries. Stock Certificates representing
in the aggregate all (or 100%) of the outstanding shares of all of the
Subsidiaries of the Acquired Companies, including the 6% interest in BAC
formerly owned by the Minority Shareholders; and
(f) Licensing Company. At the election of PTG, either (i) Videotron USA
shall have acquired 100% of the Licensing Company prior to Closing, or (ii)
the Licensing Company shall be spun off in the Spin-off.
A-55
<PAGE>
10.22 Proceedings, Instruments, etc. All proceedings and actions taken on or
prior to the Closing Date in connection with the transactions contemplated by
this Agreement and all instruments incident thereto shall be in form and
substance reasonably satisfactory to PTG and its counsel (provided that such
documents shall not expand the representations, warranties or obligations of
the Sellers, the Principal Shareholders or the TTI Shareholder hereunder), and
PTG and its counsel shall have received copies of all documents that PTG and
its counsel may reasonably request in connection with such proceedings,
actions and transactions.
ARTICLE XI
CONDITIONS TO OBLIGATIONS OF THE SELLERS TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED HEREBY
The respective obligations of the Sellers to consummate the sale of the
Transferred Shares under this Agreement shall, unless waived in writing by
each of the Sellers, be subject to the satisfaction on or before the Closing
Date of each of the following conditions, and PTG shall use its Best Efforts
to cause each such condition to be so satisfied:
11.01 Representations and Warranties True. The representations and
warranties of PTG and Newco contained herein shall be true and correct in all
material respects as of the date made and at and as of the Closing Date as
though such representations and warranties were made at and as of the Closing
Date, except (i) for changes specifically permitted by this Agreement, (ii)
resulting from any transaction expressly consented to in writing by the
Sellers, or (iii) to the extent that the representations and warranties set
forth in Sections 6.02, 6.03, 6.04 and 6.08 expressly refer to a specific date
or dates.
11.02 Performance. PTG and Newco shall have performed and complied in all
respects with all covenants, agreements and obligations required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date.
11.03 Authorization. All actions necessary to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken.
11.04 No Restraint or Litigation. No order, decree or ruling of any
Governmental Authority shall have been entered, and no action, suit or
proceeding before any Governmental Authority shall have been instituted (or
threatened if the Sellers reasonably believe that such threat will result in
institution of an action, suit or proceeding) by any Governmental Authority,
to restrain, prohibit, challenge or invalidate any of the transactions
contemplated by this Agreement.
11.05 Necessary Governmental Approvals. The waiting periods under the HSR
Act shall have expired or been terminated, and the parties shall have received
all approvals of Governmental Authorities and actions necessary to consummate
the transactions contemplated hereby, including all necessary approvals and
actions under the MFJ and the Communications Act, which are either required to
be obtained prior to the Closing by applicable law or regulation or are
specified to be obtained in the Disclosure Schedule.
11.06 Opinions of Counsel of PTG. PTG shall have delivered to the Sellers an
opinion of Richard W. Odgers, Executive Vice President, General Counsel,
External Affairs and Secretary of PTG, and an opinion of Orrick, Herrington &
Sutcliffe, counsel to PTG, dated the Closing Date, in form and substance
reasonably satisfactory to the Sellers and their counsel to the effect set
forth in Exhibit F and Exhibit G, respectively, hereto.
11.07 Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose and no
similar proceeding with respect to the Proxy Statement shall have been
initiated or threatened by the SEC.
A-56
<PAGE>
11.08 New York Stock Exchange Listing. The shares of PTG Common Stock to be
issued to the Sellers shall have been approved for listing on the New York
Stock Exchange, upon official notice of issuance.
11.09 Tax-Free Reorganization. TTI shall have received an opinion from its
counsel, Parsons Behle & Latimer, in form and substance reasonably
satisfactory to PTG and the Sellers to the effect that the Exchange will
constitute a reorganization within the meaning of Section 368(a) of the Code
and such opinion shall have been filed as an exhibit to the Registration
Statement.
11.10 Payment of Outstanding Indebtedness and Videotron Cash
Amount. Concurrently with the consummation of the Exchange, PTG shall pay all
Outstanding Indebtedness (as of the Closing Date) owed to Videotron
International and the Videotron Cash Amount to Videoway, in each case by wire
transfer in immediately available funds.
11.11 Payment for Non-Compete. Concurrently with the consummation of the
Exchange, PTG shall pay to Lance V. D'Ambrosio the amount of $100,000 in cash
in the form of a cashiers or certified check as consideration for the
covenants by Lance V. D'Ambrosio in Section 14.01 hereof.
11.12 Other Documents. This Agreement, the Escrow Agreement, the Spectrum
Lease and all documents reasonably required to be delivered to the Sellers by
PTG or Newco on or prior to the Closing Date shall have been so delivered.
11.13 Certificates. PTG, Newco I and Newco II shall have delivered to the
Sellers a certificate to evidence compliance with the conditions set forth in
Sections 11.01, 11.02, 11.03, 11.05 (as to compliance with the MFJ only),
11.07 and 11.08 hereof.
11.14 Proceedings, Instruments, etc. All proceedings and actions taken on or
prior to the Closing Date in connection with the transactions contemplated by
this Agreement and all instruments incident thereto shall be in form and
substance reasonably satisfactory to the Sellers and their counsel (provided
that such documents shall not expand the representations, warranties or
obligations of PTG hereunder), and the Sellers and their counsel shall have
received copies of all documents that the Sellers and their counsel may
reasonably request in connection with such proceedings, actions and
transactions.
ARTICLE XII
CLOSING
12.01 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to the
provisions of Article XIII hereof, a closing (the "Closing") will be held at
the offices of Orrick, Herrington & Sutcliffe in San Francisco, California
(unless the parties hereto otherwise agree in writing) at which the documents
referred to in Articles X and XI hereof will be exchanged by the parties, and
the consideration to which the parties are entitled pursuant to Article II
hereof shall be paid. The parties agree to use their Best Efforts to cause the
Closing to be held not later than 90 days after the date of this Agreement,
subject to any approvals required by any Governmental Authority. The date on
which the Closing actually takes place is referred to herein as the "Closing
Date."
ARTICLE XIII
TERMINATION AND ABANDONMENT
13.01 Grounds for Termination. This Agreement may be terminated and the
transactions herein contemplated may be abandoned prior to the Closing:
(a) at any time, by mutual consent of PTG and the Sellers; or
A-57
<PAGE>
(b) by TTI or PTG, if, at the meeting of TTI shareholders (including any
adjournment or postponement thereof) called pursuant to Section 9.05
hereof, the requisite vote of the shareholders of TTI shall not have been
obtained;
(c) by the Board of Directors of PTG if there is a material adverse
change (which has not been cured by Sellers within 30 days of notice to the
Sellers by PTG thereof) in the Financial Status of the Acquired Companies,
in the System or in any of the following: the Tampa System, the Northern
Bay Area System or the Southern Bay Area System; or
(d) by any party hereto in the event the Closing has not occurred by
November 9, 1996, provided that such party has complied in all material
respects with all of its obligations hereunder.
13.02 Procedure Upon Termination. In the event of termination and
abandonment pursuant to this Article XIII, written notice thereof shall
forthwith be given to all parties and this Agreement (other than the
provisions of Sections 16.01, 16.02 and 16.03) shall terminate and be
abandoned without further action by PTG, any of the Acquired Companies or any
of the Sellers or Principal Shareholders; and there shall be no liability on
the part of any party or their respective officers or directors, except for
the liability of any party then in breach of its obligations under this
Agreement and for any breach of a party's obligations under those surviving
provisions set forth in Sections 16.01, 16.02 and 16.03 hereof.
ARTICLE XIV
POST-CLOSING MATTERS
14.01 Covenants Regarding Employees and Covenant Not to Interfere, Compete
or Solicit Business.
(a) PTG may employ certain employees of the Acquired Companies following
the Closing Date. Each of the Sellers, the Principal Shareholders, F.
Lorenzo Crutchfield and Lance V. D'Ambrosio hereby agrees that commencing
on the date hereof and continuing for a period of six months from the
Closing Date, it or he shall not induce or encourage, directly or
indirectly, any current employee (other than FranHois Labonte) or
consultant of any of the Acquired Companies to decline an employment or
consulting arrangement with PTG, and each of the Sellers, Principal
Shareholders, F. Lorenzo Crutchfield and Lance V. D'Ambrosio hereby agrees
that for a period of three years from the Closing Date, it shall not induce
or encourage, directly or indirectly, any current employee or consultant if
such Person is hired by PTG, to leave PTG's employ, whether to accept a
position with him or an entity related to him or otherwise; provided,
however, that PTG acknowledges that Videotron Canada or one of its
Affiliates may hire Harry Perlow after the Closing and Videotron Canada
acknowledges and agrees that in such event it shall use its Best Efforts to
make Mr. Perlow available to PTG as a consultant for a six-month period in
at least a 50% capacity for the first two months after the Closing,
decreasing over the next four months. Each of the Sellers, the Principal
Shareholders, F. Lorenzo Crutchfield and Lance V. D'Ambrosio hereby further
agrees that for a period of three years from the Closing Date, it or he
shall not take any action which would materially adversely affect PTG's
effort to obtain necessary licenses, approvals or Permits to operate the
System, or to develop any of the properties of any of the Acquired
Companies. The provisions of this Section 14.01 shall survive the Closing
for a period of three years.
(b) In furtherance of the sale of the Transferred Shares to PTG and more
effectively to protect the business and good will of the Acquired Companies
and in the case of Lance V. D'Ambrosio for consideration of $100,000, upon
the consummation of the transactions contemplated hereby, each of the
Sellers, the Principal Shareholders, and Lance V. D'Ambrosio agrees that,
for a period commencing on the Closing Date and ending on the third annual
anniversary of the Closing Date, it and its Affiliates will not: (i)
directly or indirectly (whether as an employer, employee, partner,
stockholder, director, representative or otherwise) anywhere within the
States of California or Nevada and anywhere within a radius of 100 miles of
the Colocation Sites (or with respect to Seattle, KCTS Television Tower,
18th and East Madison Street) inclusive of any BTA's in their entireties
included in such 100 mile radius with respect to states other than
A-58
<PAGE>
California and Nevada (it being understood and agreed by the parties hereto
that the prohibited activities are not limited to any particular region
within such area because such activities may be engaged in effectively in
competition with the Acquired Companies from any location therein)
organize, invest in, sponsor or promote, participate or become interested,
affiliated or connected with or provide management, employment or
consulting services to, any Person which is engaging or intending to engage
in the ownership or operation of any ITFS, MDS, LMDS or MMDS system, or
other wireless cable system or other activities using the same frequencies.
(c) Without limiting the right of PTG to pursue all other legal and
equitable rights available to them for violation of this Section 14.01 by
any of the Sellers or the Principal Shareholders, it is agreed that other
remedies cannot fully compensate PTG for such a violation and that PTG
shall be entitled to injunctive relief to prevent the violation or the
continuing violation thereof. It is the intent and understanding of each
party hereto that if, in any action before any Governmental Authority
legally empowered to enforce this Section 14.01, any term, restriction,
covenant or promise in this Section 14.01 is found to be unreasonable and
for that reason unenforceable, then such term, restriction, covenant or
promise shall be deemed modified to the extent necessary to make it
enforceable by such court or agency.
14.02 Use of Trademarks and Names. From the Closing Date, none of the
Sellers or Principal Shareholders shall have the right to use any of the
trademarks, service marks, trade names, designs, patents, inventions and
applications therefor, or computer programs therefor and other technical know-
how heretofore or currently used or owned by any of the Acquired Companies,
except that Videotron Canada shall retain all rights in and to the trademarks,
tradenames, service marks and names "Videotron," "Videoway," "Videowave," and
"V*TV" and derivatives thereof. PTG shall promptly after the Closing Date take
all action reasonably necessary to change the corporate names of VBAI and
Videotron USA and following the Closing, neither PTG nor any of the Acquired
Companies shall use the trademarks, tradenames, servicemarks or names
"Videotron," "Videoway," "Videowave," or "V*TV" or any derivative thereof or
the Videotron logo set forth on Schedule 4.18 hereto; provided that PTG shall
have up to 90 days after Closing to replace signage and to effect all actions
necessary to comply with this provision. From the Closing Date, none of the
Sellers or the Principal Shareholders shall have the right personally to use
or to disclose to any person, firm or corporation, other than PTG and their
employees, agents and representatives, information concerning any inventions,
secret processes, know-how, formulae, trade or business secrets or other
confidential information of any of the Acquired Companies.
14.03 Post Closing Adjustments.
(a) Within 30 days after the Closing Date, the Sellers shall cause to be
prepared and delivered to PTG unaudited consolidated financial statements
of the Acquired Companies as of the Closing Date and covering the period
from the Balance Sheet Date to the Closing Date (the "Post-Closing
Financial Statements"), together with a statement certified by the Sellers
setting forth in reasonable detail, the Post-Closing Adjustment, the
aggregate number of shares of PTG Common Stock to be adjusted pursuant to
this Section and a revised Schedule A to reflect such adjustments, using
the PTG Common Stock Closing Price. PTG shall cooperate with the Sellers
and their auditors in connection with the preparation of such Post-Closing
Financial Statements.
(b) PTG shall have 90 days after the receipt of the Post-Closing
Financial Statements to review or conduct a full audit on all Financial
Statements, Pre-Closing Financial Statements and Post-Closing Financial
Statements of the Acquired Companies to confirm that all such Financial
Statements have been prepared in accordance with GAAP and fairly present
the financial position of the Acquired Companies as of such dates and the
results of their operations and cash flows for such periods. The Sellers
shall cooperate and instruct their auditors to cooperate with PTG and its
auditors in completing the review or audits referred to above. Within such
90 day period, PTG shall deliver to the Sellers audited Post-Closing
Financial Statements of the Acquired Companies as of the Balance Sheet Date
and as of the Closing Date and for the period from the Balance Sheet Date
to the Closing Date, together with a statement setting forth in reasonable
detail, the Post-Closing Adjustment, the aggregate number of shares of PTG
Common Stock to be adjusted
A-59
<PAGE>
pursuant to this Section and a revised Schedule A to reflect such
adjustments, using the PTG Common Stock Closing Price. If no such audited
Post-Closing Financial Statements are sent within the 90 day period, then
the Sellers' unaudited Post-Closing Financial Statements shall constitute
the "Final Starting Balance Sheet," and the "Final Closing Balance Sheet."
(c) Unless the Sellers object in writing within 15 days after receipt of
the audited Post-Closing Financial Statements referred to above to the
completeness or accuracy of such Post-Closing Financial Statements, such
audited Post-Closing Financial Statements shall constitute the "Final
Starting Balance Sheet" and "Final Closing Balance Sheet." In the event the
Sellers make such objection within such 15 day period, the Sellers and PTG
each agree to use their Best Efforts to resolve the dispute. In the event
such dispute is not resolved within 20 days, PTG or the Sellers may elect
to have the dispute resolved by Price Waterhouse, or any other Big Six
accounting firm independent of PTG, the Acquired Companies and the Sellers.
The Sellers and PTG each hereby agrees that the results of such independent
accounting firm shall be conclusive and binding on each of them and the
financial statements as approved by such firm shall constitute the "Final
Starting Balance Sheet" and "Final Closing Balance Sheet." TTI, Videoway
and PTG each agree to pay one-third of the fees and disbursements of such
accounting firm.
(d) The number of shares of PTG Common Stock issued to the Sellers will
be adjusted upward or downward in the aggregate by a number equal to the
quotient of (x) the Post-Closing Adjustment (as defined below) divided by
(y) the PTG Common Stock Closing Price. The "Post-Closing Adjustment" shall
equal (i) the negative or positive amount necessary to correct any
inaccuracies in the amounts set forth in Section 2.01, (ii) the positive
amount of any FCC Adjustment with respect to a Channel that has been cured
prior to the expiration of the Cure Period in accordance with Section 7.10
offset by the negative amount of any PTG Expenses incurred between the
Closing Date and the expiration of the Cure Period with respect to such
Channel, (iii) the negative amount of any Subscriber Deterioration Post-
Closing Adjustment, and (iv) the positive amount of 25% of the Subscriber
Adjustment. In calculating the Post-Closing Adjustment, the parties hereto
agree to use the Final Starting Balance Sheet and the Final Closing Balance
Sheet and to make any adjustments necessary to reflect any inaccuracies in
any of the amounts set forth on the Officer's Certificate.
(e) If the result of such quotient in paragraph (d) above is positive,
PTG shall be obligated to issue an aggregate number of additional shares of
PTG Common Stock equal to such number. PTG, within 20 days after the
determination of the Final Closing Balance Sheet, shall deliver to the
Sellers such aggregate number of shares of PTG Common Stock.
(f) If the result of such quotient in paragraph (d) is negative, PTG and
the Sellers shall notify the Escrow Agent to promptly return to PTG the
aggregate number of shares of PTG Common Stock equal to such absolute
number from the Collateral (as defined in the Escrow Agreement, the
"Collateral") allocated in accordance with Schedule A hereto.
14.04 Payment of Certain Liabilities and Delivery of Stock
Certificates. Promptly following the Closing but in no event later than five
Business Days thereafter, PTG shall (i) after making capital contributions to
the Acquired Companies that incurred the Outstanding Liabilities, cause the
repayment of all Outstanding Liabilities that have been deducted at the
Closing from the One Hundred Seventy Million Dollar purchase price in
accordance with Section 2.01 hereof and (ii) deliver to the Sellers the stock
certificates representing the shares of PTG Common Stock set forth on Schedule
A.
A-60
<PAGE>
ARTICLE XV
INDEMNIFICATION
15.01 Indemnification by the Sellers and the Principal Shareholders.
(a) Each of the Sellers, the Principal Shareholders and the TTI
Shareholder (in the proportion set forth below) agree to indemnify and hold
harmless PTG and the Acquired Companies and their respective Affiliates,
agents, officers, employees, successors and assigns from and against any
and all liabilities, obligations, losses, costs, damages or diminution of
value ("Loss") and reasonable attorneys' and accountants' fees and
expenses, court costs and all other reasonable out-of-pocket expenses
("Expense") incurred by any of PTG or the Acquired Companies or their
respective Affiliates, agents, officers, employees, successors and assigns
in connection with or arising from or attributable to (i) any breach by any
of the Sellers, the Principal Shareholders or any of the Acquired Companies
(as constituted prior to the Closing) of any of their respective covenants
or agreements contained in this Agreement or in any agreement or instrument
contemplated hereby, except to the extent covered by Section 15.01 (b) or
(c) below; (ii) any failure of any of the Sellers, the Principal
Shareholders or any of the Acquired Companies (as constituted prior to the
Closing) to perform any of their respective obligations in this Agreement
or in any agreement or instrument contemplated hereby, except to the extent
covered by Section 15.01 (b) or (c) below; (iii) any breach of any warranty
or the inaccuracy of any representation of any of the Sellers, the
Principal Shareholders or any of the Acquired Companies contained or
referred to in this Agreement (including in the Disclosure Schedule or in
the Disclosure Schedule Supplement but only to the extent permitted by
Section 7.12 hereof) or in any certificate delivered by or on behalf of any
of the Sellers, the Principal Shareholders or any of the Acquired Companies
pursuant hereto, except to the extent covered by Section 15.01 (b) or (c)
below; (iv) those matters set forth in Sections 9.02, 9.04 and 16.01
hereof; and (v) third party claims (other than any relating to ATI,
Gavilon, or ATI Affiliates) relating to the operations of the businesses of
WHI and VBAI and their respective Subsidiaries or the ownership, use or
operation of the assets of WHI and VBAI and their respective Subsidiaries
prior to the Closing Date (except to the extent such claim or obligation is
specifically and expressly identified in this Agreement, in the Disclosure
Schedule, in the Disclosure Schedule Supplement (but only to the extent
permitted by Section 7.12 hereof), on the Final Starting Balance Sheet or
on the Final Closing Balance Sheet). Subject to the limitations set forth
herein, Videotron Canada and Videoway shall be, jointly and severally,
responsible for 100% of any Loss and Expense relating to VBAI, its
Subsidiaries and Videotron USA. Subject to the limitations set forth
herein, Videotron Canada and Videoway shall be, jointly and severally,
responsible for 50% of any Loss and Expense relating to WHI and its
Subsidiaries and TTI and the TTI Shareholder as hereinafter provided shall
be responsible for the remaining 50% of such Loss and Expense.
(b) In addition, Videotron Canada and Videoway, jointly and severally,
agree to indemnify and hold harmless PTG and the Acquired Companies and
their respective affiliates, agents, officers, employees, successors and
assigns from and against any and all Loss and Expense incurred by PTG or
the Acquired Companies or their respective affiliates, agents, officers,
employees, successors and assigns in connection with or arising from or
attributable to (i) any breach of any warranty or the inaccuracy of any
representation of Videotron Canada, Videoway or Videotron USA (as
constituted prior to the Closing Date) contained or referred to in Article
IV of this Agreement (including in the Disclosure Schedule and the
Disclosure Schedule Supplement but only to the extent permitted by Section
7.12 hereof) or any certificate delivered by or on behalf of any of them;
(ii) those matters set forth in Section 9.03 hereof; (iii) third party
claims relating to the operations of the business of Videotron USA or the
ownership, use or operation of the assets of Videotron USA prior to the
Closing Date (except to the extent specifically identified in this
Agreement, in the Disclosure Schedule, in the Disclosure Schedule
Supplement (but only to the extent permitted by Section 7.12 hereof), on
the Final Starting Balance Sheet or the Final Closing Balance Sheet); (iv)
an untrue statement or alleged untrue statement of a material fact
concerning or relating to any of the Acquired Companies or the Principal
Shareholders contained in the Registration Statement (including the Proxy
Statement), or any amendment or supplement thereto or the omission or
alleged omission to state therein, in light of the circumstances under
which they were made, a material fact concerning or relating to any of the
A-61
<PAGE>
Acquired Companies or the Principal Shareholders required to be stated
therein or necessary to make the statements therein not misleading, (v) any
action brought by a shareholder of TTI in connection with the Registration
Statement; provided, however, that in no event shall there be any
obligation of indemnification under this subsection (v), unless and until
the indemnification obligation of TTI and the TTI Shareholder set forth in
Section (c) below shall have been satisfied to the extent of any remaining
amounts in the escrow attributed to TTI and the remaining amounts of the
indemnification obligation of the TTI Shareholder; provided further, that
in no event shall the amount of indemnification pursuant to this subsection
(v) exceed one-half of the amount paid by PTG, on a dollar-for-dollar basis
in respect of such matter up to a maximum indemnification of $2.5 million;
and (vi) those matters set forth in Schedule 4.13 of the Disclosure
Schedule relating to Vanguard Communications L.P.
(c) In addition, each of TTI and the TTI Shareholder as hereinafter
provided, agree to indemnify and hold harmless PTG and the Acquired
Companies and their respective affiliates, agents, officers, employees,
successors and assigns from and against any and all Loss and Expense
incurred by PTG or the Acquired Companies or their respective affiliates,
agents, officers, employees, successors and assigns in connection with or
arising from or attributable to (i) any breach of any warranty or the
inaccuracy of any representation of TTI, the TTI Shareholder or Lance V.
D'Ambrosio contained or referred to in Article V or VA of this Agreement
(including in the Disclosure Schedule) or any certificate delivered by or
on behalf of any of them; (ii) those matters set forth in Sections 7.13,
9.05 and 9.06 hereof; and (iii) an untrue statement or alleged untrue
statement of a material fact concerning or relating to WHI or its
Subsidiaries, TTI (including information concerning the tax-free
reorganization and the fairness of the Exchange and the related opinions)
or the TTI Shareholder contained in the Registration Statement (including
the Proxy Statement), or any amendment or supplement thereto or the
omission or alleged omission to state therein a material fact concerning or
relating to WHI or its Subsidiaries, TTI (including information concerning
the tax-free reorganization and the fairness of the Exchange and the
related opinions) or the TTI Shareholder required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(d) Notwithstanding the foregoing, PTG acknowledges that (i) there shall
be no claim for indemnification made hereunder (except with respect to
Section 15.01(b)(vi) for which the following basket shall not apply) until
the Loss and Expense incurred by PTG shall exceed $1 million (at which
point only amounts in excess of $1 million shall be paid except with
respect to any Loss and Expense individually exceeding $500,000 in which
case such individual item of Loss and Expense exceeding $500,000 shall be
paid in full) and (ii) the total amount of payments for indemnification
made under the terms of this Section 15.01 shall not exceed $36 million in
the aggregate from Videotron Canada and Videoway (except with respect to
Section 15.01(b)(vi) for which such cap shall not apply), and shall not
exceed $6 million in the aggregate from TTI until the release of the PTG
Common Stock escrowed on account of TTI pursuant to the Escrow Agreement,
and thereafter, from the TTI Shareholder to 50% of the number of shares of
PTG Common Stock distributed from the escrow; provided, however, that there
shall be no limitation for any claims for indemnification made hereunder
with respect to any Loss or Expense attributable to the Sections
15.01(b)(iv) or 15.01(c)(iii); provided, however that the foregoing shall
not result in any limitation with respect to an action for fraud,
intentional misrepresentation or active concealment.
(e) If there has been an FCC Adjustment which has not subsequently been
credited to the Sellers in the Post-Closing Adjustment with respect to a
Channel, PTG shall not be entitled to seek indemnification hereunder for
failure of such Channel to satisfy the FCC Conditions other than for
failure to satisfy subsections (f) and (g) thereof, for which PTG shall be
entitled to seek indemnification hereunder, subject to the limitations set
forth herein and applying as an offset to any Loss and Expense in
connection therewith any FCC Adjustment (which has not been so credited)
relating to such Channel.
15.02 Indemnification by PTG. PTG agrees to indemnify and hold harmless the
Sellers and the Principal Shareholders and their respective Affiliates,
agents, officers, employees, successors and assigns from and against any and
all Loss and Expense incurred by any of the Sellers or the Principal
Shareholders or their respective Affiliates, agents, officers, employees,
successors and assigns in connection with or arising from or attributable
A-62
<PAGE>
to an untrue statement or alleged untrue statement concerning or relating to
PTG and its Subsidiaries contained in the Registration Statement (including
the Proxy Statement) or any amendment or supplement thereto or the omission or
alleged omission to state therein a material fact concerning PTG or its
Subsidiaries required to be stated therein or necessary to make the statements
therein not misleading.
15.03 Notice of Claims. If an indemnified person believes that it has
suffered or incurred any Loss or Expense pursuant to Sections 15.01 hereof, it
shall so notify the indemnifying person promptly in writing (i) describing
such Loss or Expense, (ii) the amount thereof, if known, (iii) any complaints,
subpoenas or other documents served against the indemnified person in
connection with such Loss or Expense, (iv) in reasonable specificity, whether
in the judgment of the indemnified party the claim is only for money damages
and does not have a continuing effect on the business of the indemnified
party, and (v) the method of computation of such Loss or Expense. Promptly
after receipt by an indemnified party of notice of the commencement of any
action by any third party, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under Section 15.01,
notify each party against whom indemnification is to be sought in writing of
the commencement thereof (but the failure so to notify an indemnifying party
shall not relieve it from any liability which it may have under this Article
XV).
15.04 Escrow. Videotron Canada, Videoway, TTI and PTG shall at the Closing
enter into the Escrow Agreement. PTG agrees to satisfy any amount owing to it
under this Article XV first out of the Collateral pursuant to the terms of the
Escrow Agreement, except to the extent provided in Section 15.01(b)(v) hereof,
provided, that resort to the Collateral shall not constitute an election of
remedies or waive or impair any rights or remedies with respect to the
deficiency remaining after resort to the Collateral, for which the Sellers,
the Principal Shareholders and the TTI Shareholder shall in any case remain
fully liable to the extent and subject to the limitations set forth in this
Article XV.
15.05 Third Party Claims.
(a) Subject to paragraph (b) of this Section 15.05, Section 9.02(d) and
Section 9.03(d), the persons indemnified under this Article XV shall have
the right, at the expense of the indemnifying party, to conduct and
control, through counsel of their choosing, any third party claim, action
or suit, and the persons indemnified may compromise or settle the same,
provided that any of the indemnified persons shall give the indemnifying
party advance notice of any proposed compromise or settlement. The
indemnifying party shall promptly pay to such indemnified persons the
amount of any Loss resulting from its liability to the third party claimant
and all related Expense. The indemnified persons shall permit the
indemnifying party to participate in the defense of any such action or suit
through counsel chosen by it, provided that the fees and expenses of such
counsel shall also be borne by the indemnifying party. Subject to paragraph
(b) of this Section 15.05 and to Sections 9.02(d) and 9.03(d), any
compromise or settlement with respect to a claim for money damages effected
after the indemnifying party, by notice to the indemnified party, shall
have reasonably disapproved such compromise or settlement shall discharge
the indemnifying party from liability with respect to such compromise or
settlement, and no amount in respect of such compromise or settlement shall
be claimed as Loss or Expense under this Article XV.
(b) If the remedy sought in any action or suit referred to in paragraph
(a) of this Section 15.05 is solely money damages and will have no
continuing effect on the business of any indemnified person, the
indemnifying party shall have 15 Business Days after receipt of the notice
referred to in Section 15.03 to notify the indemnified persons that it
elects to conduct and control such action or suit. If the indemnifying
party does not give the foregoing notice, the indemnified persons shall
have the right to defend, contest, settle or compromise such action or suit
in the exercise of their exclusive discretion, and the indemnifying party
shall, upon request from any of the indemnified persons, promptly pay to
such indemnified persons the amount of any Loss resulting from its
liability to the third party claimant and all related Expense. If the
indemnifying party gives the foregoing notice, the indemnifying party shall
have the right to undertake, conduct and control, through counsel of its
own choosing and at the sole expense of the indemnifying party, the conduct
and settlement of such action or suit, and the indemnified persons shall
cooperate with the
A-63
<PAGE>
indemnifying party in connection therewith; provided that (x) the
indemnifying party shall not thereby permit to exist any Lien or other
adverse charge upon any asset of any indemnified person; (y) the
indemnifying party shall permit the indemnified persons to participate in
such conduct or settlement through counsel chosen by the indemnified
persons, but the fees and expenses of such counsel shall be borne by the
indemnified persons except as provided in clause (z) below; and (z) the
indemnifying party shall agree promptly to reimburse to the extent required
under this Article XV the indemnified persons for the full amount of any
Loss subject to the limitations set forth herein resulting from such action
or suit and all related Expense incurred by the indemnified persons, except
fees and expenses of counsel for the indemnified persons incurred after the
assumption of the conduct and control of such action or suit by the
indemnifying party. So long as the indemnifying party is contesting any
such action or suit in good faith, the indemnified persons shall not pay or
settle any such action or suit. Notwithstanding the foregoing, the
indemnified persons shall have the right to pay or settle any such action
or suit, provided that in such event the indemnified persons shall waive
any right to indemnity therefor by the indemnifying party, and no amount in
respect thereof shall be claimed as Loss or Expense under this Article XV.
15.06 TTI Shareholder Acknowledgment. The TTI Shareholder acknowledges and
agrees that he has undertaken the indemnification obligations set forth herein
subject to the limitations and conditions set forth herein, notwithstanding
that he is not individually making the representations, warranties and other
agreements that may be the basis for actions hereunder.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.01 Brokers.
(a) Each party represents and warrants to the other that it has dealt
with no brokers with respect to the transactions contemplated hereby except
the Sellers have retained at their sole expense Goldman, Sachs & Co., PTG
has retained at its sole expense, Gerard, Klauer and Mattison ("GKM") and
TTI has retained at its sole expense Wasserstein, Perella & Co. No party
has done any acts, had any negotiations or conversations, or made any
agreements or promises which will in any way create or give rise to any
obligation or liability for the payment of any fee, charge, commission or
other compensation to any party with respect to the transactions
contemplated hereby other than as provided above.
(b) The Sellers, the Principal Shareholders and PTG agree to forever
indemnify, defend and save harmless each other of, from and against any and
all claims or suits for compensation, commission or otherwise which may be
asserted or made by any broker, person or entity as a result of any dealing
by the indemnifying party or its representatives with such other broker,
person or entity, including, without limitation, all costs, losses,
liabilities, damages and expenses (including, without limitation,
attorneys' fees and disbursements) related thereto except with respect to
the Sellers' obligation to pay all fees and expenses of Goldman Sachs &
Co., TTI's obligation to pay all fees and expenses of Wasserstein, Perella
& Co. and PTG's obligation to pay all fees and expenses of GKM. This
Section 16.01 shall survive the Closing or any sooner expiration or
termination of this Agreement.
16.02 Confidentiality.
(a) Subject to the provisions contained in this Section 16.02, all
information furnished as confidential to a party by any other party
hereunder shall be treated confidentially. Each of the parties hereby
agrees for the benefit of each other that, except as required by law, they
will not release or cause or permit to be released any press notices,
publicity (oral or written) or advertising promotion or otherwise announce
or disclose or cause or permit to be announced or disclosed, in any manner
whatsoever, the fact that negotiations have taken place, or the terms and
conditions or substance of the transactions contemplated herein without
first obtaining the express written consent of the other party.
Notwithstanding anything to the contrary set forth in this Section 16.02, a
party shall be permitted to provide confidentially all materials and
information furnished by another party to its attorneys, legal counsel and
professional advisers.
A-64
<PAGE>
(b) Each party shall (i) use Best Efforts to keep confidential all such
information furnished to it hereunder, and (ii) return to the disclosing
party, or at the option of the disclosing party, destroy, all documents and
other written materials furnished by the disclosing party, containing such
information. The obligation to keep such information confidential shall
survive the termination of this Agreement for three years.
(c) The confidentiality agreement in this Section 16.02 shall not
preclude the Sellers, the Principal Shareholders or PTG from discussing the
substance of the transaction with their attorneys, accountants,
professional consultants, counsel and other representatives. Further, the
confidentiality agreement in this Section 16.02 shall not apply to any
information which (w) a party can demonstrate was already in its possession
prior to the disclosure thereof by another party; (x) is known to the
public; (y) becomes known to the public through no fault of the other
party; or (z) is disclosed to the other party by a third party without any
duty or obligation of confidentiality.
16.03 Payment of Expenses. Each of the parties hereto will pay its own
expenses, including without limitation legal, finders, brokerage, investment
banking and accounting fees.
16.04 Waiver of Compliance. Any failure of a Seller or Principal
Shareholder, on the one hand, or PTG, on the other, to comply with any
obligation, covenant, agreement or condition contained herein may be expressly
waived in writing by PTG on the one hand or the Principal Shareholders on the
other, but such waiver or failure to insist upon strict compliance shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
16.05 Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to
have been duly given if delivered by hand or express mail delivery:
(a) If to TTI to:
Transworld Telecommunications, Inc.
102 West 500 South, Suite 320
Salt Lake City, UT 84101
Attn: President
Tel: (801) 328-5619
Fax: (801) 532-6060
with a copy to:
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
Palo Alto, CA 94306
Attn: James C. Kitch, Esq.
Tel: (415) 843-5000
Fax: (415) 857-0663
with a copy to:
Parsons Behle & Latimer
201 South Main Street, Suite 1800
Salt Lake City, UT 84111
Attn: J. Gordon Hansen, Esq.
Tel: (801) 532-1234
Fax: (801) 536-6111
or
A-65
<PAGE>
(b) If to Videoway to:
Videoway Technologies Ltd.
Courts Plaza, 2nd Floor
St. Georges Street/P.O. Box 1354
Bridgetown, Barbados, W.T.
Attn: David Lowry
Tel: (809) 431-0272
Fax: (809) 431-0278
with a copy to:
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, NY 10036-7798
Attn: Russell S. Berman, Esq.
(c) If to Videotron USA to:
Le Groupe Videotron Ltee
300 Viger Avenue East
Montreal, Quebec H2X3W4
Canada
Attn: Secretary
Tel: (514) 985-8822
Fax: (514) 985-8834
with a copy to:
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, NY 10036-7798
Attn: Russell S. Berman, Esq.
Tel: (212) 479-6121
Fax: (212) 997-3525
(d) If to PTG, to:
Pacific Telesis Group
130 Kearny Street
San Francisco, CA 94108
Attn: Richard W. Odgers, Esq.
Tel: (415) 394-3355
Fax: (415) 986-8780
with a copy to:
Orrick, Herrington & Sutcliffe
400 Sansome Street
San Francisco, CA 94111
Attn: Therese A. Mrozek, Esq.
Tel: (415) 773-5495
Fax: (415) 773-5759
A-66
<PAGE>
(e) If to WHI, to:
Wireless Holdings, Inc.
45 East Plumeria Drive
San Jose, CA 95134
Attn: Francois Labonte
Tel: (408) 894-9977
Fax: (408) 232-4894
with a copy to:
Transworld Telecommunications, Inc.
102 West 500 South, Suite 320
Salt Lake City, UT 84101
Attn: President
Tel: (801) 328-5619
Fax: (801) 532-6060
with a copy to:
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
Palo Alto, CA 94306
Attn: James C. Kitch, Esq.
Tel: (415) 843-5000
Fax: (415) 857-0663
with a copy to:
Le Groupe Videotron Ltee
300 Viger Avenue East
Montreal, Quebec H2X3W4
Canada
Attn: Secretary
Tel: (514) 985-8822
Fax: (514) 985-8834
(f) If to VBAI, to:
Videotron (Bay Area), Inc.
18940 U.S.--19 North
Clearwater, FL 34524
Attn: President
Tel: (813) 530-1812
Fax: (813) 530-9775
with a copy to:
Transworld Telecommunications, Inc.
102 West 500 South, Suite 320
Salt Lake City, UT 84101
Attn: President
Tel: (801) 328-5619
Fax: (801) 532-6060
A-67
<PAGE>
with a copy to:
Le Groupe Videotron Ltee
300 Viger Avenue East
Montreal, Quebec H2X3W4
Canada
Attn: Secretary
Tel: (514) 985-8822
Fax: (514) 985-8834
with a copy to:
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
Palo Alto, CA 94306
Attn: James C. Kitch, Esq.
Tel: (415) 843-5000
Fax: (415) 857-0663
(g) If to the TTI Shareholder, to:
F. Lorenzo Crutchfield, Jr.
3 Crossfield Court
Greensboro, NC 27408
Fax: (910) 854-1119
with a copy to:
Nelson, Mullins, Riley & Scarborough
400 Colony Square
1201 Peachtree Street, Suite 2200
Atlanta, GA 30361
Attn: Philip H. Moise, Esq.
Tel: (404) 817-6141
Fax: (404) 817-6050
(h) If to Lance V. D'Ambrosio, to:
Lance V. D'Ambrosio
6385 Shenandoah Park Ave.
Salt Lake City, UT 84121
Tel: (801) 277-1774
Fax: (801) 532-6060
(i) If to Videotron Canada, to:
Le Groupe Videotron Ltee
300 Viger Avenue East
Montreal, Quebec H2X3W4
Canada
Attn: Secretary
Tel: (514) 985-8822
Fax: (514) 985-8834
or, in each case, to such other Person or address as may be specified in
writing in accordance with this Section 16.05 to the other parties.
A-68
<PAGE>
16.06 Certain Limitations. All representations and warranties contained
herein respecting the enforceability of any agreement shall be deemed to be
made subject to any applicable bankruptcy, insolvency, reorganization or other
laws relating to or affecting creditors' rights generally and to general
principles of equity.
16.07 Survival of Representations, Warranties, Indemnities and Other
Agreements. All representations and warranties, indemnities and other
agreements made by each party in this Agreement, in any Schedule hereto or in
any list, certificate, document or written statement furnished or delivered by
any such party pursuant hereto shall expire on the third anniversary of the
Closing Date and all liabilities of the parties hereto with respect to such
representations, warranties, indemnities and other agreements (except as
expressly otherwise provided) shall thereupon be extinguished, except for any
claim or action against any party relating thereto brought prior to the
expiration of such three-year period or in the event of the fraud, intentional
misrepresentation or active concealment of such party and except that the
representations and indemnities set forth in Sections 3.15, 4.14, 7.13, 9.02
and 9.03 shall terminate upon termination of the applicable statute of
limitations under the applicable Legal Requirements.
16.08 Binding Nature; Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Nothing contained herein, express
or implied, is intended to confer on any Person other than the parties hereto
or their respective successors and assigns, any rights, remedies, obligations
or liabilities.
16.09 Governing Law; Construction. This Agreement, and the legal relations
among the parties hereto arising from this Agreement, shall be governed by and
construed in accordance with the laws of the State of California. The fact
that one representation and warranty in this Agreement or the Disclosure
Schedule may be duplicative of or may overlap, in whole or in part, or may be
more general or specific than, another representation and warranty in this
Agreement or the Disclosure Schedule shall not negate, diminish or modify
either representation and warranty, as each shall be construed and interpreted
independently.
16.10 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
16.11 Entire Agreement; Amendments and Waivers. This Agreement (including
the Exhibits and Schedules hereto, the Disclosure Schedule and the other
instruments referred to herein) embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. This Agreement supersedes all prior agreements and understandings
among the parties with respect to such subject matter, including any term
sheets prepared in anticipation of this Agreement. No amendment, modification
or waiver of this Agreement shall be binding unless executed in writing by the
party or parties to be bound thereby.
16.12 Severability. If any terms or provisions of this Agreement or any
application thereof shall be invalid or unenforceable, the remainder of this
Agreement and any other application thereof shall not be affected thereby.
16.13 Headings. The headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
16.14 Remedies. A party hereto may pursue any right or remedy available to
it at law or in equity for any claim relating to the transactions contemplated
hereunder, and the use of any one right or other remedy by any party hereto
shall not preclude or constitute a waiver of its rights to use any or all
other remedies; provided, however, that if the Closing occurs, the
indemnification provided in Article XV and Sections 9.02, 9.03 and 9.04 shall
be the exclusive remedy for any action for monetary damages. In any proceeding
by any of the Acquired Companies or PTG to assert or prosecute any claim
under, or to otherwise enforce, this Agreement, the Sellers and the Principal
Shareholders agree that they shall not assert as a defense or bar to recovery
by any of the Acquired Companies or PTG, and hereby waive any right to so
assert such defense or bar such recovery, that: (a) prior to the Closing, any
of the Acquired Companies shall have had knowledge of the circumstances giving
rise to the claim being pursued by it or PTG; (b) prior to the Closing, any of
the Acquired Companies engaged
A-69
<PAGE>
in conduct or took action that caused or brought about the circumstances
giving rise to such claim, or otherwise contributed thereto; (c) any of the
Acquired Companies or PTG is estopped from asserting or recovering upon such
claim by reason of any of the Acquired Companies having joined in any of the
representations, warranties and covenants made by the Sellers and the
Principal Shareholders in this Agreement; or (d) the Sellers and Principal
Shareholders have a right of contribution from any of the Acquired Companies
to the extent that there is any recovery against them.
16.15 Arbitration. BY EXECUTING THIS AGREEMENT, THE PARTIES ARE AGREEING TO
HAVE ANY MATTER WHICH IS THE SUBJECT OF ARBITRATION PURSUANT TO THIS SECTION
16.15 DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND ARE
GIVING UP ANY RIGHTS THEY MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
COURT OR JURY TRIAL. BY EXECUTING THIS AGREEMENT, THE PARTIES ARE GIVING UP
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY
INCLUDED IN THE ARBITRATION PROVISION, OR ARE OTHERWISE PROVIDED BY CODE OF
CIVIL PROCEDURE SECTION 1280 ET SEQ; IF ANY OF THE PARTIES REFUSES TO SUBMIT
TO ARBITRATION IT MAY BE COMPELLED TO ARBITRATE UNDER THE CALIFORNIA CODE OF
CIVIL PROCEDURE. A PARTY'S AGREEMENT TO THIS ARBITRATION PROVISION IS
VOLUNTARY. BY EXECUTING THIS AGREEMENT, EACH OF THE PARTIES ACKNOWLEDGES THAT
IT HAS READ AND UNDERSTOOD THE FOREGOING AND HAS AGREED TO SUBMIT DISPUTES
ARISING OUT OF MATTERS INCLUDED IN THIS SECTION 16.15 TO NEUTRAL ARBITRATION.
Any controversy or claim arising out of or relating to this Agreement or the
breach hereof shall be settled by binding arbitration, before a retired judge
affiliated with JAMS/Endispute. The place of arbitration shall be the offices
of JAMS/Endispute in San Francisco, California. A party seeking arbitration
shall promptly send its Demand for Arbitration, including a general
description of the nature of the claim and the nature and amount of damages
and/or other relief sought, to the other party and to JAMS/Endispute. The
parties shall cooperate in seeking to agree on the arbitrator; if they are
unable to agree within 10 days of notice of arbitration, JAMS/Endispute shall
promptly select an arbitrator.
Within 10 days after the appointment of the arbitrator, any party may serve
demands for documents on another party to the extent permitted by California
Code of Civil Procedure ("CCP") (S) 2031, and the other party shall respond as
provided in Section 2031. Within 20 days of the production of documents, the
parties shall exchange a list of: (i) any fact witnesses they intend to call
at the arbitration hearing, and (ii) any other persons who may have material
information about the dispute. The witness list also shall include a brief
description of each identified person's knowledge. Within 80 days after the
appointment of the arbitrator, any party may notice depositions, however the
total time for all of each party's depositions of fact witnesses shall not
exceed fifteen eight-hour days, including breaks, and said depositions shall
be completed within 90 days of the notice of deposition. Any other depositions
or discovery shall be as provided by CCP Title 9 Chapter 3.
The parties shall each exchange lists of up to three expert witnesses, along
with a statement of the witnesses' backgrounds and opinions, 45 days prior to
the commencement of the arbitration hearing. Between the 30th and 15th day
preceding the arbitration hearing, each party shall have the right to depose
the other party's experts, however, the total time for all of each party's
depositions of expert witnesses shall not exceed two eight-hour days,
including breaks. At least five business days prior to any expert's scheduled
deposition, the party designating the expert shall provide the other party
with copies of any reports or other documents the expert intends to offer at
the arbitration hearing and all documents on which the expert has relied in
forming his or her opinions.
The arbitration hearing shall be commenced within 240 days of the notice of
arbitration and conducted as expeditiously as possible in the manner provided
by CCP Title 9 Chapter 3. Parties may submit a post-hearing brief to the
arbitrator within 15 days after the conclusion of the arbitration hearing;
replies may be submitted within 10 days thereafter. Within 45 days after the
conclusion of the arbitration hearing, the arbitrator shall render an award
and issue a written statement of reasons for the award. The arbitration award
shall dispose of all of the issues that are the subject of the arbitration.
Except as otherwise limited by the Agreement, the arbitrator shall be
empowered to award compensatory or actual damages or enter an equitable award
or remedy as established
A-70
<PAGE>
by the preponderance of the evidence, but shall NOT have the authority (i) to
award punitive damages, or (ii) to reform, modify or materially change this
Agreement. Judgment upon the award may be entered in any court of competent
jurisdiction.
Costs of the arbitration initially shall be borne one-third each by each of
the Sellers and PTG. However, in the discretion of the arbitrator, the
prevailing party(ies) in the arbitration may be entitled to recover costs and
reasonable attorney's fees. The arbitrator's award shall determine the
prevailing party(ies), if any, in accordance with CCP '1032. Within 15 days
after receipt of the award, the prevailing party(ies) shall submit to the
arbitrator a bill of costs and itemization of claimed attorney's fees.
Opposing parties may have 15 days to respond. Costs and attorney's fees shall
be determined as provided by CCP (S) 1033.5. Within 45 days after the award,
the arbitrator shall complete the award by adding costs and attorney's fees as
appropriate. For purposes of petitions to confirm, correct or vacate the award
pursuant to CCP Title 9 Chapter 4, the time of service of any award to which
costs or attorney's fees have been added as provided above shall be deemed to
be the date of service of a signed copy of the award, including costs and/or
attorney's fees, on the petitioner. The following periods set forth in the CCP
shall be shortened as follows: Section 1288--from four years to 180 days to
file and serve a petition to confirm an award; and from 100 days to 30 days to
file and serve a petition to vacate or correct an award; Section 1288.2--from
100 days to 30 days to file and serve a response to a petition to vacate or
correct an award. The provisions of CCP (S) 998 (relating to offers of
compromise) and of Civil Code (S) 3287 (relating to prejudgment interest)
shall be applicable to any arbitration proceeding commenced hereunder.
16.16 Escrow Agreement. The Sellers, the Principal Shareholders and PTG
hereby each ratify, confirm and approve the Escrow Agreement and the terms
thereof are hereby made applicable to this Agreement.
A-71
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE DULY
EXECUTED AND MADE AND ENTERED INTO AS OF THE DATE FIRST SET FORTH ABOVE.
PACIFIC TELESIS GROUP
By: _________________________________
Name:
Title:
PACIFIC TELESIS ACQUISITIONS
By: _________________________________
Name:
Title:
PACIFIC TELESIS PURCHASING
By: _________________________________
Name:
Title:
LE GROUPE VIDEOTRON LTEE
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
VIDEOWAY TECHNOLOGIES LTD.
By: _________________________________
Name:
Title:
VIDEOTRON USA, INC.
By: _________________________________
Name:
Title:
A-72
<PAGE>
TRANSWORLD COMMUNICATIONS, INC.
By: _________________________________
Name:
Title:
WIRELESS HOLDINGS, INC.
By: _________________________________
Name:
Title:
VIDEOTRON (BAY AREA), INC.
By: _________________________________
Name:
Title:
WITH RESPECT TO SECTIONS 9.06 AND
14.01 AND ARTICLE VA ONLY
_____________________________________
Lance V. D'Ambrosio
WITH RESPECT TO SECTIONS 7.13, 9.06,
9.09 AND 14.01 AND ARTICLES VA AND
XV
_____________________________________
F. Lorenzo Crutchfield, Jr.
A-73
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PTG
PTG SHARES TO SHARES TO BE
NUMBER OF CASH BE DISTRIBUTED DEPOSITED INTO TOTAL NUMBER OF
SELLER TRANSFERRED SHARES INDEBTEDNESS PAYMENT AT CLOSING ESCROW PTG SHARES
- ------ ------------------- ------------ ------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Videoway 3,000 Shares of $ $ ***
Technologies Videotron USA
Ltd. Common Stock*
TTI 4,642 Shares of WHI $ $ 0 ***
Common Stock and
200 Shares of the
Common Stock of
VBAI
</TABLE>
- --------
* Videotron USA holds 4,642 shares of the Common Stock of WHI. Videotron USA
holds 800 shares of the Common Stock of VBAI.
** Which shares include repayment of all Outstanding Indebtedness owed to
TTI.
*** Videotron guarantees TTI a minimum of $47 million of the equity portion.
Videotron Technologies and TTI then split any remaining equity 56% and
44%, respectively.
A-74
<PAGE>
SCHEDULE B
PERMITTED MONTHLY SUBSCRIBERS
<TABLE>
<CAPTION>
SEP-95 OCT-95 NOV-95 DEC-95 JAN-96 FEB-96 MAR-96 APR-96 MAY-96 JUN-96 JUL-96 AUG-96 TOTAL
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PERMITTED MONTHLY
SUBSCRIBERS
Spokane System.......... 410 440 430 220 210 210 210 210 210 210 210 210 3,180
Tampa System............ 850 970 830 460 440 440 440 440 440 440 440 440 6,630
----- ----- ----- --- --- --- --- --- --- --- --- --- -----
Total Permitted Monthly
Subscribers............ 1,260 1,410 1,260 680 650 650 650 650 650 650 650 650 9,810
</TABLE>
A-75
<PAGE>
SCHEDULE C
ASSUMED EMPLOYEE AGREEMENTS
Letter Agreement, dated September 2, 1994, between Wireless Holdings, Inc.
and Ron Hren, as amended by letter dated October 26, 1995, except for the
payment of $56,250 to be paid within 10 days of an acquisition of Wireless
Holdings, Inc.
A-76
<PAGE>
SCHEDULE D
REQUIRED CONSENTS/ESTOPPEL LETTERS
CONSENTS IN THE FORM OF EXHIBIT E SHALL BE DELIVERED
WITH RESPECT TO THE FOLLOWING AGREEMENTS:
Channel Leases
Northern Bay Area System: channel Leases for a minimum of 32 Channels,
including for any Channels used to satisfy the Minimum Channel Delivery
Condition.
Southern Bay Area System: channel Leases for a minimum of 22 Channels,
including any Channels used to satisfy the Minimum Channel Delivery Condition.
San Diego System: channel Leases for a minimum of 6 Channels
Tampa System: channel Leases for a minimum of 26 Channels
Seattle System: channel Leases for a minimum of 16 Channels
Spokane System: channel Leases for a minimum of 30 Channels
Greenville System: channel Leases for a minimum of 24 Channels
Victorville System: channel Leases for a minimum of 20 Channels
Programming and Retransmission Agreements
TAMPA
ABC: Retransmission Consent Agreement, dated as of August 23, 1993,
between Great American Television and Radio Company and Transworld
Wireless TV
American
Movie Classics:
Need Contract.
CBS: Retransmission Consent Agreement, dated as of August 23, 1993,
between GCI Broadcast Services, Inc. and Transworld Wireless
Television
Channel 9:
(WROR)
Customer Service Order, dated May 21, 1990, between WCTV/Tampa
Bay, Inc. and Eastern Microwave, Inc.
Channel 13:
(WTVT)
Retransmission Consent Agreement, dated as of July 1, 1995,
between New World Communications of Tampa, Inc. and Videotron (Bay
Area) Inc.
Channel 44:
(WTOG)
Retransmission Consent Agreement, dated as of August 20, 1993,
between WTOG-Channel 44 and Transworld Wireless TV
Cinemax: Need Contract.
CNBC: Need Contract.
CNN: National Cable Television Cooperative ("NCTC")
A-77
<PAGE>
The Discovery
Channel:
NCTC
ESPN: Multipoint Distribution Service License Agreement, dated as of
September 14, 1993, between ESPN, Inc. and Transworld Wireless TV
dba WCTV
HBO: Need Contract.
The Lifetime
Network:
Affiliation Agreement, dated as of April 27, 1995 between Lifetime
Entertainment Services and Wireless Holdings, Inc.
NBC: Retransmission Consent Agreement, dated as of September 20, 1993,
between Tampa Television Inc. and Transworld Wireless TV
TBS: Ten Year--MMDS Service Agreement, dated June 1, 1995, between
Southern Satellite Systems, Inc. and Wireless Holdings Inc.
TNT: NCTC
USA Network:Affiliation Agreement for MMDS Exhibition, dated May 7, 1995,
between USA Networks and Wireless Holdings, Inc.
The Weather
Channel:
MMDS Affiliation Agreement, dated July 10, 1992, between The
Weather Channel, Inc. and WCTV/Tampa Bay, Inc.
(WFLA): , dated as of September 20, 1993, between WFTS-28 and .
SPOKANE
A&E: MMDS Affiliate Agreement, dated as of July 30, 1992, between
Hearst/ABC/NBC and Skyline Entertainment Network, L.P.--assigned
to Wireless Holdings Inc.
American
Movie Classics:
Need Contract.
Cinemax: Need Contract.
CNN: NCTC
The Discovery
Channel:
NCTC
The Disney
Channel:
MMDS Affiliation Agreement, dated November 12, 1992, between The
Disney Channel and Wireless Holdings, Inc.
ESPN: Multipoint Distribution Service License Agreement, dated as of
March 16, 1994, between ESPN, Inc. and Wireless Holdings, Inc.
The Family
Channel:
Affiliation Agreement for Wireless Cable Distribution, dated
January 20, 1995, between The Family Channel and Skyline
Entertainment Network
HBO: Need Contract.
Headline News:
NCTC
A-78
<PAGE>
The Lifetime
Network:
Affiliation Agreement, dated as of April 27, 1995, between
Lifetime Entertainment Services and Wireless Holdings, Inc.
MTV: MMDS License, dated as of October 30, 1990, between MTV Networks,
a division of Viacom International, Inc. and Skyline Entertainment
Network.
Nickelodeon:MMDS License, dated as of October 30, 1990, between MTV Networks,
a division of Viacom International, Inc. and Skyline Entertainment
Network.
Prime Sports
Network:
Prime Sports Northwest Network, dated March 31, 1991, between
Prime Sports Northwest Network and Suncrest Cablevision Inc.
Showtime: MMDS The Movie Channel Service Agreement, dated as of October 4,
1993, between Showtime Networks Inc. and Skyline Entertainment
Network.
TBS: Ten Year--MMDS Service Agreement, dated June 1, 1995, between
Southern Satellite Systems, Inc. and Wireless Holdings, Inc.
TNT: NCTC
USA Network:Affiliation Agreement for MMDS Exhibition, dated May 7, 1995,
between USA Networks and Wireless Holdings, Inc.
Site Leases
Site Leases listed on Schedule 3.13(b)(ii).
Other Agreements
BSI Customer Agreement, dated December 29, 1992, between Business Systems,
Inc. and Skyline Entertainment Network.
A-79
<PAGE>
SCHEDULE E
SUBLEASED CHANNELS
Northern Bay Area
1. San Francisco: KFF81, Channel MDS-1
2. San Francisco: KHU89, Channel F-2, University of California, San Francisco
3. San Francisco: KTB97, Channel F-4, University of California, San Francisco
Southern Bay Area
4. San Jose: WHG338, Channels B1 through B4, Santa Clara Board of Education
5. San Jose: WHR467, Channels C1 through C4, ACE
A-80
<PAGE>
EXHIBIT A
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), made and entered into as of the day
of , 1995, by and among Transworld Telecommunications Inc., a Pennsylvania
corporation ("TTI"), Videoway Technologies Ltd., a Barbados corporation
("Videoway" and together with TTI, the "Holders"), Le Groupe Videotron Ltee, a
Canadian corporation ("Videotron Canada"), Pacific Telesis Group, a Nevada
corporation ("PTG"), and The Chase Manhattan Bank, N.A. (the "Escrow Agent").
WITNESSETH:
Whereas, pursuant to the provisions of the Stock Purchase Agreement dated as
of November 9, 1995 (the "Stock Purchase Agreement"; capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Stock
Purchase Agreement), by and among PTG, Pacific Telesis Acquisitions, a
California corporation, TTI, Videotron U.S.A., a Delaware corporation,
Videoway, Wireless Holdings, Inc., a Delaware corporation, Videotron (Bay
Area), Inc., a Florida corporation, F. Lorenzo Crutchfield, Lance D'Ambrosio
and Videotron Canada, the Holders are concurrently herewith transferring and
conveying to PTG or one of its Subsidiaries in the aggregate 100% of the
outstanding shares of Common Stock of the Acquired Companies;
Whereas, pursuant to the Stock Purchase Agreement, and as a condition
precedent to the consummation by PTG of the transactions contemplated by the
Stock Purchase Agreement, the Holders have agreed to deposit in escrow certain
shares of PTG Common Stock as described herein;
Whereas, the Stock Purchase Agreement provides that the Escrow Agent shall
hold and disburse the shares of PTG Common Stock so deposited pursuant to the
terms of this Agreement;
Whereas, a copy of the Stock Purchase Agreement has been delivered to the
Escrow Agent, and the Escrow Agent is willing to act as escrow agent
hereunder.
Now Therefore, in consideration of the premises and the covenants and
agreements hereinafter set forth and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Appointment of Escrow Agent. The parties hereto designate The Chase
Manhattan Bank, N.A. to act as Escrow Agent hereunder, and The Chase Manhattan
Bank, N.A. hereby accepts such appointment and agrees to act as Escrow Agent
hereunder, upon the terms and subject to the conditions hereinafter set forth.
2. Delivery of Shares. (a) On the Closing, PTG hereby agrees to deliver to
the Escrow Agent on behalf of the Holders an aggregate of shares of PTG
Common Stock [$11 million for Videoway's account and $6 million for TTI's
account] and the Escrow Agent hereby acknowledges receipt of such shares. Of
such shares, shares [$11 million value] constitute the "Videotron
Collateral" and shares constitute the "TTI Collateral" [$6 million value].
The Videotron Collateral and the TTI Collateral shall in the aggregate be
referred to as the "Collateral".
(b) In consideration of the covenants herein contained, and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and in order to provide security for any liability of the
respective parties to the Stock Purchase Agreement to PTG, its
Subsidiaries, the Acquired Companies, or their respective Affiliates,
agents, officers, employees, successors and assigns, arising under or by
virtue of Article XV of the Stock Purchase Agreement and the post-closing
purchase price adjustment pursuant to Section 14.03 of the Stock Purchase
Agreement, the Holders (and to the extent of its rights, Videotron Canada)
each hereby grants to PTG a security interest in and hereby transfers,
assigns and delivers to the Escrow Agent, as agent for PTG with respect to
such security interest, the Collateral.
A-81
<PAGE>
3. Duties of the Escrow Agent. The Escrow Agent is hereby authorized and
directed to hold the Collateral as agent for PTG and the Holders and to
deliver the same in accordance with the provisions of this Agreement.
4. Disbursement of Shares out of the Collateral. (a) The Collateral is
intended to provide PTG security for (i) the obligations of the Holders and
Videotron Canada under Article XV of the Stock Purchase Agreement and (ii) the
potential requirement that a number of shares of PTG Common Stock may be
required to be returned to PTG pursuant to a purchase price adjustment set
forth in Section 14.03 of the Stock Purchase Agreement. Shares shall be
delivered out of the Collateral only as set forth in this Section 4.
(b) With respect to the Videotron Collateral, promptly upon receipt from
time to time of proper instructions (the "Collateral Instructions") from
PTG, as hereinafter provided, the Escrow Agent shall notify Videotron
Canada if the Collateral Instructions relate to the Videotron Collateral by
certified mail (or by a nationally recognized overnight courier service)
with a copy of the Collateral Instructions from PTG. With respect to any
Collateral Instructions relating to the Videotron Collateral, if the Escrow
Agent receives Contrary Collateral Instructions as defined below from
Videotron Canada within fifteen (15) calendar days after the mailing of the
notice referred to above by the Escrow Agent, the Escrow Agent shall
promptly deliver a copy of such Contrary Collateral Instructions to PTG and
shall take no action with respect to the Videotron Collateral, but shall
continue to hold the Videotron Collateral, either (i) until jointly
directed in writing by PTG and Videotron Canada or (ii) until PTG or
Videotron Canada delivers to the Escrow Agent a copy of a final arbitration
order certified by an arbitration panel or a final order of a court of
competent jurisdiction, which such order in either case expressly provides
for the resolution of the dispute with respect to the Videotron Collateral.
With respect to any Collateral Instructions relating to the Videotron
Collateral, if the Escrow Agent does not receive Contrary Collateral
Instructions from Videotron Canada within such fifteen (15) day period, the
Escrow Agent shall deliver the Videotron Collateral, or any portion
thereof, to PTG as such Collateral Instructions shall direct.
(c) With respect to the TTI Collateral, promptly upon receipt from time
to time of proper instructions (the "Collateral Instructions") from PTG, as
hereinafter provided, the Escrow Agent shall notify TTI by certified mail
(or by a nationally recognized overnight courier service) with a copy of
the Collateral Instructions from PTG. With respect to any Collateral
Instructions relating to the TTI Collateral, if the Escrow Agent receives
Contrary Collateral Instructions as defined below from TTI within fifteen
(15) calendar days after the mailing of the notice referred to above by the
Escrow Agent, the Escrow Agent shall promptly deliver a copy of such
Contrary Collateral Instructions to PTG and shall take no action with
respect to the TTI Collateral, but shall continue to hold the TTI
Collateral either (i) until jointly directed in writing by PTG and TTI or
(ii) until PTG or TTI delivers to the Escrow Agent a copy of a final
arbitration order certified by an arbitration panel or a final order of a
court of competent jurisdiction, which such order in either case expressly
provides for the resolution of the dispute relating to the TTI Collateral.
With respect to any Collateral Instructions relating to the TTI Collateral,
if the Escrow Agent does not receive Contrary Collateral Instructions from
TTI within such fifteen (15) day period, the Escrow Agent shall deliver the
TTI Collateral, or any portion thereof, as such Collateral Instructions
shall direct.
(d) Collateral Instructions (i) shall be in writing, addressed to the
Escrow Agent as such under this Agreement, dated currently, and signed on
behalf of PTG by one or more officers thereof authorized by or in
accordance with a corporate resolution delivered to the Escrow Agent or
described as authorized in a certificate delivered to the Escrow Agent by
the appropriate Secretary or an Assistant Secretary or similar officer of
PTG; (ii) shall refer to this Agreement; (iii) shall identify in reasonable
detail either (A) the matter and section of the Stock Purchase Agreement
for which recourse is sought pursuant to the Stock Purchase Agreement and
the amount, if known, of the Loss or Expense or (B) the adjustment to the
purchase price as set forth in Section 14.03 of the Stock Purchase
Agreement; (iv) shall specify which Collateral (i.e., either the TTI
Collateral or the Videotron Collateral or a combination thereof) the Escrow
Agent should use to
A-82
<PAGE>
cover the amount or adjustment; and (v) shall direct the Escrow Agent to
deliver the Collateral, or any portion thereof, to PTG as stated in such
Collateral Instructions. Collateral Instructions shall be made in good
faith by PTG.
(e) "Contrary Collateral Instructions" shall mean the filing of a
certificate with the Escrow Agent by Videotron Canada with respect to the
Videotron Collateral or TTI with respect to the TTI Collateral, stating
that the Collateral Instructions delivered by PTG are inaccurate (with a
reasonably detailed description setting forth the basis of such inaccuracy)
and that the Collateral, or such portion thereof specified in the
Collateral Instructions, should not be disbursed until resolution of such
dispute directly between the parties or pursuant to the arbitration
provision set forth in Section 6 below or Section 16.15 of the Stock
Purchase Agreement. Any Contrary Collateral Instructions shall be made in
good faith by Videotron Canada and TTI.
(f) With respect to the Videotron Collateral, the Escrow Agent shall
distribute to the registered holder of the shares of PTG Common Stock (i)
on the second anniversary of the date of this Escrow Agreement, the number
of shares of PTG Common Stock having a value (as determined in accordance
with paragraph (h) below) of $5,000,000 of the Videotron Collateral
delivered by PTG hereunder on behalf of Videoway and (ii) on the third
anniversary of the date of this Escrow Agreement, the remaining shares of
PTG Common Stock of the Videotron Collateral delivered by PTG hereunder on
behalf of Videoway Notwithstanding the above, if PTG has delivered a
Collateral Instruction requesting disbursement out of the Videotron
Collateral (or any portion thereof) which disbursement has not been so
made, then the Escrow Agent shall distribute on any date provided above the
lesser of (A) such amount to be distributed on such date as provided above
and (B) the excess, if any, of the number of shares of PTG Common Stock
constituting the remaining Videotron Collateral over the number of shares
of PTG Common Stock requested to be released from the Videotron Collateral
by such Collateral Instructions.
(g) With respect to the TTI Collateral, the Escrow Agent shall distribute
to TTI on the later of (i) the 11 month anniversary of the date of this
Agreement or (ii) five Business Days after the Escrow Agent receives
certified notice of the dissolution of TTI, all of the shares of PTG Stock
constituting the TTI Collateral delivered by PTG hereunder on behalf of
TTI. Notwithstanding the above, if PTG has delivered a Collateral
Instruction requesting disbursement out of the TTI Collateral (or any
portion thereof) which disbursement has not been so made, then the Escrow
Agent shall distribute on any date provided above the lesser of (i) such
amount to be distributed on such date as provided above and (ii) the
excess, if any, of the number of shares of PTG Common Stock constituting
the TTI Collateral over the number of shares of PTG Common Stock requested
to be released from the TTI Collateral by such Collateral Instructions.
(h) For purposes of this Agreement, the value of the shares of PTG Common
Stock for any distribution out of this escrow shall be based upon the
average of the closing sales price on the New York Stock Exchange Composite
Tape (as reported in the Wall Street Journal) for a share of PTG Common
Stock during the twenty Business Days preceding the date of distribution.
5. Termination of this Agreement. Forthwith upon the later of (a) three
years after the date hereof or (b) the final disposition of any claims by PTG
for which PTG shall have given notice pursuant thereof prior to the expiration
of such three year period, the Escrow Agent shall deliver any remaining
portion of the Videotron Collateral then held by the Escrow Agent to Videoway,
and any remaining portion of the TTI Collateral to TTI.
6. Arbitration. Any dispute between the Videotron Canada or Videoway, on the
one hand, and PTG, on the other hand, or TTI, on the one hand, and PTG, on the
other hand as to whether the Collateral, or any portion thereof, shall be
disbursed by the Escrow Agent, as to the amount of such disbursement or as to
the identity of the party hereto to which such disbursement shall be made
shall be finally settled by arbitration in accordance with the provisions of
Section 16.15 of the Stock Purchase Agreement.
A-83
<PAGE>
7. Provision Regarding Escrow Agent.
(a) Liability of Escrow Agent. In performing any duties under this
Agreement, the Escrow Agent shall not be liable to any party for damages,
losses, or expenses, except for gross negligence or willful misconduct on
the part of the Escrow Agent. The Escrow Agent shall not incur any
liability for (i) any act or failure to act made or omitted in good faith,
or (ii) any action taken or omitted in reliance upon any instrument,
including any written statement or affidavit provided for in this Agreement
that the Escrow Agent shall in good faith believe to be genuine, nor will
the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority.
The Escrow Agent undertakes to perform only such duties as are expressly
set forth herein. Without limiting the generality of the foregoing, the
Escrow Agent shall have no liability relating to any loss or damage
incurred by PTG, any Holder or Videotron Canada arising in connection with
or from the failure to perform or delay in the performance of any duties of
the Escrow Agent hereunder caused solely by the failure or delay in the
Escrow Agent receiving any related notice (to the extent such notice is
required to be delivered hereunder) instructing the Escrow Agent to perform
such duty pursuant to the terms hereof. In addition, the Escrow Agent may
consult with legal counsel in connection with the Escrow Agent's duties
under this Agreement and shall be fully protected in any act taken,
suffered, or permitted by him/her in good faith in accordance with the
advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf
of any party to this Agreement. The Escrow Agent need not maintain any
insurance with respect to the Collateral.
The Escrow Agent does not make any representation or warranty with regard
to the creation or perfection, hereunder or otherwise, of a security
interest in the Collateral (or any portion thereof) or regarding the
negotiability or transferability of, or existence of other interest in the
Collateral (or any portion thereof). The Escrow Agent shall have no
responsibility at any time to ascertain whether or not any security
interest exists in the Collateral or any part thereof or to file any
financing statement under the Uniform Commercial Code of any state with
respect to the Collateral or any part thereof.
Except as otherwise expressly provided herein, the Escrow Agent is
authorized to execute instructions and take other actions pursuant to this
Agreement in accordance with its customary processing practices for similar
customers and, in accordance with such practices the Escrow Agent may
retain agents, including its own subsidiaries or affiliates, to perform
certain of such functions. In the event of any loss to the other parties
hereto by reason of the gross negligence or willful misconduct of the
Escrow Agent, the Escrow Agent shall be liable to the other parties only to
the extent of the other party's direct damages without reference to any
special conditions or circumstances. All collection and receipt of funds or
securities and all payment and delivery of funds or securities under this
Agreement shall be made by the Escrow Agent as agent, at the risk of the
other parties hereto with respect to their actions or omissions and those
of any person other than the Escrow Agent. In no event shall the Escrow
Agent be responsible or liable for any loss due to acts of God, flood,
nuclear fusion, fission or radiation, war (declared or undeclared),
terrorism, insurrection, revolution, riot, strikes or work stoppages for
any reason, embargo, government action, including any laws, ordinances,
regulations or the like which restrict or prohibit the providing of the
services contemplated by this Agreement. In the event that the Escrow Agent
is unable substantially to perform for any of the reasons described in the
immediately preceding sentence, it shall so notify the other parties hereto
as soon as reasonably practicable.
(b) Fees and Expenses. It is understood that the fees and usual charges
agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In
the event that the conditions of this Agreement are not promptly fulfilled,
or if the parties request a substantial modification of its terms, or if
any controversy arises, or if the Escrow Agent is made a party to, or
intervenes in, any litigation pertaining to this escrow or its subject
matter, the Escrow Agent shall be reasonably compensated for such
extraordinary services and reimbursed for all costs, attorneys' fees,
including allocated costs of in-house counsel, and expenses occasioned by
such default, delay, controversy or litigation and the Escrow Agent shall
have the right to retain all documents and/or other
A-84
<PAGE>
things of value at any time held by the Escrow Agent in this escrow until
such compensation, fees, costs, and expenses are paid. PTG and the Holders
each promise to pay one-third of these sums upon demand. Unless otherwise
provided, PTG and the Holders each will pay one-third of the Escrow Agent's
charges.
(c) Controversies. If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required
to determine the controversy or to take any action regarding it. The Escrow
Agent may hold all documents and funds and may wait for settlement of any
such controversy by final arbitration as provided in the Agreement. In such
event, the Escrow Agent will not be liable for interest or damage resulting
from any delay or loss which may occur as a result of such arbitration.
Furthermore, the Escrow Agent may, at its option, file an action requiring
the parties to arbitrate any claims and rights among themselves. The Escrow
Agent is authorized to deposit with the arbiters all documents and funds
held in escrow, except all costs, expenses, charges and reasonable
attorneys' fees incurred by the Escrow Agent due to the arbitration action
and which the parties jointly and severally agree to pay. Upon initiating
such action, the Escrow Agent shall be fully released and discharged of and
from all obligations and liability imposed by the terms of this Agreement
relating to such amounts and documents deposited with the arbiters referred
to above and any subsequent actions taken by such arbiters.
(d) Indemnification of Escrow Agent. PTG, Videotron Canada, Videoway and
TTI and their respective successors and assigns agree, jointly and
severally, to indemnify and hold the Escrow Agent harmless against any and
all losses, claims, damages, liabilities, and expenses, including
reasonable costs of investigation, counsel fees, including allocated costs
of in-house counsel, and disbursements that may be imposed on the Escrow
Agent or incurred by the Escrow Agent in connection with the performance of
his/her duties under this Agreement, including but not limited to any
litigation arising from this Agreement or involving its subject matter,
except for such claims, issues, damages, liabilities and expenses arising
from the gross negligence or willful misconduct of the Escrow Agent.
(e) Resignation of Escrow Agent. The Escrow Agent may resign at any time
upon giving at least thirty (30) days' written notice to the parties;
provided, however, that no such resignation shall become effective until
the appointment of a successor escrow agent which shall be accomplished as
follows: The parties shall use their best efforts to mutually agree on a
successor escrow agent within thirty (30) days after receiving such notice.
If the parties fail to agree on a successor escrow agent within such time,
the Escrow Agent shall have the right to appoint a successor escrow agent
authorized to do business in the State of California. The successor escrow
agent shall execute and deliver an instrument accepting such appointment
and it shall, without further acts, be vested with all the estates,
properties, rights, powers, and duties of the predecessor escrow agent as
if originally named as escrow agent. At such time, the Escrow Agent shall
be discharged from any further duties and liability under this Agreement.
8. Notices. All notices hereunder shall be in writing and may be delivered
in person, mailed by first class mail or certified mail, by overnight courier
or by facsimile transmission (receipt confirmed) to PTG, Videotron Canada,
Videoway, TTI or to the Escrow Agent at their respective address set forth
below or such other address that may be provided from time to time to the
parties in accordance with this Section 8. All such notices which are mailed
shall be deemed delivered upon receipt or, with respect to the Escrow Agent
only, if delivered by a nationally recognized overnight courier service (such
as Federal Express) two business days after depositing such notice in the
mail:
(a) If to TTI, to:
Transworld Telecommunications, Inc.
102 West 500 South, Suite 320
Salt Lake City, UT 84101
Attn: President
Tel: (801) 328-5619
Fax: (801) 532-6060
A-85
<PAGE>
(b) If to Videoway, to:
Videoway Technologies Ltd.
Courts Plaza, 2nd Floor
St. Georges Street/P.O. Box 1354
Bridgetown, Barbados, W.I.
Tel: (809) 431-0272
Fax: (809) 431-0278
(c) If to Videotron Canada, to:
Le Groupe Videotron Ltee
300 Viger Avenue East
Montreal, Quebec H2X 3W4
Canada
Attn: Secretary
Tel: (514) 985-8822
Fax: (514) 985-8834
(d) If to PTG, to:
Pacific Telesis Group
130 Kearny Street
San Francisco, CA 94108
Attn: Richard W. Odgers, Esq.
Tel: (415) 394-3355
Fax: (415) 986-8780
(e) If to the Escrow Agent:
The Chase Manhattan Bank, N.A.
4 MetroTech Center
3rd Floor
Brooklyn, NY 11245
Attn: Escrow Division
Telephone: (212) 552-0933
Facsimile: (212) 552-1388
9. Rights as Shareholder. Until any shares of PTG Common Stock escrowed
hereunder are delivered to PTG in accordance with the terms hereof, the
Holders shall have all rights of ownership of their shares of PTG Common
Stock, except as otherwise specifically provided herein and subject to the
lien created hereby, including the right to receive dividends thereon and the
right to vote such shares. The Escrow Agent shall have no responsibility for
either the payment of dividends with respect to the PTG Common Stock or the
voting of such shares.
10. Amendments. This Agreement with respect to the Videotron Collateral may
be amended in writing executed by PTG, Videoway, Videotron Canada and the
Escrow Agent, but not otherwise. This Agreement with respect to the TTI
Collateral may be amended in writing executed by TTI, PTG and the Escrow Agent.
No such amendments shall be effective to alter or enlarge the Escrow Agent's
duties, discretion and obligations hereunder without its prior consent.
A-86
<PAGE>
11. Governing Law. This Agreement shall be construed and enforced in
accordance with the substantive laws, and not the law of conflicts, of the
State of New York, as applied to agreements entered into and to be performed
entirely within the State of New York.
12. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Escrow Agent, Videoway, Videotron Canada, TTI and PTG
and each of their respective heirs, personal representatives, successors and
assigns. Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and the respective
heirs, personal representatives, successors and assigns as aforesaid, any
rights or remedies under or by reason of this Agreement. Videoway may transfer
the beneficial ownership of shares of PTG Common Stock attributed to it
hereunder provided that such transferee agrees in writing to assume Videoway's
obligations hereunder.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
A-87
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or have caused this
Agreement to be executed as of the day and year first above written.
TRANSWORLD TELECOMMUNICATIONS INC.:
By___________________________________:
Name:
Title:
VIDEOWAY TECHNOLOGIES LTD.:
By___________________________________:
Name:
Title:
LE GROUPE VIDEOTRON LTEE
By___________________________________:
Name:
Title:
By___________________________________:
Name:
Title:
PACIFIC TELESIS GROUP:
By___________________________________:
Name:
Title:
CHASE MANHATTAN BANK, N.A., as
Escrow Agent:
By___________________________________:
Name:
Title:
A-88
<PAGE>
EXHIBIT B
IRREVOCABLE PROXY
TO VOTE
TRANSWORLD TELECOMMUNICATIONS, INC. STOCK
The undersigned shareholder of Transworld Telecommunications, Inc., a
Pennsylvania corporation ("TTI"), hereby irrevocably appoints the directors on
the Board of Directors of Pacific Telesis Group, a Nevada corporation ("PTG"),
and each of them, as the sole and exclusive attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to vote and
exercise all voting and related rights (to the full extent that the
undersigned is entitled to do so) with respect to all of the shares of capital
stock of TTI that now are or hereafter may be beneficially owned by the
undersigned, and any and all other shares or securities of TTI issued or
issuable in respect thereof on or after the date hereof (collectively, the
"Shares") in accordance with the terms of this Proxy. The Shares beneficially
owned by the undersigned shareholder of TTI as of the date of this Proxy are
listed on the final page of this Proxy. Upon the undersigned's execution of
this Proxy, any and all prior proxies given by the undersigned with respect to
any Shares are hereby revoked and the undersigned agrees not to grant any
subsequent proxies with respect to the Shares until after the Expiration Date
(as defined below).
This proxy is irrevocable and is granted pursuant to, and in consideration
of PTG's entering into, that certain Stock Purchase Agreement dated as of
November 9, 1995, between PTG, the undersigned shareholder and certain other
parties listed therein (the "Stock Purchase Agreement"). Capitalized terms
used herein and not otherwise defined shall have the meanings given them in
the Stock Purchase Agreement. As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) the Closing Date or (ii) the termination of
the Stock Purchase Agreement in accordance with its terms.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting and other rights of the undersigned with
respect to the Shares at every annual, special or adjourned meeting of the
shareholders of TTI and in every written consent in lieu of such meeting:
(a) in favor of approval of the Exchange and the Stock Purchase Agreement and
in favor of any matter that could reasonably be expected to facilitate the
Exchange, and (b) against approval of any proposal made in opposition to or in
competition with the consummation of the Exchange and the Stock Purchase
Agreement, including against any merger, consolidation, sale of assets,
reorganization or recapitalization of TTI with any party other than PTG. The
attorneys and proxies named above may not exercise this Irrevocable Proxy on
any other matter except as provided in clauses (a) and (b) above. The
undersigned shareholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: , 1995 Signature of Shareholder:_______________________
Print Name of Shareholder:______________________
Shares beneficially owned:
________ shares of Transworld Telecommunications,
Inc.
A-89
<PAGE>
EXHIBIT C
INTENTIONALLY DELETED
AGREEMENT CONCERNING CERTAIN MULTIPOINT DISTRIBUTION SERVICE BASIC TRADING AREA
AUTHORIZATIONS
A-90
<PAGE>
EXHIBIT D
[FORM OF OPINION OF COUNSEL
PURSUANT TO SECTION ]
[DATE OF CLOSING]
Pacific Telesis Group
130 Kearny Street
San Francisco, CA 94108
Attention: Richard Odgers, Esq.
Re: Stock Purchase Agreement,
dated as of November , 1995
Ladies and Gentlemen:
DESCRIPTION OF REPRESENTATION
[Describe Representation]
MATERIALS EXAMINED
In this regard, we have examined executed originals or copies of the
following, copies of which have been delivered to you or your counsel:
[List Documents Reviewed]
Transaction Agreements shall mean the Escrow Agreement.
OPINIONS
Based upon such examination, having regard for legal considerations which we
deem relevant, and subject to the assumptions, limitations, and qualifications
below, we are of the following opinions:
(i) Each of the Acquired Companies, Sellers, Videotron Canada and TTI
(collectively, the "Selling Corporate Entities") is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has full corporate power and
authority to own its properties and assets and to conduct its business as
presently conducted. Each of the Selling Corporate Entities is duly
qualified or licensed to do business as a foreign corporation in good
standing in every jurisdiction in which its ownership of property or the
conduct of its business requires such qualification or licensing, except
where the failure to be so qualified or licensed would not have a material
adverse effect upon its Financial Status.
(ii) The authorized capital stock of WHI consists of 50,000 shares of
Common Stock, $.001 par value. As of the date hereof, there are 9,284
shares of Common Stock held of record by the Persons listed on Schedule A
to the Stock Purchase Agreement in the respective amounts indicated
therein. All of the outstanding shares of WHI's Common Stock have been duly
authorized and validly issued and are fully-paid, non-assessable and free
of preemptive or, to our knowledge, similar rights of any Person.
(iii) The authorized capital stock of VBAI consists of 1,000 shares of
Common Stock, $.01 par value. As of the date hereof, there are 1000 shares
of Common Stock held of record by the Persons listed on Schedule A to the
Stock Purchase Agreement in the respective amounts indicated therein. All
of the outstanding shares of VBAI's Common Stock have been duly authorized
and validly issued and are fully-paid, non-assessable and free of
preemptive and, to our knowledge, similar rights of any Person.
(iv) The authorized capital stock of Videotron U.S.A. consists of 5,000
shares of Common Stock, $.01 par value, and 5,000 shares of Class A Common
Stock, $.01 par value. As of the date hereof, there are
A-91
<PAGE>
3,000 shares of Class A Common Stock held of record by Videoway and no
shares of Common Stock outstanding. All of the outstanding shares of
Videotron U.S.A. have been duly authorized and validly issued and are
fully-paid, non-assessable and free of preemptive or, to our knowledge,
similar rights of any Person.
(v) To our knowledge, WHI, VBAI and Videotron USA have no Subsidiaries
except as set forth in the Stock Purchase Agreement. The authorized capital
stock of BAC, TWTV-Spokane, TTI Acquisition, WHI-San Diego and Desert Winds
Comm, Inc. is , , , and , respectively. As of the date
hereof, BAC, TWTV-Spokane, TTI Acquisition, WHI-San Diego and Desert Winds
Comm, Inc, have issued and outstanding , , , , and shares of
Common Stock, respectively, all held of record by WHI or its Subsidiaries
and have no shares of Preferred Stock issued and outstanding. All of the
outstanding shares of Common Stock of such Subsidiaries have been duly
authorized and validly issued and are fully-paid, non-assessable and, to
our knowledge, free of preemptive or similar rights of any Person.
(vi) To our knowledge after review of the charter documents and corporate
minutes of the Selling Corporate Entities and their respective material
agreements, other than as referred to in paragraphs (ii), (iii), (iv) and
(v) above, each of the Acquired Companies and their Subsidiaries has no
calls, subscriptions or other rights, agreements, or commitments obligating
any of the Acquired Companies or their Subsidiaries to issue, transfer, or
sell any shares of its capital stock or has any outstanding options,
warrants, debentures or other securities convertible into or exchangeable
or exercisable for shares of its capital stock.
(vii) To our knowledge, after review of the charter documents and
corporate minutes of the Selling Corporate Entities and their respective
material agreements, there are no outstanding contracts, commitments or
arrangements by which any of the Acquired Companies or their Subsidiaries
is or may become bound to issue, repurchase, retire or otherwise acquire
any shares of its capital stock or any security convertible into or
exchangeable for any of its capital stock. To our knowledge, none of the
Acquired Companies is a party to any voting trust or other agreement or
understanding with respect to the voting of its capital stock.
(viii) Each of the Selling Corporate Entities has the requisite corporate
power and authority to enter into, perform, and consummate the transactions
contemplated by the Stock Purchase Agreement and the other Transaction
Agreements to which it is a party. The Stock Purchase Agreement and the
other Transaction Agreements have been duly authorized by all necessary
corporate action on the part of each of the Selling Corporate Entities
which is a party thereto, have been duly executed and delivered if a party
thereto by the Selling Corporate Entities, and are legal, valid, and
binding obligations of the Selling Corporate Entities if a party thereto
and, enforceable against them in accordance with their respective terms.
[Add typical carveouts for bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or
law.)]
(ix) The Stock Purchase Agreement is a legal, valid, and binding
obligation of each of the TTI Shareholder and Lance D'Ambrosio, enforceable
against them in accordance with their respective terms. [Add typical
carveouts for bankruptcy, insolvency and similar laws affecting creditors'
rights generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or law.)]
(x) The execution, delivery, and performance of the Stock Purchase
Agreement and the other Transaction Agreements by the Selling Corporate
Entities and the consummation by them of the transactions contemplated
thereby will not result in a breach, violation or default of (a) any of the
terms or conditions of the charter documents of any of the Selling
Corporate Entities or their Subsidiaries, (b) to our knowledge, any Legal
Requirements applicable to the Selling Corporate Entities, their
Subsidiaries, the TTI Shareholder or Lance D'Ambrosio, or (c) except as
described in the Disclosure Schedule, any provision of any Contract or
System Agreement (excluding any FCC Licenses or Permits or any agreements
covered by the FCC Opinion), or any judgment, decree or order of which we
have knowledge to which any of the Selling Corporate Entities or their
Subsidiaries, the TTI Shareholder or Lance D'Ambrosio is a party or by
which it is bound which would materially adversely affect the Financial
Status of the Selling Corporate Entities, their
A-92
<PAGE>
Subsidiaries and the System. To our knowledge, the execution, delivery,
performance and compliance by the Selling Corporate Entities with the Stock
Purchase Agreement and the other Transaction Agreements will not result in
the creation of any Lien under the Contracts and System Agreements upon any
of the properties or assets of the Acquired Companies or their
Subsidiaries, or, to our knowledge, result in the suspension, revocation,
impairment, forfeiture or nonrenewal of any Contract or System Agreement
(other than FCC Licenses or Permits or any agreements covered by the FCC
opinion).
(xi) Except for the filing by and under the HSR and the consent of
the FCC, no authorization, consent, or approval of, notice to, or filing
with any Governmental Authority is required in connection with the
execution, delivery, and performance of the Stock Purchase Agreement and
the other Transaction Agreements or the consummation by the Selling
Corporate Entities, the TTI Shareholder and Lance D'Ambrosio of the
transactions contemplated thereby, other than such as shall have been made
or obtained by the date hereof and as described in the Disclosure Schedules
to the Stock Purchase Agreement or the other Transaction Agreements and any
which individually or in the aggregate would not have a material adverse
effect on the Financial Status of the Acquired Companies, on the System or
on the Tampa, San Jose or San Francisco Systems.
(xii) Immediately prior to the date hereof, each of the Sellers had
record title to the WHI Stock, VBAI Stock and the Videotron Stock to be
sold by such Seller under the Stock Purchase Agreement.
(xiii) Upon payment in accordance with the Stock Purchase Agreement,
record title to the WHI Stock, VBAI Stock and the Videotron Stock to be
sold by each Seller, free and clear of all security interests or other
adverse claim within the meaning of the Uniform Commercial Code, has been
transferred to Newco I and Newco II assuming that both of them purchased
such WHI Stock, VBAI Stock and the Videotron Stock in good faith and
without notice of any such lien, encumbrance, equity or claim or any other
adverse claim within the meaning of the Uniform Commercial Code and except
for any restrictions set forth in the Stock Purchase Agreement.
(xiv) To our knowledge, there is no action, suit, proceeding or
investigation pending against any of the Selling Corporate Entities, any of
their Subsidiaries, the TTI Shareholder or Lance D'Ambrosio or any of their
respective properties which, either in any case or in the aggregate,
questions the validity of the Stock Purchase Agreement or any of the other
Transaction Agreements or the right of the Selling Corporate Entities, the
TTI Shareholder or Lance D'Ambrosio to enter into them, or to consummate
the transactions contemplated thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the
Financial Status of the Acquired Companies, the System or any of the Tampa
System, the Northern Bay Area System or the Southern Bay Area System. To
our knowledge, none of the Acquired Companies or any of their Subsidiaries
is a party or subject to, the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality,
except as set forth in the Disclosure Schedule to the Stock Purchase
Agreement. To our knowledge, there is no action, suit, proceeding or
investigation before any court or governmental agency by any Acquired
Company or any of their Subsidiaries currently pending other than as set
forth in the Disclosure Schedule to the Stock Purchase Agreement.
(xv) The execution and delivery of the Stock Purchase Agreement to which
TTI is a party has been duly approved by the affirmative vote of the
holders of a majority of the outstanding shares of TTI's common stock at a
meeting of shareholders duly called and held.
(xvi) The Proxy Statement (it being understood that we have not been
requested to and do not give any opinion or make any comment with respect
to the financial statements, schedules and other financial and statistical
information contained therein) as of its issue date complied as to form in
all material respects with the Securities Act and Exchange Act with respect
to the Selling Corporate Entities and the Acquired Companies.
In addition, we have participated in conferences with representatives of the
Selling Corporate Entities and their accountants concerning the Registration
Statement and the Proxy Statement and have considered the matters relating to
the Selling Corporate Entities required to be stated therein and the
statements contained therein, although we have not independently verified the
accuracy, completeness, or fairness of such statements. Based upon and subject
to the foregoing, nothing has come to our attention to cause us to believe
that the Registration
A-93
<PAGE>
Statement, as of the effective date of the Registration Statement, contained
an untrue statement of a material fact relating to the Selling Corporate
Entities or omitted to state a material fact relating to the Selling Corporate
Entities required to be stated therein or necessary to make the statements
therein not misleading, or that the Proxy Statement, at its issue date, at the
time that it was first filed with the SEC pursuant to Rule 14a-6(c)
promulgated under the Exchange Act, as of the date that it was mailed to the
holders of record of TTI's outstanding shares of common stock, as of the date
of the meeting of the shareholders of TTI, or as of the date hereof, as it
relates to any of the Selling Corporate Entities, contained an untrue
statement of a material fact relating to the Selling Corporate Entities or
omitted to state a material fact relating to the Selling Corporate Entities
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that we have not been requested to and do not
make any comment in this paragraph with respect to the financial statements,
schedules, and other financial and statistical information contained in the
Registration Statement and the Proxy Statement).
[ADD TYPICAL LIMITATIONS AND ASSUMPTIONS]
[OPINIONS ARE SUBJECT TO REVISIONS BASED ON THE STATE OF FACTS AT THE TIME THE
OPINIONS ARE GIVEN BY TAKING SPECIFIC EXCEPTION TO ANY SUCH OPINION FOR SUCH
FACTS]
A-94
<PAGE>
EXHIBIT E
CONSENT
, 1995
Pacific Telesis Group
130 Kearny Street
San Francisco, CA 94108
Attention: Elizabeth Roemer
Ladies and Gentlemen:
The undersigned is the (Licensor/Lessor) under the Lease (the "Lease")
described in the attached Schedule I, covering ________________________________
- -------------------------------------------------------------------------------
Licensor acknowledges that Wireless Holdings, Inc. or Videotron (Bay Area)
Inc. ("V*TV") is the Lessee under the Lease.
V*TV has informed Licensor that (i) Pacific Telesis Group ("PTG") desires to
purchase V*TV; and (ii) in connection with such purchase, V*TV will assign to
PTG or one of its subsidiaries all of V*TV's interest as Lessee under the
Lease and PTG or one of its subsidiaries will assume all of V*TV's obligations
under the Lease.
With the knowledge that PTG will be relying on the certifications contained
herein in making such purchase, Licensor hereby confirms and certifies to PTG
as follows:
(a) Licensor acknowledges its consent to the transactions described in
clauses (i) and (ii) above and its agreement that such transactions shall
not constitute a default under the Lease or otherwise give Licensor a right
to terminate the Lease or otherwise deprive Lessee of the use of the leased
property as provided for in the Lease.
(b) The Lease, together with any amendments, supplements and other
documents in the attached Schedule I, (i) set forth the entire agreement
between Licensor and Lessee with respect to the property demised thereby;
(ii) are in full force and effect; and (iii) have not been modified or
amended except as set forth in said Schedule I. If there are any additional
amendments, modifications, supplements or other documents relating to the
Lease, they should be set forth here:
(c) As of the date hereof, (i) there are no defaults by Lessee under the
Lease, or any of the amendments, supplements or other documents listed on
the attached Schedule I, with respect to the payment of any fixed,
percentage or additional rent or any other charge or sum due thereunder and
(ii) to the best knowledge of Licensor, there are no other defaults of
Licensor or Lessee thereunder or events which could result in a right of
Licensor to terminate the Lease or otherwise deprive Lessee of the use of
the leased property as provided for in the Lease. There are any non-
monetary defaults or events which could result in a right to terminate the
Lease or otherwise deprive lessee of the use of the leased property, except
as set forth here:
Very truly yours,
Licensor
By: _________________________________
Title: ______________________________
A-95
<PAGE>
EXHIBIT F
[FORM OF OPINION OF PTG IN-HOUSE COUNSEL]
[Date of Closing]
To Transworld Telecommunications Inc. and Videoway Technologies Ltd.
Re: Stock Purchase Agreement,
dated as of October 27, 1995
Ladies and Gentlemen:
DESCRIPTION OF REPRESENTATION
This opinion is furnished to you pursuant to Section 11.06 of the Stock
Purchase Agreement (the "Stock Purchase Agreement"), dated as of October 27,
1995, by and among Pacific Telesis Group, a Nevada corporation ("PTG"),
Pacific Telesis Acquisitions, a California corporation and a wholly-owned
subsidiary of PTG ("Newco I"), Pacific Telesis Purchasing, a California
corporation and wholly-owned subsidiary of Pacific Telesis Enterprises ("Newco
II"), Transworld Telecommunications Inc., a Pennsylvania corporation ("TTI"),
Videotron U.S.A., a Delaware corporation ("Videotron USA"), Videoway
Technologies Ltd., a Netherlands corporation ("Videoway"), Wireless Holdings,
Inc., a Delaware corporation ("WHI"), Videotron (Bay Area), Inc., a Florida
corporation ("VBAI"), F. Lorenzo Crutchfield, Jr. (the "TTI Shareholder"), Le
Groupe Videotron Ltee, a Canadian corporation ("Videotron Canada"), and Lance
D'Ambrosio. Capitalized terms used in this opinion, unless specifically
defined in this opinion, have the meanings given to them in the Stock Purchase
Agreement.
I am general counsel to PTG, Newco I and Newco II (the "PTG Entities") and
as such I am familiar with the Stock Purchase Agreement, the Escrow Agreement,
[the Spectrum Lease], [and the Channel Leases between a PTG entity and the
Holding Corporation (collectively, the "Transaction Agreements") and the
transactions contemplated thereby.
MATERIALS EXAMINED
In this regard, my staff has examined executed originals or copies of the
following, copies of which have been delivered to you or your counsel:
[LIST DOCUMENTS REVIEWED]
( ) Such other instruments, corporate records, certificates, and other
documents as I have deemed necessary as a basis for the opinions hereinafter
expressed.
OPINIONS
Based upon such examination, having regard for legal considerations which I
deem relevant, and subject to the assumptions, limitations, and qualifications
below, I am of the following opinions:
(i) Each of the PTG Entities is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, and has the requisite corporate power and corporate
authority to own its properties and to conduct its business as presently
conducted. Each of the PTG Entities
A-96
<PAGE>
is duly qualified or licensed to do business as a foreign corporation in
good standing in every jurisdiction in which its ownership of property or
conduct of its business requires such qualification or licensing, except
where the failure to be so qualified or licensed would not have a material
adverse effect upon the Financial Status of PTG.
(ii) All issued and outstanding shares of capital stock of PTG have been
duly authorized and validly issued and are fully paid, nonassessable, and
free of preemptive rights. The shares of PTG Common Stock to be issued
pursuant to the terms of the Stock Purchase Agreement have been duly
authorized by all necessary corporate action on the part of the PTG
Entities and will be, when issued in accordance with the terms of the Stock
Purchase Agreement, validly issued, fully paid, nonassessable, free of
preemptive rights and, will be free and clear of any Liens except as set
forth in the Stock Purchase Agreement. All of the shares of PTG Common
Stock issuable to the Sellers pursuant to the Stock Purchase Agreement will
be, when issued, voting stock.
(iii) Each of the PTG Entities has full corporate power and corporate
authority to enter into, perform, and consummate the transactions
contemplated by the Stock Purchase Agreement and the other Transaction
Agreements to which it is a party. Each Transaction Agreement which a PTG
Entity is a party to has been duly authorized by all necessary corporate
action on the part of such PTG Entity and has been duly executed and
delivered by it.
(iv) The execution, delivery, and performance of the Stock Purchase
Agreement and the other Transaction Agreements by the PTG Entities and the
consummation by the PTG Entities of the transactions contemplated by the
Stock Purchase Agreement and the other Transaction Agreements do not
conflict with and will not result in a breach or violation or default of
(a) any of the terms or conditions of the charter or Bylaws of the PTG
Entities, (b) to my knowledge, any Legal Requirements applicable to the PTG
Entities, or (c) any contract, agreement or instrument of indebtedness or
any judgment, decree or order of which I have knowledge to which PTG, the
other PTG Entities or any of PTG's other Subsidiaries is a party or by
which any of the PTG Entities is bound, which would materially adversely
affect the Financial Status of PTG.
(v) Except for the filings under the HSR, no authorization, consent, or
approval of, notice to, or filing with any Governmental Authority is
required in connection with the execution, delivery, and performance of the
Stock Purchase Agreement or the other Transaction Agreements or the
consummation by the PTG Entities of the transactions contemplated thereby,
other than such as shall have been made or obtained by the date hereof and
as contemplated by the Stock Purchase Agreement and any which individually
or in the aggregate would not result in a material adverse change to the
Financial Status of PTG.
(vi) To my knowledge, there is no action, suit, proceeding or
investigation pending against the PTG Entities or any of PTG's other
Subsidiaries or any of their properties which, either in any case or in the
aggregate, questions the validity of the Stock Purchase Agreement or the
other Transaction Agreements or the right of the PTG Entities to enter into
them, or to consummate the transactions contemplated thereby, or which
might result, either individually or in the aggregate, in any material
adverse change in the Financial Status of any of the PTG Entities.
(vii) The Registration Statement has become effective under the
Securities Act and, to my knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act.
(viii) The Registration Statement and the Proxy Statement (it being
understood that we have not been requested to and do not give any opinion
or make any comment with respect to the financial statements, schedules and
other financial and statistical information contained therein) as of its
issue date complied as to form in all material respects with the Securities
Act and Exchange Act.
In addition, my staff has participated in conferences with representatives
of the PTG Entities and their accountants concerning the Registration
Statement and have considered the matters relating to the PTG Entities
required to be stated therein and the statements contained therein, although
we have not independently verified the accuracy, completeness, or fairness of
such statements. Based upon and subject to the foregoing, nothing has
A-97
<PAGE>
come to our attention to cause us to believe that the Registration Statement,
as of the effective date of the Registration Statement, contained an untrue
statement of a material fact relating to the PTG Entities or omitted to state
a material fact relating to the PTG Entities required to be stated therein or
necessary to make the statements therein not misleading, or that the Proxy
Statement, at its issue date, at the time that it was first filed with the SEC
pursuant to Rule 14a-6(c) promulgated under the Exchange Act, or as of the
date hereof, as it relates to any of the PTG Entities, contained an untrue
statement of a material fact relating to the PTG Entities or omitted to state
a material fact relating to the PTG Entities required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they made, not misleading (it being understood that
we have not been requested to and do not make any comment in this paragraph
with respect to the financial statements, schedules, and other financial and
statistical information contained in the Registration Statement and the Proxy
Statement.
[ADD TYPICAL ASSUMPTIONS AND LIMITATIONS]
A-98
<PAGE>
EXHIBIT H
[FORM OF PTG SPECIAL COUNSEL OPINION]
[Date of Closing]
To Transworld Telecommunications Inc. and Videoway Technologies Ltd.
Re: Stock Purchase Agreement, dated as of October 27, 1995
Ladies and Gentlemen:
DESCRIPTION OF REPRESENTATION
This opinion is furnished to you pursuant to Section 11.06 of the Stock
Purchase Agreement (the "Stock Purchase Agreement"), dated as of October 27,
1995, by and among Pacific Telesis Group, a Nevada corporation ("PTG"),
Pacific Telesis Acquisitions, a California corporation and a wholly-owned
subsidiary of PTG ("Newco I"), Pacific Telesis Purchasing, a California
corporation and wholly-owned subsidiary of Pacific Telesis Enterprises ("Newco
II"), Transworld Telecommunications Inc., a Pennsylvania corporation ("TTI"),
Videotron U.S.A., a Delaware corporation ("Videotron USA"), Videoway
Technologies Ltd., a Netherlands corporation ("Videoway"), Wireless Holdings,
Inc., a Delaware corporation ("WHI"), Videotron (Bay Area), Inc., a Florida
corporation ("VBAI"), F. Lorenzo Crutchfield, Jr. (the "TTI Shareholder"), Le
Groupe Videotron Ltee, a Canadian corporation ("Videotron Canada"), and Lance
D'Ambrosio. Capitalized terms used in this opinion, unless specifically
defined in this opinion, have the meanings given to them in the Stock Purchase
Agreement.
We are special counsel to PTG, Newco I and Newco II (the "PTG Entities") and
as such we are familiar with the Stock Purchase Agreement, the Escrow
Agreement, [the Spectrum Lease], [and the Channel Leases between a PTG entity
and the Holding Corporation (collectively, the "Transaction Agreements") and
the transactions contemplated thereby.
MATERIALS EXAMINED
In this regard, we have examined executed originals or copies of the
following, copies of which have been delivered to you or your counsel:
[LIST DOCUMENTS REVIEWED]
( ) Such other instruments, corporate records, certificates, and other
documents as we have deemed necessary as a basis for the opinions hereinafter
expressed.
OPINIONS
Based upon such examination, having regard for legal considerations which we
deem relevant, and subject to the assumptions, limitations, and qualifications
below, we are of the following opinion:
Assuming each of the PTG Entities has full corporate power and corporate
authority to enter into, perform, and consummate the transactions contemplated
by the Stock Purchase Agreement and the other Transaction
A-99
<PAGE>
Agreements, the Stock Purchase Agreement and the other Transaction Agreements
each has been duly authorized by all necessary corporate action on the part of
each PTG Entity and has been duly executed and delivered by the PTG Entities a
party thereto, the Stock Purchase Agreement and the other Transaction
Agreements are legal, valid, and binding obligations of the respective PTG
Entity or Entities a party thereto, enforceable against such Entity or
Entities in accordance with their respective terms. [Add typical carveouts for
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and to general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or law).]
[ADD TYPICAL ASSUMPTIONS AND LIMITATIONS]
[OPINIONS ARE SUBJECT TO REVISIONS BASED ON THE STATE OF FACTS AT THE TIME THE
OPINIONS ARE GIVEN BY TAKING SPECIFIC EXCEPTION TO ANY SUCH OPINION FOR SUCH
FACTS]
A-100
<PAGE>
APPENDIX B
TRANSWORLD TELECOMMUNICATIONS, INC.
PLAN OF COMPLETE LIQUIDATION
THIS PLAN OF COMPLETE LIQUIDATION ("Plan") dated , 1996, provides for
the terms and conditions of the voluntary dissolution and complete liquidation
of TRANSWORLD TELECOMMUNICATIONS, INC., a Pennsylvania corporation (the
"Corporation"), in accordance with the provisions of the Business Corporation
Law of the Commonwealth of Pennsylvania, as codified at Title 15, Sections
101, et seq., of the Pennsylvania Consolidated Statutes (the "Act"), and with
reference to the following facts:
A. The Corporation's board of directors has approved, and intends to propose
to the shareholders of the Corporation, that the Corporation enter into a
transaction (the "Exchange") with Pacific Telesis Group, Videotron U.S.A.,
Inc., Wireless Holdings, Inc., Videotron (Bay Area), Inc. and other parties
pursuant to which the Corporation will exchange substantially all of its
assets (comprised of its interests in Wireless Holdings, Inc. and Videotron
(Bay Area), Inc.) for common shares of Pacific Telesis Group in a transaction
qualifying under the provisions of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code").
B. Pursuant to the terms of the Exchange, and in accordance with the
provisions of Section 368(a)(2)(G) of the Code, the board of directors of the
Corporation has approved, and intends to propose to the shareholders of the
Corporation, that the Corporation be voluntarily liquidated for federal income
tax purposes and dissolved in accordance with the terms of the Act, and that,
in connection therewith, the Corporation's assets be distributed to the
Corporation's shareholders.
NOW, THEREFORE, in an effort to facilitate more effectively the
Corporation's liquidation and dissolution, and with the intent of maximizing
the value to be distributed to the Corporation's shareholders, the Corporation
hereby adopts and approves the following courses of action:
SECTION 1
APPROVAL OF CORPORATION'S BOARD OF DIRECTORS
The board of directors of the Corporation, through action of its Executive
Committee, unanimously approved the voluntary liquidation and dissolution of
the Corporation at a meeting of such Executive Committee on November 9, 1995.
The Executive Committee's action was subsequently ratified and affirmed by
unanimous vote of the Corporation's board of directors on February 23, 1996.
SECTION 2
CONDITIONAL EFFECTIVENESS OF PLAN
In accordance with the requirements in Section 1974 of the Act, the
effectiveness of this Plan shall be conditioned upon and shall be subject to
its approval by shareholders of the Corporation ("Shareholders") holding a
majority of the shares voted at a regular or special meeting of the
Shareholders to be held as expeditiously as possible and in no event later
than December 31, 1996 (the "Meeting"). The officers and directors of the
Corporation shall take all actions necessary or appropriate to call and
convene the Meeting for the purpose of voting upon, and approving, the terms
and conditions of this Plan, and shall take all actions necessary or
appropriate for the Corporation to comply with all business, financial and
securities law disclosure requirements in soliciting the Shareholders'
approval of the Plan.
SECTION 3
SETTLING AND CLOSING OF CORPORATION'S BUSINESS
If the Plan is approved by the Shareholders at the Meeting, as promptly as
possible thereafter, the officers and directors of the Corporation shall take
all actions necessary or appropriate to settle all of the Corporation's
B-1
<PAGE>
existing contractual relationships and to resolve any claims of, or
encumbering, the Corporation or its assets and which may not have matured as
of the date of the final liquidation and dissolution of the Corporation under
the terms of the Plan. Such officers and directors shall also be authorized
and directed to modify any contracts which will require the Corporation to
make payments, or allow it to receive amounts, after the date of its
liquidation and dissolution in accordance with the terms of this Plan, to
provide for the termination of such contracts (or the payments required
thereunder) as of or before such date. The officers and directors of the
Corporation shall further be authorized and directed to value any claims
against the Corporation or its assets which may be unmatured as of the date of
the Corporation's anticipated liquidation, as contemplated by the Plan, in
order to determine what type of security, if any, the Corporation will offer
to the claimants thereof, and the compensation for such claims, and to
determine the respective interests of the Shareholders in the assets of the
Corporation. Without limiting the generality of the foregoing, the
Corporation's officers and directors shall take the following actions in
futherance of settling and closing the Corporation's business:
3.1 Operating Loan. To facilitate (i) the operation of the Corporation
during the period through the consummation of the Exchange, (ii) the
completion of the Corporation's liquidation, and (iii) the satisfaction by the
Corporation of its obligations to Wireless Cable & Communications, Inc.
("WCCI") under the terms of that certain Commitment Agreement dated August 1,
1995, between the Corporation and WCCI, the Corporation shall enter, through
the actions of its officers and directors, into a commercial loan agreement
with Pacific Mezzanine Fund ("PMF"), pursuant to which the Corporation shall
borrow the principal amount of $2,500,000. Under the terms of the loan, the
Corporation shall be required to repay such principal amounts, together with
interest thereon at the rate of 14% per annum, grant PMF a warrant to acquire
150,000 shares of the Corporation's common stock at $.75 per share, pledge the
Corporation's interest in and to a promissory note delivered to the
Corporation by Wireless Holdings, Inc., in the original principal amount of
$2,375,415, and pledge its 20% interest in Videotron (Bay Area), Inc. as
security for the repayment of the loan.
3.2 Distribution of Carolina Communications, Inc. Subject to the
satisfaction of certain conditions, including the receipt of a favorable
opinion of qualified tax counsel, the Corporation shall transfer to F. Lorenzo
Crutchfield, Jr., effective July 1, 1996 and in a transaction qualifying under
(S)355 of the Code, all of its right, title and interest in and to its wholly-
owned subsidiary, Carolina Communications, Inc. ("CCI"), in exchange for, and
retirement of, 2,000,000 shares of the Corporation's common stock held by Mr.
Crutchfield. In connection therewith, the Corporation shall enter into a
management agreement with CCI pursuant to which the Corporation shall provide
to CCI certain management and consulting services, facilities, furniture and
equipment during the four-month period from July through October, 1996, and
pursuant to which the Corporation shall receive $100,000 in cash during each
of those months. If the conditions to the transfer of the interest of the
Corporation in CCI are not satisfied, the Corporation shall distribute its
interest in CCI to the Shareholders together with the other assets of the
Corporation, or shall sell such interest in CCI and distribute the proceeds to
the Shareholders.
SECTION 4
ARTICLES OF DISSOLUTION
If the Plan is approved by the Shareholders at the Meeting, as promptly as
possible thereafter and in any event not later than the close of business on
the day preceding the first anniversary of the consummation of the Exchange,
the Corporation's officers and directors shall take all actions necessary or
appropriate to effect the complete liquidation and dissolution of the
Corporation, including, without limitation, filing Articles of Dissolution in
accordance with the provisions of Section 1977 of the Act with the
Pennsylvania Department of Corporations (the "Department") and the
distribution of all of the Corporation's assets to the Shareholders.
Concurrently with the filing of such Articles of Dissolution, the
Corporation's officers shall take all actions required by the provisions of
Section 1992, et. seq., of the Act (including publishing notices of its intent
to dissolve in local and national publications), to give proper and timely
notice to potential claimants against the Corporation of the Corporation's
liquidation and dissolution.
B-2
<PAGE>
SECTION 5
LIMITED CONTINUATION OF CORPORATE STATUS
Upon the Department's issuance of a Certificate of Dissolution in accordance
with the provisions of Section 1977 of the Act (the date of such issuance
being hereafter referred to as the "Dissolution Date"), the Corporation shall
be deemed dissolved and its legal existence shall cease except as provided in
this Section 5 and as permitted by the Act. On and after the Dissolution Date,
the Corporation shall continue as a body corporate for the sole purposes of
(i) prosecuting and defending suits, actions, proceedings and claims of any
kind or character by or against it, as provided in Sections 1993, 1994 and
1995 of the Act, (ii) settling and closing its business, (iii) collecting and
discharging its obligations, (iv) disposing of and conveying its property, (v)
distributing its assets, and (vi) engaging in activities ancillary to the
foregoing. Notwithstanding the generality of the foregoing, the Corporation's
existence shall not continue for the purpose of continuing in or conducting
the business for which the Corporation was incorporated or in which it was
engaged prior to the filing of its Articles of Dissolution.
SECTION 6
LIQUIDATING AGENT
On the Dissolution Date, the Corporation, by and through the actions of its
officers and directors, shall transfer, assign and otherwise convey to such
person or entity as shall be determined by the Executive Committee of the
Corporation's board of directors, as liquidating agent for the Corporation
(the "Agent"), all of the Corporation's remaining assets, subject to its
liabilities.
6.1 Agent Purposes. The Agent shall be engaged by the Corporation for the
purposes of prosecuting and defending actions, by or against the Corporation,
settling and closing the Corporation's business, disposing of or conveying the
property of the Corporation, discharging the liabilities of the Corporation
and, in accordance with the provisions of Sections 7 and 8 below, distributing
to the Shareholders any remaining assets of the Corporation. The Agent shall
not continue the business for which the Corporation was incorporated or in
which it was engaged prior to the Dissolution Date, or take any other actions
inconsistent with marshalling, liquidating and distributing the Corporation's
assets.
6.2 Agent Powers. The Agent shall have all powers and authorities necessary
to consummate the Plan, including, specifically, the following powers and
authorities;
6.2.1 To employ, terminate the employment of and fix the compensation and
other terms of employment, of such employees, agents, attorneys,
accountants and others (including, without limitation, officers, directors,
employees, agents, attorneys and accounting personnel of the Corporation)
as, in the discretion of the Agent, are necessary, desirable or appropriate
to effect the purposes of the Plan;
6.2.2 To act as liaison between the Corporation (to the limited extent
its body corporate continues after the Dissolution Date, as described in
Section 5), and the Escrow Agent appointed to hold certain of the Pacific
Telesis Group common shares under the terms of the Exchange, with respect
to any disputes, questions or matters affecting the Pacific Telesis Group
common shares so held;
6.2.3 To purchase, lease or otherwise provide such offices and other
facilities, as in the discretion of the Agent, are necessary or appropriate
to effect the purposes of the Plan;
6.2.4 To settle and close the business of the Corporation, to collect and
discharge its obligations, to dispose of and convey the Corporation's
properties and business (on such ongoing concern or other bases as shall be
determined by the Agent to be in the best interests of the Shareholders) at
such time, in such manner and upon such terms and conditions as are
determined by the Agent to be in the ultimate best interests of the
Shareholders;
6.2.5 To file all papers, documents and instruments (including tax
returns and reports to governmental agencies and authorities), and to
receive and receipt for cash or other property as, in the discretion of the
Agent, are necessary or appropriate to effect the purposes of the Plan;
B-3
<PAGE>
6.2.6 To take and effect all other actions deemed by the Agent to be
necessary or appropriate to effect the purposes of the Plan; and
6.2.7 To exercise all powers, rights and preferences of a liquidating
receiver or successor entity under the Act.
6.3 Agent Liability: Except as otherwise specifically provided by the laws
of the Commonwealth of Pennsylvania, the Agent shall not be personally liable
in respect of any action taken on behalf of the Corporation, except upon a
showing of gross negligence or intentional misconduct by the Agent.
SECTION 7
LIQUIDATING DISTRIBUTIONS
As soon as practicable after the Dissolution Date and upon a determination
by the Agent that adequate provision has been made for the payment of all
creditors of the Corporation and for the payment of all costs and expenses of
the liquidation, the Agent shall distribute to the Shareholders of the
Corporation (and to the creditors of the Corporation, if deemed appropriate by
the Agent) all (or such portion or portions thereof as the Agent shall
determine may be lawfully distributed to such Shareholders after adequate
provision for payment of other creditors and the costs and expenses of
liquidation) of the shares of Pacific Telesis Group received by the
Corporation pursuant to the terms of the Exchange then held by the
Corporation. Such distribution shall be made in accordance with the respective
interests of the Shareholders and the creditors as determined by the Agent.
Anything to the contrary herein notwithstanding, all assets of the Corporation
shall be transferred to the Shareholders or to the creditors of the
Corporation (or to a liquidating trust for their benefit) within one year
after the Exchange, and the Corporation shall retain no assets after that
date.
7.1 Fractional Shares. No fractional shares or scrip or certificate for
fractional shares of common stock of Pacific Telesis Group shall be issued in
connection with such distributions to the Shareholders. Fractional share
interests shall be settled by aggregating all fractions, selling the number of
full Pacific Telesis Group shares representing such aggregated fraction in the
open market and, after payment out of the proceeds of such sale or sales of
all expenses (including brokerage commissions) incidental to such sale or
sales, by distributing the net proceeds from such sale or sales to the
respective Shareholders entitled thereto in accordance with their fractional
entitlements.
7.2 Subsequent Distributions. The Agent shall be entitled, from time to
time, to determine and pay, or make adequate provision for the payment of, all
liabilities, known, contingent, or potential, of the Corporation (including
costs and expenses incurred and anticipated to be incurred in connection with
the complete liquidation of the Corporation) and, subject to the requirement
that all of the Corporation's assets be disposed of (either by distribution
payment of creditors or delivery to a liquidating trust) within one year after
the exchange, shall be entitled at all times to retain such cash or other
assets as the Agent shall determine to be adequate to provide for the payment
of all such liabilities. Subject to the foregoing, the Agent from time to time
shall make distributions in such amounts or in such property (including any
undistributed portions of the Pacific Telesis Group common stock), pro rata to
Shareholders of record on such date or dates, as is determined by the Agent.
All such determinations shall be made in the exercise of the absolute
discretion of the Agent and the Agent shall not be required to make, or be in
any matter liable for not making, any liquidation distribution to Shareholders
except to the extent cash or other property in excess of the amount so
determined by the Agent is found by the Agent to be available for such
distribution.
7.3 Record Date. In connection with such liquidation distribution (and all
subsequent liquidation distributions), except the final liquidation
distribution pursuant to the provisions of Section 8 below, the stock transfer
books of the Corporation need not be closed out but, in lieu of such closing,
the Agent may fix a record and a payment day for the purpose of determining
the identity of Shareholders entitled to receive such liquidation distribution
or distributions, and all rights of persons with respect to such liquidation
distribution or distributions shall be determined in accordance with the date
so fixed by the Agent.
B-4
<PAGE>
SECTION 8
FINAL LIQUIDATION DISTRIBUTION
At such time as the Agent shall determine in the exercise of his or its
absolute discretion that all debts and liabilities, known, contingent, and
potential, including costs and expenses of concluding the complete
liquidation, of the Corporation have been paid or otherwise provided for
within one year after the Exchange, the Agent shall (i) distribute any funds
or other property then held by or for the account of the Corporation pro rata
to the Shareholders of record on a date to be determined by the Agent, (ii)
close the transfer books and records of the Corporation, and (iii) promptly
report to the Shareholders the completion of the liquidation of the
Corporation (such report to summarize the amounts so distributed to the
Shareholders in liquidation, the amounts paid toward the satisfaction or
settlement of the Corporation's liabilities and other significant matters
relating to the liquidation distributions and the actions of the Agent in his
or its capacity as such). As provided above, if appropriate, such distribution
may be made to a liquidating trust if necessary to complete the disposition of
assets or the payment of creditors. Thereupon, the Corporation shall be deemed
completely liquidated and dissolved, and the Agent shall be discharged of and
released from all further powers, authorities, duties, responsibilities and
liabilities as Agent.
SECTION 9
UNLOCATED SHAREHOLDERS
Any Pacific Telesis Group stock, cash or other property held by or for the
account of the Agent for distribution to the Shareholders who have not at the
time been located shall, at the time of the final distribution contemplated by
Section 8 above be transferred by the Agent to a custodian, state official,
trustee or other person authorized by law to receive distributions for the
benefit of such unlocated Shareholders, in such manner as may be determined by
the Agent. Such cash or other property shall thereafter be held by such person
solely for the purpose of making an ultimate distribution (but without any
interest thereon) to such former Shareholder or Shareholders entitled to
receive such assets (who shall constitute the sole equitable owners thereof,
subject only to such escheat or other laws as may be applicable to unclaimed
funds or property), and thereupon all responsibilities and liabilities of the
Agent with respect thereto shall be deemed satisfied and extinguished.
SECTION 10
SHARE CERTIFICATES
At the time of the final liquidation distribution, the Agent shall call upon
the Shareholders to surrender to the Corporation the certificates that
theretofore represented their shares of the Corporation's common stock and,
upon such surrender, all such certificates shall be cancelled. Any
certificates not so surrendered to the Corporation shall be deemed cancelled
for all purposes.
SECTION 11
ABANDONMENT OR AMENDMENT OF PLAN
Notwithstanding the approval by the Shareholders of the Plan, the Board of
Directors of the Corporation, by resolution duly adopted in accordance with
the provision of Section 1974 of the Act, may abandon or amend the terms and
conditions of this Plan at any time prior to the time when Articles of
Dissolution are filed with the Department provided, that no abandonment of the
Plan shall occur after the Exchange and the Corporation shall liquidate and
dispose of all of its assets within one year after the Exchange.
B-5
<PAGE>
SECTION 12 FURTHER ACTIONS
The directors and officers of the Corporation (or the Agent, as appropriate)
shall cause to be executed and filed with appropriate offices of the Internal
Revenue Service and state taxing authorities all final income tax returns of
the Corporation and all other certificates, documents and information forms
necessary or appropriate to complete the dissolution and liquidation of the
Corporation.
SECTION 13 EXPRESSED INTENT
The Corporation intends that its liquidation and dissolution be effectuated
in accordance with the requirements of Section 368(a)(2)(G) of the Code and in
a manner which will facilitate the treatment of the Exchange as a transaction
qualifying under the provisions of Section 368(a)(1)(C) of the Code. The
Corporation's officers, directors and Agent shall take no actions inconsistent
with that expressed intent, and the liquidation and dissolution shall in all
events be completed within one year of the Exchange.
IN WITNESS WHEREOF, and pursuant to the authority granted by virtue of
resolutions of its Board of Directors, the Corporation has caused this Plan of
Liquidation to be executed by its duly authorized representative as of the day
and date first above written.
TRANSWORLD TELECOMMUNICATIONS, INC.
By:
------------------------------------
Its:
------------------------------------
B-6
<PAGE>
APPENDIX C
[LETTERHEAD OF WASSERSTEIN PERELLA & CO]
June 25, 1996
Board of Directors
Transworld Telecommunications, Inc.
102 West 500 South, Suite 320
Salt Lake City, Utah 84101
Gentlemen:
You have asked us to advise you with respect to the fairness, from a financial
point of view, to Transworld Telecommunications, Inc. a Pennsylvania
corporation ("TTI"), of the consideration to be received by TTI for its
ownership interests in Wireless Holdings, Inc., a Delaware corporation
("WHI"), and Videotron (Bay Area), Inc., a Florida corporation ("VBAI"),
pursuant to the terms of the Stock Purchase Agreement dated as of November 9,
1995 (the "Acquisition Agreement") among TTI, Pacific Telesis Group, a Nevada
corporation ("PTG"), Pacific Telesis Acquisitions, a California corporation
and a wholly-owned subsidiary of PTG, Pacific Telesis Purchasing, a California
corporation and a wholly-owned subsidiary of Pacific Telesis Enterprises
Services Inc., Videotron USA, Inc., a Delaware corporation ("VUSA"), Videoway
Technologies Ltd., a Barbados corporation, Le Groupe Videotron Ltee, a
Canadian corporation, F. Lorenzo Crutchfield, Jr. ("FLC"), Lance V.
D'Ambrosio, WHI and VBAI. The terms and conditions of the transaction
regarding the sale of TTI's ownership interests in WHI and VBAI are set forth
in the Acquisition Agreement.
In connection with rendering our opinion, we have reviewed the Acquisition
Agreement and the Settlement Agreement dated March 31, 1995 among TTI, VUSA,
FLC, WHI and VBAI. We have also reviewed and analyzed certain publicly
available business and financial information relating to WHI and VBAI for
recent years and interim periods to date, as well as certain internal
financial and operating information, including financial budgets and analyses
prepared by or on behalf of TTI and provided to us for purposes of our
analysis, and we have met with management of TTI, WHI and VBAI to review and
discuss such information, and among other matters, TTI's, WHI's and VBAI's
respective businesses, operations, assets, financial conditions and future
prospects.
We have also reviewed and considered certain financial data relating to WHI
and VBAI, and we have compared that data with similar data for certain other
companies, the securities of which are publicly traded, that we believe may be
relevant or comparable in certain respects to WHI and VBAI, and we have
reviewed and considered the financial terms of certain recent acquisitions and
business combination transactions in the wireless cable industry,
specifically, those which we believe to be reasonably comparable to the
transaction contemplated by the Acquisition Agreement or otherwise relevant to
our inquiry. We have also performed such other studies, analyses, and
investigations and reviewed such other information as we have considered
appropriate.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also relied upon the reasonableness and accuracy of the
financial budgets and analyses provided to us and we have assumed, with your
consent, that the financial budgets and analyses provided to us were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of TTI's
C-1
<PAGE>
June 25, 1996
Page 2
management, and we express no opinion with respect to such budgets and
analyses or the assumptions upon which they are based. In addition, we have
not reviewed any of the books and records of TTI or assumed any responsibility
for conducting a physical inspection of the properties or facilities of TTI,
or for making or obtaining an independent valuation or appraisal of the assets
or liabilities of TTI. Our opinion is necessarily based on economic and market
conditions and other circumstances as they exist and can be evaluated by us as
of the date hereof.
The management of TTI has informed us that it does not believe PTG will have
any claims covered by the $6,000,000 in value of PTG Common Stock to be held
in escrow under the Acquisition Agreement which will be resolved in PTG's
favor and that on the expiration of the escrow that all of the PTG Common
Stock will be released for the benefit of TTI. For purposes of our opinion we
have assumed that all PTG Common Stock held in escrow will be released for the
benefit of TTI on the expiration of the escrow. The management of TTI has also
informed us that the FCC Adjustment contemplated by the Acquisition Agreement
is likely to be deminimus and in its opinion will be less than $6,250,000. For
purposes of our opinion we have assumed the FCC Adjustment is less than or
equal to $6,250,000. We do not express any opinion as to TTI's proposed
liquidation in accordance with TTI's separate Liquidation Plan, the transfer
of Carolina Communications, Inc. to FLC pursuant to a separate agreement, the
spin-off of certain assets and liabilities pursuant to a Supplemental
Agreement entered into as of November 9, 1995, or the price at which PTG's
Common Stock will actually trade at any time.
Additionally, we have not been authorized to and have not solicited
alternative offers for TTI or its assets, or investigated any other
alternative transactions which may be available to TTI.
It is understood that this letter was prepared for the benefit and use of
the Board of Directors of TTI and may not be relied upon by any other person,
used for any other purpose or reproduced, disseminated, quoted or referred to
at any time, in any manner or for any purpose without our prior written
consent, provided, however that this letter may be reproduced in full in the
PTG prospectus/TTI proxy statement related to the Acquisition Agreement and
the issuance of PTG Common Stock in the transaction contemplated in the
Acquisition Agreement. This opinion does not constitute a recommendation to
any shareholder with respect to how such holder should vote with respect to
any matter being submitted to such shareholders for their consideration, and
should not be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that as of the date
hereof, the consideration to be received by TTI pursuant to the Acquisition
Agreement is fair to TTI from a financial point of view.
Very truly yours,
/s/ Wasserstein Perella & Co., Inc.
-------------------------------
WASSERSTEIN PERELLA & CO., INC.
C-2
<PAGE>
APPENDIX D
[LETTERHEAD OF PARSONS BEHLE & LATIMER]
October 24, 1996
Transworld Telecommunications, Inc.
102 West 500 South
Salt Lake City, UT 84101
RE: STOCK PURCHASE AGREEMENT,
DATED AS OF NOVEMBER 9, 1995
Ladies and Gentlemen:
You have requested our opinion concerning certain Federal income tax matters
relating to the "TTI Exchange," as that term is defined in the Stock Purchase
Agreement ("Stock Purchase Agreement") dated as of November 9, 1995 by and
among Pacific Telesis Group, a Nevada corporation ("PTG"), Pacific Telesis
Acquisitions, a California corporation and wholly owned subsidiary of PTG,
Pacific Telesis Purchasing, a California corporation and wholly owned
subsidiary of Pacific Telesis Enterprises Services Inc., Transworld
Telecommunications, Inc., a Pennsylvania corporation ("TTI"), Videotron USA,
Inc., a Delaware corporation ("Videotron USA"), Videoway Technologies Ltd., a
Barbados corporation ("Videoway"), Wireless Holdings, Inc., a Delaware
corporation ("WHI"), Videotron (Bay Area), Inc., a Florida corporation
("VBAI"), Le Groupe Videotron Ltee, a Canadian corporation ("Videotron
Canada"), and, solely with respect to Sections 7.13, 9.06, 9.09, and 14.01 and
Articles VA and XV thereof, F. Lorenzo Crutchfield, Jr. (the "TTI
Shareholder"), and solely with respect to Sections 9.06 and 14.01 and Article
VA thereof, Lance V. D'Ambrosio. All capitalized terms not defined herein have
the meanings ascribed in the Stock Purchase Agreement. Specifically, pursuant
to Sections 10.18 and 11.09 of the Stock Purchase Agreement, you have asked us
to opine that the TTI Exchange will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
In formulating our opinion, we have examined such documents as we have
deemed appropriate, including:
(1) The Stock Purchase Agreement and all Attachments and Exhibits
incorporated therein;
(2) The Plan of Complete Liquidation of TTI dated February 23, 1996, as
amended;
(3) The Settlement Agreement dated as of March 31, 1995, by and among
TTI, the TTI Shareholder, Videotron USA, WHI, Videotron (Bay Area) Inc.,
Videotron Canada, and Videoway, as amended;
(4) The Agreement and Plan of Reorganization dated as of July 1, 1996,
whereby TTI agreed to distribute all of the outstanding stock of Carolina
Communications, Inc. ("CCI") to the TTI Stockholder in redemption of two
million shares of TTI common stock; and
(5) The Registration Statement.
We have also obtained such additional information and representations as we
have deemed relevant and necessary through consultation with various officers
and directors of TTI, and have relied on certain certificates of officers of
TTI.
We have assumed, with your consent, that:
(1) All documents submitted to us are originals or photocopies that
faithfully reproduce the originals thereof;
(2) All such documents have been or will be duly executed to the extent
required;
D-1
<PAGE>
Transworld Telecommunications, Inc.
October 24, 1996
Page 2
(3) All representations and statements set forth in such documents are
true and correct;
(4) All obligations imposed by any such documents on the parties thereto
have been or will be performed or satisfied in accordance with their terms;
(5) As of August 1, 1995, when TTI distributed the stock of Wireless
Cable & Communications, Inc. ("WCCI") to Fidelity Transfer Company for the
benefit of the shareholders of TTI, the net and gross values of WCCI were
both equal to $700,000;
(6) As of July 1, 1996, when TTI distributed all the stock of CCI to the
TTI Shareholder, the net and gross values of CCI were $2,000,000 and
$2,400,000, respectively; and
(7) As a result of the TTI Exchange, TTI will transfer to Pacific Telesis
Acquisitions at least 90% of the fair market value of the net assets and at
least 70% of the fair market value of the gross assets of TTI held by TTI
immediately prior to the TTI Exchange. For purposes of this computation,
the WCCI stock distributed by TTI to Fidelity Transfer Company and the CCI
stock distributed by TTI to the TTI Shareholder are deemed to be assets
held by TTI immediately prior to the TTI Exchange.
(8) The Fair market value of the PTG Shares to be received by TTI in the
TTI Exchange under the Stock Purchase Agreement will be approximately equal
to the fair market value of TTI's assets held by TTI immediately prior to
the TTI Exchange.
Further, our opinion, as set forth below, is based on current provisions of
the Federal income tax laws and regulations and on current authoritative
interpretations thereof, any of which may be changed at any time with
retroactive effect. Such changes could affect the continuing validity of this
opinion.
Based on and subject to the assumptions, conditions, and limitations stated
herein, it is our opinion that the TTI Exchange will qualify as a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code.
We have acted as counsel to TTI with respect to the transactions
contemplated by the Stock Purchase Agreement or referred to herein. This
letter and the opinion expressed herein are limited in their use to the
addressee hereof and no other person or entity may rely on them for any
purpose; provided, however, that we hereby consent to your filing this letter
as an exhibit to the Registration Statement and to the reference to us in the
Registration Statement. Except as expressly set forth herein, we express no
opinion concerning any Federal, state, or local tax matter relating to the
Stock Purchase Agreement or otherwise. This opinion is rendered as of the date
hereof. It is not effective with respect to, and we do not undertake to advise
you concerning, matters that may occur or come to our attention after the date
hereof which may affect the opinion expressed herein.
The opinion expressed herein is based on our professional judgment and is
not a guarantee of results.
***
If we have omitted or misstated any material facts, please let us know, as
our opinion could be affected by reason thereof.
Very truly yours,
/s/ Parsons Behle & Latimer
Parsons Behle & Latimer
D-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.037 of the Nevada Revised Statutes ("N.R.S.") provides that a
Nevada corporation's articles may contain a provision eliminating or limiting
the personal liability of a director or officer to the corporation or its
stockholders for damages for breach of fiduciary duty but may not eliminate or
limit liability for acts or omissions involving intentional misconduct, fraud,
a knowing violation of the law or illegal payment of dividends. Pacific
Telesis' Articles of Incorporation ("Articles") contain such a provision and
therefore any lawsuits involving monetary damages would be subject to this
limitation. There is no such limitation in actions for equitable relief.
With respect to lawsuits not thus limited by Pacific Telesis' Articles,
N.R.S. Section 78.751 specifies the circumstances under which a Nevada
corporation may indemnify a director, officer, employee or agent. Generally,
such person must have acted in good faith and in a manner reasonably believed
to be in, or not opposed to, the best interests of the corporation, and with
respect to any criminal action or proceeding, such person must also have had
no reasonable cause to believe his or her conduct was unlawful. In any
proceeding by or in the right of the corporation where there is a judgment
against such person, indemnification may be made if such person acted in good
faith, in a manner which he or she reasonably believed to be in or not opposed
to the best interests of the corporation and was not found liable for
negligence or misconduct in the performance of his or her duties if the court
in which the action or suit was brought determines upon application that,
despite the adjudication of liability but in view of all of the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper. Where the director, officer, employee
or agent successfully defends any such civil or criminal proceeding,
indemnification is required.
Pacific Telesis' Articles provide that Pacific Telesis shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director or officer of Pacific Telesis, or is or was
serving at the request of Pacific Telesis as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a fiduciary of an employee benefit plan of Pacific Telesis
or of a wholly owned subsidiary corporation, against expenses incurred in
connection with such action, suit or proceeding, including attorneys' fees,
judgments, fines and amounts paid in settlement, to the extent not prohibited
by law, state or federal. Expenses incurred in defending any such proceeding
may be advanced by Pacific Telesis prior to the final disposition of such
action, suit or proceeding upon receipt of an undertaking to repay such amount
unless it shall be determined ultimately that the person is entitled to be
indemnified thereunder. The Articles further provide that these provisions may
not be repealed or amended without the affirmative vote of at least 66 2/3% of
the voting power of the shares entitled to vote thereon.
Pacific Telesis' Articles also contain a provision authorizing Pacific
Telesis to enter into indemnity agreements (the "Indemnity Agreements") with
each of Pacific Telesis' directors and officers. The Articles state that such
agreements shall provide that Pacific Telesis shall indemnify (and advance
expenses to) the indemnitee to the fullest extent permitted by applicable law,
no later than 30 days after a written request has been made therefor, against
all expenses, judgments, fines, penalties, excise taxes and amounts paid in
settlement for claims with respect to events relating to such person's service
with or for Pacific Telesis, and that in any proceeding to enforce the
obligation to indemnify such person, Pacific Telesis shall have the burden to
establish that such indemnification is prohibited; provided, however, that
such agreements shall exclude indemnification if a judgment or other final
adjudication adverse to the indemnitee established (a) that his or her acts
were committed in bad faith or were the result of deliberate dishonesty, or
(b) that he or she in fact gained a financial advantage to which he or she was
not legally entitled, in which event the amount of the indemnification shall
be reduced by the amount of such financial advantage gained. Pacific Telesis
has entered into Indemnity Agreements with each of its directors and executive
officers as described in this Item 20.
II-1
<PAGE>
The directors and officers of Pacific Telesis are covered by insurance
policies indemnifying against certain liabilities, including certain
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"), which might be incurred by them in such capacities and
against which they cannot be indemnified by Pacific Telesis. Subject to
certain exceptions, the Indemnity Agreements obligate Pacific Telesis to use
its best efforts to purchase and maintain in effect such insurance with
coverage no less favorable than that currently provided.
The Indemnity Agreements also provide that if Pacific Telesis shall
discontinue any of its existing policies of directors' and officers' liability
insurance or limit the scope or the amount of the coverages thereunder, or if
such policies or coverages shall become unavailable in whole or in part for
any reason, then Pacific Telesis will hold harmless and indemnify the
indemnitee to the full extent of the coverage which would have been provided
if such insurance had been maintained.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Pacific
Telesis pursuant to the provision referred to in Item 20 (other than the
insurance policies referred to therein), or otherwise, Pacific Telesis has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Pacific
Telesis of expenses incurred or paid by a director, officer or controlling
person in connection with the securities being registered), Pacific Telesis
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits identified in parentheses below are on file with the SEC (File No.
1-8609) and are incorporated herein by reference to such previous filings. All
other exhibits are provided as part of this electronic transmission.
<TABLE>
<C> <S>
2.1 Stock Purchase Agreement dated as of November 9, 1995 among the
Registrant and the other parties listed therein (included as
Appendix A to the Prospectus/Proxy Statement included in Part I of
this Registration Statement)
4.1 Specimen Certificate of Registrant's Common Stock (incorporated by
reference to Exhibit 4b to Form SE filed September 25, 1989 as part
of the Registrant's Current Report on Form 8-K dated September 22,
1989)
4.2 Rights Agreement, dated as of September 22, 1989 between the
Registrant and Bank of Boston (c/o Boston Equiserve) as successor
Rights Agent, which includes as Exhibit B thereto the form of
Rights Certificate (incorporated by reference to Exhibits 1 and 2
to the Registrant's Form 8-A filed September 25, 1989)
5.1 Opinion of Richard W. Odgers, counsel to the Registrant, as to the
validity of the securities being registered
8.1 Opinion of Parsons Behle & Latimer, counsel to TTI, as to certain
federal income tax consequences (included as Appendix D to the
Prospectus/Proxy Statement included in Part I of this Registration
Statement)
15 Letter on Unaudited Interim Financial Information of Coopers &
Lybrand L.L.P.
23.1 Consent of Richard W. Odgers (included in Exhibit 5.1)
23.2 Consent of Parsons Behle & Latimer (included in Exhibit 8.1)
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of TTI accountant, KPMG Peat Marwick, LLP
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
23.5 Consent of WHI, VBAI, and Videotron USA accountants, Deloitte & Touche LLP
23.6 Consent of Wasserstein, Perella & Co., Inc
24.1 Power of Attorney
99.1 Opinion of Wasserstein, Perella & Co., Inc (included as Appendix C to the Prospectus/Proxy
Statement included in Part I of this Registration Statement)
99.2 Form of proxy for Special Meeting of Stockholders of TTI
</TABLE>
- --------
ITEM 22. UNDERTAKINGS.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of Pacific Telesis' Annual
Report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (and where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d)
of the Exchange Act) that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The Registrant hereby undertakes to respond to requests for information that
is incorporated by reference into the Prospectus/Proxy Statement pursuant to
Item 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The Registrant hereby undertakes to supply by means of post-effective
amendment all information concerning the Acquisition, and the Acquired
Companies, that was not the subject of and included in the Registration
Statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN FRANCISCO, STATE OF
CALIFORNIA, ON OCTOBER 23, 1996.
Pacific Telesis Group
/s/ William E. Downing*
By: _________________________________
(WILLIAM E. DOWNING)
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE/NAME TITLE DATE
-------------- ----- ----
/s/ Philip J. Quigley* Chairman of the Board, October 23,
- ---------------------------------- President & Chief 1996
(PHILIP J. QUIGLEY) Executive Officer and
Director (principal
executive officer)
/s/ William E. Downing* Executive Vice President, October 23,
- ---------------------------------- Chief Financial Officer 1996
(WILLIAM E. DOWNING) and Treasurer (principal
financial officer and
principal accounting
officer)
/s/ Gilbert F. Amelio* Director October 23,
- ---------------------------------- 1996
(GILBERT F. AMELIO)
/s/ William P. Clark* Director October 23,
- ---------------------------------- 1996
(WILLIAM P. CLARK)
/s/ Herman E. Gallegos* Director October 23,
- ---------------------------------- 1996
(HERMAN E. GALLEGOS)
II-4
<PAGE>
SIGNATURE/NAME TITLE DATE
/s/ Frank C. Herringer* Director October 23,
- --------------------------------- 1996
(FRANK C. HERRINGER)
/s/ Mary S. Metz* Director October 23,
- --------------------------------- 1996
(MARY S. METZ)
/s/ Lewis E. Platt Director October 23,
- --------------------------------- 1996
(LEWIS E. PLATT)
/s/ Toni Rembe* Director October 23,
- --------------------------------- 1996
(TONI REMBE)
/s/ S. Donley Ritchey* Director October 23,
- --------------------------------- 1996
(S. DONLEY RITCHEY)
- --------------------------------- Director October 23,
(RICHARD M. ROSENBERG) 1996
/s/ Richard W. Odgers* Executive Vice October 23,
- --------------------------------- President-- External 1996
*RICHARD W. ODGERS Affairs and General
AS ATTORNEY-IN-FACT Counsel
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Stock Purchase Agreement dated as of November 9, 1995 among the
Registrant and the other parties listed therein (included as Appendix
A to the Prospectus/Proxy Statement included in Part I of this
Registration Statement)
4.1 Specimen Certificate of Registrant's Common Stock (incorporated by
reference to Exhibit 4b to Form SE filed September 25, 1989 as part
of the Registrant's Current Report on Form 8-K dated September 22,
1989)
4.2 Rights Agreement, dated as of September 22, 1989 between the
Registrant and Bank of Boston (c/o Boston Equiserve) as successor
Rights Agent, which includes as Exhibit B thereto the form of Rights
Certificate (incorporated by reference to Exhibits 1 and 2 to the
Registrant's Form 8-A filed September 25, 1989)
5.1 Opinion of Richard W. Odgers, counsel to the Registrant, as to the
validity of the securities being registered
8.1 Opinion of Parsons Behle & Latimer, counsel to TTI, as to certain
federal income tax consequences (included as Appendix D to the
Prospectus/Proxy Statement included in Part I of this Registration
Statement)
15 Letter on Unaudited Interim Financial Information of Coopers & Lybrand
L.L.P.
23.1 Consent of Richard W. Odgers (included in Exhibit 5.1)
23.2 Consent of Parsons Behle & Latimer (included in Exhibit 8.1)
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of TTI accountant, KPMG Peat Marwick, LLP
23.5 Consent of WHI, VBAI, and Videotron USA accountants, Deloitte & Touche
LLP
23.6 Consent of Wasserstein, Perella & Co., Inc
24.1 Power of Attorney
99.1 Opinion of Wasserstein, Perella & Co., Inc (included as Appendix C to
the Prospectus/Proxy Statement included in Part I of this
Registration Statement)
99.2 Form of proxy for Special Meeting of Stockholders of TTI
</TABLE>
<PAGE>
EXHIBIT 5.1
October 28, 1996
The United States Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Pacific Telesis Group
Registration Statement on Form S-4 filed with the
Securities and Exchange Commission
Ladies and Gentlemen:
I am Executive Vice President-External Affairs and General Counsel for
Pacific Telesis Group, a Nevada corporation (the "Company"). In connection
with the proposed public offering of the Company's Common Stock, par value
$0.10 per share (the "Shares"), to be issued in connection with the proposed
acquisition of Wireless Holdings, Inc., a Delaware corporation; Videotron (Bay
Area) Inc., a Florida corporation; Videotron USA, Inc., a Delaware
corporation, and, indirectly, their respective subsidiaries, by subsidiaries
of the Company, I have supervised and I am familiar with the procedures
relating to such public offering. The proposed public offering will be made
pursuant to the registration statement on Form S-4 (the "Registration
Statement") filed with the United States Securities and Exchange Commission as
of the date hereof.
I am a member of the State Bar of California. I do not express any opinion
as to matters governed by any law other than the law of California and the
federal law of the United States of America.
On the basis of the foregoing, and assuming the Registration Statement
becomes and remains effective, and all applicable state and federal laws are
complied with, I am of the opinion that the Shares when issued will be validly
issued, fully paid and nonassessable shares of the Common Stock of the
Company.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption of "Legal
Matters" therein.
It is understood that this opinion is to be used only in connection with the
offer and sale of the Shares while the Registration Statement is in effect.
Very truly yours,
/s/ Richard W. Odgers
Richard W. Odgers
<PAGE>
EXHIBIT 15
October 22, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE:PACIFIC TELESIS GROUP
REGISTRATION ON FORM S-4
We are aware that our report dated August 12, 1996 on our review of interim
financial information of Pacific Telesis Group for the three- and six-month
periods ended June 30, 1996 and included in the Company's quarterly report on
Form 10-Q for the quarter then ended is incorporated by reference in this
registration statement on Form S-4. Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 22, 1996, on our audits of the financial statements
and financial statement schedule of Pacific Telesis Group as of December 31,
1995 and 1994 and for the years ended December 31, 1995, 1994, and 1993, which
report is included in Pacific Telesis Group's 1996 Proxy Statement. We also
consent to the reference to our firm under the caption "Independent Public
Accountants."
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
October 22, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated December 22, 1995, except for notes 2 and 10 which are as of
October 22, 1996 on our audits of the consolidated financial statements of
Transworld Telecommunications, Inc. and subsidiaries as of and for the years
ended October 31, 1995 and 1994. We also consent to the reference to our firm
under the caption "Independent Public Accountants".
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
October 25, 1996
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Pacific Telesis
Group on Form S-4 of our reports dated (1) April 2, 1996 (October 21, 1996 as
to Notes 11, 12, 13 and 14) on the consolidated financial statements of
Wireless Holdings, Inc. and its subsidiaries as of and for the fiscal periods
ended August 31, 1995, and 1994 (which report expresses an unqualified opinion
on such consolidated financial statements and includes an explanatory
paragraph referring to the proposed sale and substantial doubt about Wireless
Holdings, Inc. and its subsidiaries' ability to continue as a going concern)
(2) April 2, 1996 (October 21, 1996 as to Notes 11, 12, 13 and 14) on the
consolidated financial statements of Videotron USA, Inc. as of and for the
fiscal periods ended August 31, 1995, and 1994 (which report expresses an
unqualified opinion on such consolidated financial statements and includes an
explanatory paragraph referring to the proposed sale and substantial doubt
about Videotron USA, Inc.'s ability to continue as a going concern), and (3)
April 2, 1996 (October 21, 1996 as to Notes 9, 11, 12 and 13) on the financial
statements of Videotron (Bay Area) Inc. as of and for the fiscal periods ended
August 31, 1995, and 1994 (which report expresses an unqualified opinion on
such financial statements and includes an explanatory paragraph referring to
the proposed sale and substantial doubt about Videotron (Bay Area) Inc.'s
ability to continue as a going concern), appearing in this Prospectus, which
is a part of such Registration Statement.
We also consent to the reference to us under the heading "Independent Public
Accountants" in such Prospectus.
/s/ Deloitte & Touche LLP
San Francisco, California
October 21, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF WASSERSTEIN & PERELLA & CO.
We hereby consent to the filing of our opinion, dated as of June 25, 1996 in
the Joint Proxy Statement/Prospectus on Form S-4 of Pacific Telesis Group (the
"Proxy Statement"), as an Appendix and Exhibit to the Proxy Statement and to
the reference to us under the captions "Summary" and "The Acquisition and
Related Transactions--Financial Advisors." In giving such consent, we do not
admit that we are in the category of persons whose consent is required under
Section 7 under the Securities Act of 1933.
WASSERSTEIN PERELLA & CO., INC.
New York, New York
October 11, 1996
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
WHEREAS, PACIFIC TELESIS GROUP, a Nevada corporation (the "Corporation"),
proposes to file with the Securities and Exchange Commission (the "SEC"),
under the provisions of the Securities Act of 1933, as amended, a Registration
Statement on Form S-4 registering the Corporation's Common Stock; and
WHEREAS, each of the undersigned is an officer or director, or both, of the
Corporation, as indicated below under his name;
NOW, THEREFORE, each of the undersigned, hereby constitutes and appoints
P.J. Quigley, W.E. Downing and R. W. Odgers, and each of them, his attorney
for him in his stead, in his capacity as an officer or director, or both, of
the Corporation, to execute and file such Registration Statement on Form S-4,
and any and all amendments, modifications or supplements thereto, and any
exhibits thereto, and granting to each of said attorneys full power and
authority to sign and file any and all other documents and to perform and do
all and every act and thing whatsoever requisite and necessary to be done as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, and hereby ratifying and confirming all that
said attorneys may or shall lawfully do, or cause to be done, by virtue hereof
in connection with effecting the filing of the Registration Statement on Form
S-4.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand this
28th day of June, 1996.
/s/ Philip J. Quigley /s/ William E. Downing
- ------------------------------- -------------------------------
Philip J. Quigley William E. Downing
Chairman of the Board, President Executive Vice President,
and Chief Executive Officer Chief Financial Officer and
Treasurer
(Chief Accounting Officer)
<PAGE>
POWER OF ATTORNEY
WHEREAS, PACIFIC TELESIS GROUP, a Nevada corporation (the "Corporation"),
proposes to file with the Securities and Exchange Commission (the "SEC"),
under the provisions of the Securities Act of 1933, as amended, a Registration
Statement on Form S-4 registering the Corporation's Common Stock; and
WHEREAS, each of the undersigned is a director of the Corporation;
NOW, THEREFORE, each of the undersigned, hereby constitutes and appoints
P.J. Quigley, W.E. Downing and R. W. Odgers, and each of them, his/her
attorney for him/her in his/her stead, in his/her capacity as a director of
the Corporation, to execute and file such Registration Statement on Form S-4,
and any and all amendments, modifications or supplements thereto, and any
exhibits thereto, and granting to each of said attorneys full power and
authority to sign and file any and all other documents and to perform and do
all and every act and thing whatsoever requisite and necessary to be done as
fully, to all intents and purposes, as he/she might or could do if personally
present at the doing thereof, and hereby ratifying and confirming all that
said attorneys may or shall lawfully do, or cause to be done, by virtue hereof
in connection with effecting the filing of the Registration Statement on Form
S-4.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his/her hand
this 28th day of June, 1996.
/s/ Gilbert F. Amelio /s/ Mary S. Metz
- ------------------------------- -------------------------------
Gilbert F. Amelio, Director Mary S. Metz, Director
/s/ William P. Clark /s/ Lewis E. Platt
- ------------------------------- -------------------------------
William P. Clark, Director Lewis E. Platt, Director
/s/ Herman E. Gallegos /s/ Toni Rembe
- ------------------------------- -------------------------------
Herman E. Gallegos, Director Toni Rembe, Director
/s/ Frank C. Herringer /s/ S. Donley Ritchey
- ------------------------------- -------------------------------
Frank C. Herringer, Director S. Donley Ritchey, Director
- -------------------------------
Richard M. Rosenberg, Director
<PAGE>
Exhibit 99.2
- -------------------------------------------------------------------------------
[LOGO OF TTI APPEARS HERE] PROXY
102 West 500 South, Suite 320
Salt Lake City, Utah 84101
- ------------------------------
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby appoints Troy D'Ambrosio and Anthony Sansone as Proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of common stock of
Transworld Telecommunications, Inc. (the "Company") held of record by the
undersigned on ________, 1996, at the special meeting of shareholders to be
held on _________, 1996, or any adjournment thereof.
1. PROPOSAL TO APPROVE STOCK PURCHASE AGREEMENT AND LIQUIDATION. To approve and
adopt the Stock Purchase Agreement dated as of November 9, 1995 among the
Company, Pacific Telesis Group and certain other parties, providing for the
acquisition of all the Company's ownership interest in Wireless Holdings,
Inc. and Videotron (Bay Area) Inc., in exchange for shares of Pacific
Telesis Common Stock, to approve the liquidation and dissolution of the
Company in accordance with the terms and conditions of a Plan of Complete
Liquidation, and to approve all transactions related thereto.
[_] FOR [_] AGAINST [_] ABSTAIN
2. OTHER BUSINESS. To transact such other business as may properly come before
the Special Meeting or any adjournments thereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This proxy when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy
will be voted for Proposal 1.
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated ,1996
---------------------
- ------------------------------- ------------------------------------------
PLEASE MARK SIGN DATE AND Signature
RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE. ------------------------------------------
- ------------------------------- Signature if held jointly
- --------------------------------------------------------------------------------
