<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TESCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
TEXAS 74-2129403
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
327 CONGRESS AVENUE, SUITE 200
AUSTIN, TEXAS 78701
(512) 476-2995
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JACK S. GRAY, JR.
PRESIDENT AND CHIEF OPERATING OFFICER
327 CONGRESS AVENUE, SUITE 200
AUSTIN, TEXAS 78701
(512) 476-2995
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
<TABLE>
<C> <C>
PHILLIP M. SLINKARD C. N. FRANKLIN REDDICK III
HUGHES & LUCE, L.L.P. TROOP MEISINGER STEUBER & PASICH, LLP
111 CONGRESS AVENUE, SUITE 900 10940 WILSHIRE BOULEVARD, 8TH FLOOR
AUSTIN, TEXAS 78701 LOS ANGELES, CALIFORNIA 90024-3902
(512) 482-6800 (310) 824-7000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to
security-holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.02 par value........... 13,800,000 $3.25 $44,850,000 $13,590.91
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</TABLE>
(1) Includes up to 1,800,000 shares subject to an over-allotment option granted
to Underwriters.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933.
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 1993, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
TESCORP, INC.
CROSS REFERENCE SHEET
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ITEM OF FORM S-2 PROSPECTUS CAPTION OR LOCATION
---------------- ------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of the Prospectus.......................... Inside Front and Outside Back Cover Pages
of the Prospectus; Available Information
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors; Summary
Selected Consolidated Financial and Other
Data
4. Use of Proceeds............................ Use of Proceeds; Business; Risk Factors
5. Determination of Offering Price............ Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Principal and Selling Shareholders
8. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................. Description of Capital Stock
10. Interests of Named Experts and Counsel..... Experts
11. Information with Respect to the Registrant
(b)(1) Description of Business............. Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(2) Financial Statements................... Consolidated Financial Statements
(3) Industry Segments...................... Not Applicable
(4) Market Price of and Dividends on
Registrant's Common Equity and Related
Stockholder Matters.................... Price Range of Common Stock; Dividend
Policy
(5) Selected Financial Data................ Selected Consolidated Financial and Other
Data
(6) Supplementary Financial Information.... Not Applicable
(7) Management's Discussion and Analysis of
Financial Condition and Results of
Operations Financial Statements........ Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(8) Changes and Disagreements With
Accountants on Accounting and Financial
Disclosure............................. Not Applicable
(9) Quantitative and Qualitative
Disclosures About Market Risk.............. Not Applicable
12. Incorporation of Certain Information by
Reference.................................. Incorporation of Certain Information by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
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 , 1997
PROSPECTUS
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12,000,000 Shares
[LOGO] TESCORP, INC.
Common Stock
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Of the 12,000,000 shares of common stock, $0.02 par value (the "Common Stock"),
offered hereby (the "Offering"), 10,000,000 shares are being sold by Tescorp,
Inc. ("Tescorp" or the "Company") and 2,000,000 shares are being sold by certain
selling shareholders of the Company (the "Selling Shareholders"). The Company
will not receive any of the proceeds from the sale of Common Stock by the
Selling Shareholders. See "Principal and Selling Shareholders."
The Common Stock of the Company is included for quotation in The Nasdaq Stock
Market's Small-Cap Market (the "Nasdaq Small-Cap Market") under the symbol
"TESC." On August , 1997, the last reported sales price of the Common Stock on
the Nasdaq Small-Cap Market was $ per share. See "Price Range of Common
Stock." An application has been made for inclusion of the Common Stock on The
Nasdaq Stock Market's National Market (the "Nasdaq National Market") under the
symbol "TESC."
SEE "RISK FACTORS" ON PAGES 8 TO 15 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=========================================================================================================================
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders
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<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
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Total(3)..................... $ $ $ $
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</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$ .
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 1,800,000 additional shares of the Common Stock on
the same terms and conditions as set forth above. If all such additional
shares are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be
$ , the total Proceeds to Company will be $ and the total
Proceeds to Selling Shareholders will be $ . See "Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Shareholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made at the office of Prudential Securities Incorporated, One New York
Plaza, New York, New York, on or about , 1997.
PRUDENTIAL SECURITIES INCORPORATED
, 1997
<PAGE> 4
[MAP OF ARGENTINA]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ SMALL-CAP MARKET AND THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 103 OF REGULATION M. SEE "UNDERWRITING."
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus. To
facilitate the acquisition and management of its Argentine cable television
systems and to comply with Argentine regulatory policies, Tescorp entered into a
contractual joint venture (the "Joint Venture"). Tescorp, through its
wholly-owned subsidiary, Austral Communications Corp., and its Joint Venture
partners (the "Joint Venture Partners") organized Comunicaciones Austral S.A.,
Cabledifusion S.A. and SMR S.A. (collectively, the "Argentine Joint Venture
Companies") to acquire and manage companies that operate cable television
systems in Argentina (the "Argentine Cable Companies"). The Argentine Joint
Venture Companies are owned 97% by the Company and 3% by the Joint Venture
Partners. As used in this Prospectus, unless the context otherwise requires, the
"Company" refers to Tescorp, Inc., a Texas corporation, and its subsidiaries,
including the Argentine Joint Venture Companies and the Argentine Cable
Companies. Unless otherwise indicated, the information in this Prospectus
assumes that the Underwriter's over-allotment option will not be exercised.
THE COMPANY
Tescorp acquires, develops and operates cable television and
telecommunication systems in the Republic of Argentina ("Argentina"), with
concentrations in the Patagonia and Tierra del Fuego regions. At June 30, 1997,
the Company provided cable television service to approximately 70,000
subscribers. In addition, the Company holds a license to provide data services
to its customers under the name "Patagonia On-Line(TM)."
From April 1994 (when the Company acquired its first cable television
system) through June 1997, the Company acquired 15 cable television companies.
The acquisitions have been completed at an average price of approximately $605
per subscriber, an amount that management believes is lower than the average
price per subscriber paid by the major multiple system operators ("MSOs") in the
Argentine market.
ARGENTINE MARKET OVERVIEW
Argentina is the third largest market in Latin America in terms of
population, and its 1996 per capita Gross Domestic Product ("GDP") was the
highest in the region. Argentina has the second highest cable television
penetration rate in the world and average subscriber revenue is only slightly
less than that of the United States. Despite experiencing a market consolidation
in the last few years, the market remains fragmented. Management estimates that
the Argentine subscription television market is served by as many as 1,000
independent companies.
The Argentine government initiated an economic reform plan in 1991 to
promote a stable currency, free market policies and economic efficiencies. The
reform plan included one-for-one convertibility of the Argentine Peso into the
U.S. Dollar by the Banco Central de la Republica Argentina (the "Central Bank"),
the adoption of free market policies, the privatization of state-owned
businesses and the reduction of the role of government in business. These
economic reforms have resulted in a stable currency, a sharp reduction in the
rate of inflation, an influx of foreign investment, improvements in
infrastructure and increased economic efficiency.
At present, Argentine cable television systems are prohibited from offering
telephony service. Likewise, Telecom Argentina STET -- France Telecom S.A.
("Telecom") and Telefonica de Argentina S.A. ("Telefonica"), the holders of the
two geographic monopoly concessions for telephony in Argentina, are prohibited
from offering video programming. The monopoly concessions granted to Telecom and
Telefonica expire in November 1997, although they may become eligible for an
extension of their concessions for an additional three years terminating in
November 2000. Upon expiration of the telephone monopoly period, management
believes that the telecommunications industry in Argentina may be deregulated,
allowing for the sale of multiple services through common delivery systems. This
convergence, if it occurs, would enable the Company and other telecommunications
providers to bundle telephony, video and data services for delivery to customers
through an integrated telecommunications network.
3
<PAGE> 6
ACQUISITION AND EXPANSION STRATEGY
Management anticipates that it will continue to focus the Company's
acquisition activity in Argentina. However, the Company is also exploring cable
television and other telecommunications opportunities in other Latin American
markets that are consistent with the Company's strategy. The Company seeks to
maintain a highly disciplined approach to expansion through the consideration of
many factors, including the: (i) cost of acquisition per subscriber; (ii) cost
of acquisition as a multiple of projected cash flow; (iii) competitive nature of
the market; (iv) pricing of services; (v) technical conditions of the acquired
company; and (vi) availability and cost of financing.
Since April 1994, the Company has expanded from a single cable television
system to a network of 13 systems in 11 cities, operating in seven "clusters."
The Company concentrates acquisition and expansion efforts on specific
geographic areas to achieve strategic presence. Management believes that
geographic considerations are of major importance in the ongoing consolidation
of the Argentine cable television market and the anticipated convergence of
telecommunications services.
The Company focuses its acquisition efforts on creating clusters of cable
television systems. Cable television clusters enable the Company to benefit from
economies of scale through reduced marketing and personnel costs, particularly
in systems where cable television service can be delivered through a central
headend reception facility.
Historically, the Company has acquired cable television systems within
markets served by more than one cable television system. Over time, the Company
seeks to consolidate markets through acquisition or attrition. The Company
believes that such consolidation increases customer stability and contributes to
improved operating and financial performance.
OPERATING STRATEGY
The Company seeks to maximize the financial performance of its cable
television systems by: (i) emphasizing customer satisfaction and retention; (ii)
standardizing operations; and (iii) upgrading and expanding existing networks. A
long-term strategy of the Company is to develop an interactive, integrated
network that would enable the bundling of video, voice and data services.
The Company emphasizes subscriber satisfaction and retention by customizing
program offerings, improving signal quality, improving customer service,
increasing subscriber communication and maintaining a strong community image.
To improve the financial performance and operating efficiencies of its
acquired cable television systems, upon consummation of an acquisition, the
Company immediately begins to standardize operations to create a homogeneous
operating environment that provides uniform, timely and centralized financial
reporting, strong cash controls, uniform organization and operating procedures,
improved service to customers and reliable communications.
The Company plans to upgrade existing systems in selected markets to enable
it to provide better value to its customers and to increase subscriber revenue
by increasing the number of program channels offered, offering additional
services and improving service to customers. Expanding existing networks will
provide an opportunity to increase the subscriber count by extending service to
homes not previously served by the Company and to increase revenues per
subscriber by selling additional services.
A long-term strategy of the Company is to develop an interactive,
integrated telecommunications network that would enable the Company to bundle
multiple types of telecommunications services for sale to subscribers. Such a
network would enable the Company to increase revenues from the sale of
additional services, to improve signal quality and network reliability and to
solidify market share.
The Company was incorporated in Texas in 1980. The Company's executive
offices are located at 327 Congress Avenue, Suite 200, Austin, Texas 78701 and
its telephone number is (512) 476-2995.
4
<PAGE> 7
THE OFFERING
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<S> <C>
Common Stock Offered by the Company................. 10,000,000 Shares
Common Stock Offered by the Selling Shareholders.... 2,000,000 Shares
Common Stock Outstanding after the Offering......... 23,189,785 Shares(1)
Use of Proceeds by the Company...................... Repayment of indebtedness, possible future
acquisitions and capital expenditures, and
general corporate purposes. See "Use of
Proceeds."
Nasdaq Small-Cap Market Symbol...................... TESC
Proposed Nasdaq National Market Symbol.............. TESC
</TABLE>
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(1) Does not include: (i) up to 2,827,136 shares of Common Stock subject to
outstanding options and warrants at June 30, 1997; (ii) 693,864 shares of
Series 1990 10% Convertible Preferred Stock ("Series 1990 Preferred Stock"),
each share of which is currently convertible into approximately 1.25 shares
of Common Stock; and (iii) 139,250 shares of Series 1995 8% Convertible
Preferred Stock ("Series 1995 Preferred Stock"), each share of which is
currently convertible into 32 shares of Common Stock. See "Description of
Capital Stock -- Preferred Stock."
RISK FACTORS
Investors should consider the risk factors involved in connection with an
investment in the Common Stock offered hereby and the impact to investors from
various events that could adversely affect the Company's business. See "Risk
Factors."
5
<PAGE> 8
SUMMARY SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The summary selected consolidated financial and other data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
historical statements of operations data set forth below with respect to the
years ended March 31, 1995, 1996 and 1997 and the historical balance sheet data
as of March 31, 1997, are derived from the Company's audited Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus. The historical statement of operations data set forth below with
respect to the three months ended June 30, 1996 and 1997, and the historical
balance sheet data as of June 30, 1997, are derived from the Company's unaudited
Consolidated Financial Statements, which, in the opinion of management, include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair statement of the results for the unaudited periods. The Company's Argentine
cable television operations are not reflected in the Company's consolidated
results of operations for periods prior to the fiscal year ended March 31, 1996.
Consequently, financial results from previous periods should not be considered
comparable to the results over the two most recent fiscal years.
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THREE MONTHS ENDED
YEARS ENDED MARCH 31, JUNE 30,
----------------------------- -------------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ -- $16,009 $22,580 $ 5,402 $ 7,129
Operating costs............................................. -- 11,432 16,264 3,915 5,202
General and administrative expenses......................... 1,468 3,062 3,691 878 862
Depreciation................................................ 12 1,910 3,603 806 1,330
Amortization of franchise costs............................. -- 1,075 1,413 333 444
------- ------- ------- ------- -------
Operating loss.............................................. (1,480) (1,470) (2,391) (530) (709)
Interest and other income................................... 1,127 425 254 94 5
Interest expense............................................ 3 356 346 39 320
------- ------- ------- ------- -------
Loss from continuing operations before provision for income
taxes..................................................... (356) (1,401) (2,483) (475) (1,024)
Income tax expense(1)....................................... -- 117 899 113 114
Income from discontinued operations, net.................... 585 -- -- -- --
Minority interest in the loss of consolidated
subsidiaries.............................................. -- 23 -- 14 16
------- ------- ------- ------- -------
Net income (loss)........................................... 229 (1,495) (3,382) (574) (1,122)
Preferred stock dividends................................... 347 637 1,495 383 365
------- ------- ------- ------- -------
Net loss applicable to common stock......................... $ (118) $(2,132) $(4,877) $ (957) $(1,487)
======= ======= ======= ======= =======
Loss per share applicable to common stock................... $ (0.02) $ (0.19) $ (0.38) $ (0.08) $ (0.12)
======= ======= ======= ======= =======
OTHER OPERATING DATA:
System cash flow(2)......................................... $ -- $ 4,577 $ 6,316 $ 1,487 $ 1,927
EBITDA(2)................................................... -- 1,515 2,625 609 1,065
Net cash provided by (used in) operating activities......... (96) 456 3,779 567 600
Net cash provided by (used in) investing activities......... (4,143) (13,782) (16,671) (2,283) (1,071)
Net cash provided by (used in) financing activities......... (414) 19,076 5,985 73 (356)
</TABLE>
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<CAPTION>
JUNE 30, 1997
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ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 797
Total assets................................................ 48,001
Debt........................................................ 7,227
Redeemable preferred stock.................................. 833
Total stockholders' equity.................................. 32,178
</TABLE>
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(1) Income tax regulations of Argentina do not allow losses of one subsidiary to
offset income from another subsidiary in a consolidated return, resulting in
income tax expense for the Company despite net losses in those years.
(2) "System cash flow" is defined as revenues less operating costs. "EBITDA" is
defined as net income (loss) before: (i) minority interest in the loss of
consolidated subsidiaries; (ii) income from discontinued operations; (iii)
income tax expense; (iv) interest expense; (v) interest and other income;
(vi) amortization of franchise costs; and (vii) depreciation. Although
system cash flow and EBITDA are not measures of performance calculated in
accordance with generally accepted accounting principles ("GAAP"),
management believes that they are useful to an investor in evaluating the
Company because they are measures widely used in the cable television
industry to evaluate performance. System cash flow and EBITDA are not
meaningful for the fiscal year ended March 31, 1995, because the Company's
cable operations were not consolidated in that fiscal year. However, system
cash flow and
6
<PAGE> 9
EBITDA should not be considered in isolation or as substitutes for net
income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP as a measure of liquidity or
profitability.
(3) The summary as adjusted information set forth reflects the sale by the
Company of 10,000,000 shares of Common Stock offered hereby at an assumed
offering price of $ per share and the application of the estimated
net proceeds therefrom. See "Use of Proceeds."
7
<PAGE> 10
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this Prospectus,
in connection with an investment in the Common Stock offered hereby.
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act (and Section
21E of the Exchange Act). The words "expect," "estimate," "anticipate,"
"predict," "believe," and similar expressions and variations thereof are
intended to identify forward-looking statements. Such statements appear in a
number of places in this Prospectus and include statements regarding the intent,
belief or current expectations of the Company, its directors or its officers
with respect to, among other things: (i) trends affecting the Company's
financial condition or results of operations; (ii) the Company's financing
plans; (iii) the Company's business and growth strategies; (iv) the use of the
net proceeds to the Company of the Offering; and (v) the declaration and payment
of dividends. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors. The
accompanying information contained in this Prospectus including, without
limitation, the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business," as well as information contained in the Company's
filings with the Commission, identify important factors that could cause such
differences.
COUNTRY RISKS. Substantially all of the Company's assets and operations are
located in Argentina, which is generally considered to be an emerging market. In
addition, the Company is exploring opportunities in other Latin American
markets. Emerging markets, including Argentina and the other countries in which
the Company is exploring opportunities, are more volatile and less developed
economically and politically than markets in the United States and Western
Europe. Relatively minor changes in economic, political and governmental
conditions in the Company's markets may result in significant adverse economic
consequences, which in turn could have a detrimental impact on the business,
results of operations and financial condition of the Company. Therefore, an
investment in the Company is riskier than it would be if the Company's assets
and operations were located in the United States.
Argentine Governmental Risks. The Argentine government exercises
significant influence over many aspects of the Argentine economy. Accordingly,
Argentine governmental actions concerning the economy could significantly affect
private sector entities in general, and the Company in particular. Argentine
governmental activities may also affect the ability of foreign companies to
transact business in Argentina, market conditions, and prices and returns on
securities issued by companies with significant investments in Argentina,
including the Company.
Prior to 1981, Argentina experienced alternating periods of democratically
elected governments and military interventions, which resulted in significant
inconsistencies in governmental policy. Although Argentina held its third
consecutive democratic Presidential election in 1995, there can be no assurance
that Argentina will continue to be governed through a democratic form of
government. Any military intervention or other change in the form of government
could result in changes in governmental and economic policies, which could have
an adverse impact on the business, results of operations and financial condition
of the Company.
Argentine Economic Risks. In the past, Argentina has experienced periods of
slow or negative economic growth, high inflation, large currency devaluations
and limited availability of foreign exchange. Prior to 1992, the Argentine
economy experienced hyper-inflation and periods of extreme economic volatility
and turmoil, resulting in broad fluctuations in the real exchange rate of the
Argentine currency relative to the U.S. Dollar. In 1988, 1989, 1990 and 1991 the
annual inflation rates in Argentina were approximately 388%, 4,924%, 1,344% and
172%, respectively, based on the Argentine Consumer Price Index. Percentage
changes in the GDP for those same years were approximately -1.9%, -6.2%, 0.1%
and 8.9%, respectively. On March 20, 1991, the Argentine government adopted a
currency board system (the "Convertibility Plan") for the purpose of reducing
inflation and promoting currency stability. The Convertibility Plan included the
Convertibility Law and a regulatory decree, which became effective on April 1,
1991. Under the Convertibility Plan, the
8
<PAGE> 11
Argentine government mandated that every Argentine Peso in circulation be fully
backed by one U.S. Dollar held in deposit by the Central Bank. Additionally, the
Convertibility Plan provides that all holders of Argentine Pesos can surrender
their Pesos at the Central Bank and receive in exchange an equal number of U.S.
Dollars.
Concurrent with the adoption of the Convertibility Plan, the Argentine
government adopted or implemented economic reform laws based upon the adoption
of free market policies, the privatization of state-owned businesses, and the
reduction of the role of government in business (collectively, the "Economic
Reform Plan"). Passage of and adherence to the Convertibility Plan and Economic
Reform Plan is generally considered to have resulted in stabilization in the
value of the Argentine Peso relative to the U.S. Dollar, a significant reduction
in the level of inflation, economic growth, an influx of foreign investment,
improvements in infrastructure and increased economic efficiency. The negative
consequences of the Convertibility Plan and Economic Reform Plan included a
sharp reduction in the ability of the Argentine government to manage the economy
through changes in the money supply and increased levels of unemployment
resulting primarily from privatizations and increased enterprise efficiencies.
Changes in governmental policies affecting adherence to the Convertibility
Plan and Economic Reform Plan could have an adverse impact on the economy of
Argentina and the business, results of operations and financial condition of the
Company. In addition, there can be no assurances as to the continued success of
these measures. The currency board system adopted by Argentina as part of the
Convertibility Plan is virtually without precedent. Doubts exist among
economists regarding the long-term efficacy of a currency board system, and no
assurances can be made as to whether the Convertibility Plan will result in
long-term currency stability and moderate inflation. Factors that could
undermine the continued success of the Convertibility Plan and the Economic
Reform Plan include relatively high unemployment rates, trade and tariff
barriers that currently contribute to foreign trade deficits, relatively high
cost of labor, fiscal deficits in excess of International Monetary Fund targets
and continued reliance on foreign debt. If the Convertibility Plan and the
Economic Reform Plan do not continue to be successful, Argentina may face a
return to economic instability, the implementation of foreign exchange controls,
difficulty in making its future national debt payments or a currency
devaluation. These or other effects on the Argentine economy may cause adverse
financial or operational difficulties for the Company.
Regional Economic Volatility. The economy of Argentina may be negatively
impacted by adverse economic developments in other countries, especially those
in the Latin American region. This negative impact could result even though the
adverse economic developments are unique to a specific country other than
Argentina.
For example, on December 20, 1994 the currency of the Republic of Mexico
suffered a major devaluation as a result of the Mexican central bank's inability
to support the value of the Mexican Peso relative to the U.S. Dollar. The
devaluation resulted in an economic crisis in Mexico. Although it is generally
considered that the currency devaluation and economic crisis in Mexico resulted
from political and economic factors that were unique to Mexico, other Latin
American economies, including that of Argentina, were negatively impacted by the
resulting impairment of confidence. As a consequence, in 1995 Argentina
experienced a sharp decline in foreign investment, significant reductions in
bank deposits and foreign reserves, increased unemployment, contraction of its
GDP and a decline in the value of stocks and bonds traded on the Argentine stock
exchange. The Argentine government responded to these developments by increasing
the Value Added Tax to 21% from 18%, reducing government spending to minimize
fiscal deficits, increasing bank reserve requirements and reaffirming its
commitment to a stable currency and free market economy. Liquidity improved
after implementation of these measures and bank deposits and foreign reserves
that were lost during the crisis were recovered by the end of calendar 1996.
Unemployment rates have declined to approximately 17% from 21%, but remain at
historically high levels.
In the future, regional volatility may again impact Argentine politics and
economics. There can be no assurance that such regional volatility would not
have an adverse impact on the economy of Argentina or the business, results of
operations and financial condition of the Company.
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<PAGE> 12
HISTORY OF LOSSES. The Company reported net operating losses of
approximately $1.5 million, $2.4 million and $709,000 in fiscal 1996, fiscal
1997 and for the three months ended June 30, 1997, respectively. Financial
results of the Company prior to fiscal 1996 were for an unrelated business and
should not be considered comparable to the results over the past two fiscal
years. The Company had an accumulated deficit of approximately $35.5 million at
June 30, 1997. There can be no assurance that the Company will be able to
achieve sustained profitability in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Selected
Consolidated Financial and Other Data."
SUSTAINABILITY OF RECENT GROWTH THROUGH ACQUISITIONS. The Company commenced
its cable television operations in April 1994 with the acquisition of a system
in Ushuaia, Argentina. Since that date, the Company has experienced rapid growth
in its cable television operations as a result of the number and size of
acquisitions consummated by the Company. The Company completed five acquisitions
in fiscal 1995 (inclusive of the system in Ushuaia), two acquisitions in fiscal
1996 and six acquisitions in fiscal 1997. Primarily as a result of these
acquisitions, the Company's cable television operations grew to approximately
70,000 subscribers at June 30, 1997 and annual revenues derived from cable
television operations have grown from $10.3 million (unconsolidated) in fiscal
1995 to $22.6 million in fiscal 1997.
The Company's growth and pace of acquisitions has placed, and will continue
to place, a substantial burden on the Company's management, operational,
financial and accounting resources. The successful management of this growth
will require the Company to continue to implement and improve its financial and
management information systems and to train, motivate and manage its employees.
There can be no assurance that the Company will be able to identify, consummate
or integrate acquisitions without substantial delays, costs or other problems.
Once integrated, an acquired cable television system may not achieve sales,
profitability and asset productivity commensurate with the Company's other
operations. In addition, acquisitions involve several other risks, including
adverse short-term effects on the Company's reported operating results, write
downs of goodwill and other intangibles, the diversion of management's
attention, the dependence on retention, hiring and training of key personnel,
the amortization of intangible assets and risks associated with unanticipated
problems or legal liabilities. The Company's failure to manage growth
effectively would have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business -- Acquisition and
Expansion Strategy."
DEPENDENCE ON ACQUISITIONS FOR FUTURE GROWTH. The Company's growth strategy
is dependent principally on its ability to acquire existing cable television
systems. Successful acquisitions involve a number of factors that are difficult
to control, including the identification of potential acquisition candidates,
the willingness of owners to sell on reasonable terms and the satisfactory
completion of negotiations. There can be no assurance that the Company will be
able to identify and timely acquire acceptable acquisition candidates on terms
favorable to the Company. Assuming the availability of capital, the Company's
plans include an aggressive acquisition program. The Company continues to
evaluate potential acquisitions and negotiate with several potential acquisition
candidates. It is possible that an agreement in principle or a definitive
agreement as to one or more acquisitions will be executed prior to the
consummation of the Offering. The Company anticipates that it will exercise an
option to acquire a cable television system serving San Martin de los Andes,
Neuquen Province for approximately $2.6 million. The time within which the
Company will use the net proceeds of the Offering will depend upon the number,
size and timing of future acquisitions, factors that are difficult to predict
with certainty. The failure to complete acquisitions and continue expansion
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Acquisition and Expansion
Strategy."
NEED FOR ADDITIONAL CAPITAL. The Company's cash requirements have been and
will continue to be significant. In fiscal 1995, 1996 and 1997, the Company used
(net of cash from acquired companies) $12.3 million, $14.8 million and $14.2
million, respectively, for acquisitions and the retirement of acquisition-
related debt. The continued pursuit of the Company's expansion strategy will
require significant additional capital resources. Capital is needed not only for
acquisitions, but also to service acquisition-related indebtedness and for the
effective integration, systemization, operation and expansion of the acquired
cable systems. The Company intends to use a substantial portion of the net
proceeds of the Offering to fund its acquisition strategy. Even if the proceeds
of the Offering are employed as contemplated, further acquisitions
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<PAGE> 13
may have to be financed through either the issuance of additional shares of
Common Stock, convertible securities or options or warrants to purchase shares
of Common Stock, which would dilute the percentage ownership of existing
shareholders, including prospective investors in the Offering, the issuance of
debt instruments or other increases in the Company's borrowing, which would
increase the Company's leverage position, or a combination of both. See "Use of
Proceeds" and "Business -- Acquisition and Expansion Strategy."
RELIANCE ON SOLE SUPPLIER FOR SOCCER PROGRAMMING. The Company is dependent
on one program supplier for a majority of the Argentine soccer programming in
the Company's basic tier and all of the soccer programming in its premium tier.
Management believes that its Argentine soccer programming is the only television
content that cannot be readily replaced by similar programming from a different
supplier. The Company's current programming contracts for soccer are due to
expire at various times during fiscal 1998. While the Company intends to renew
these contracts as they expire, there is no assurance that renewal of such
contracts will be available at acceptable prices. The Company believes that it
has a good relationship with the supplier who provides the soccer programming,
but there can be no assurance that the Company will be able to maintain this
relationship. The loss of this soccer programming would result in the loss of
all revenues from the premium tier and could result in the loss of some basic
subscribers, which would have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Programming Suppliers."
ISSUANCES OF LICENSES. The Comite Nacional de Radiodifusion ("COMFER"), an
Argentine governmental agency that is analogous to the television broadcasting
division of the Federal Communications Commission in the United States, licenses
and regulates cable television operations in Argentina. Prior to the
ratification of the Treaty Concerning the Reciprocal Protection and
Encouragement of Investment (the "Bi-Lateral Treaty") between Argentina and the
United States in October 1994, COMFER did not issue licenses to own and operate
cable television systems to companies controlled by United States companies. To
the knowledge of the Company, COMFER has issued licenses to two companies
controlled by United States companies since that time. The Company intends to
seek authorization from COMFER as a principal owner of its subsidiaries. A
decision by COMFER to deny the authorization of the Company would require the
Company to continue to operate systems pursuant to licenses that are held by
subsidiaries whose owners may not have been approved by COMFER, which could have
a material adverse effect on the business, results of operations and financial
condition of the Company. There can be no assurance that there will not be
changes in the current regulatory scheme, the imposition of additional
regulations or the creation of new regulatory agencies, that would restrict or
curtail the ability of the Company to acquire, operate and dispose of its cable
television systems or, in general, to compete profitably with other operators of
cable television systems and other telecommunication properties. Further, there
can be no assurance that there will not be other regulatory changes, including
aspects of deregulation, that will result in a decline in the value of licenses
held by the Company or its affiliates or adversely affect the Company's
competitive position. See "Business -- Regulation."
RELIANCE ON KEY PERSONNEL. The operations and financial performance of the
Company are highly dependent upon the continued involvement of Jack R. Crosby,
the Chairman and Chief Executive Officer of the Company, Jack S. Gray, Jr., the
President and Chief Operating Officer of the Company and the Company's Joint
Venture Partners, Osvaldo Rossi and Carlos Saba, who are key employees of the
Company in Argentina. The Company does not have employment agreements with any
of these persons. Certain of the Company's cable television systems and the
licenses to own and operate those cable television systems in Argentina are held
in the names of Messrs. Rossi and Saba. The death, departure or incapacity of
any of these persons could have a material adverse impact on the business,
results of operations and financial condition of the Company, and there is no
assurance that the Company could replace any or all of these executive officers
or key employees with persons having comparable management and operating skills.
The Company does not maintain "key man" insurance on any of its officers or key
employees and does not currently plan to obtain any such coverage. See
"-- Issuances of Licenses" and "Management."
COMPETITION. The cable television industry in Argentina is highly
competitive and is currently characterized by significant changes in technology.
In addition, cable television systems are subject to competition from
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<PAGE> 14
other communications and entertainment media, including movie theaters, live
sporting events, interactive computer programs and home video products such as
video cassettes. Many of the Company's competitors have greater financial and
technical resources than the Company. The Company may be required to devote
significant resources and effort to implement or obtain rights to new
development of technology in order to remain competitive.
Argentina authorizes competitive cable television services to operate in
the same geographic markets. Accordingly, in several of its current markets, the
Company faces competition from other cable television systems for the same
subscribers. Also, there are few regulatory barriers to competitors seeking to
enter markets currently dominated by the Company. It is likely that many of the
markets targeted by the Company for future expansion will include cable
television systems engaged in direct competition with other operations in a
given market. There is no assurance that the Company will be able to consummate
the acquisitions necessary to secure these markets.
Recent developments in the Argentine market indicate that major
telecommunications providers are entering the cable television industry.
Telefonica de Espana International S.A., an affiliate of Telefonica, has
acquired a 20% ownership interest in Multicanal S.A., the largest cable
television company in Argentina. Affiliates of Telecom have acquired a 51%
ownership interest in a major cable television operation located in Neuquen
Province, Argentina. US West Media, Inc., an affiliate of US West Company, has
acquired a majority ownership interest in the parent of Video Cable
Comunicaciones S.A., a major Argentine cable television company.
Tele-Communications International, Inc., an affiliate of the largest operator of
cable television systems in the United States, has acquired a 51% ownership
interest in Cablevision, S.A., a major cable television company serving Buenos
Aires. The Company's ability to locate and acquire systems at acceptable prices
may be diminished as competition for subscribers and cable television systems
increases. There is no assurance that the Company can successfully compete
against larger companies for the acquisition of cable television systems in
Argentina or other countries in Latin America.
In the United States, regional telephone companies have announced plans to
begin offering cable television service through fiber optic trunk lines and
coaxial or copper drop distribution networks. At present, Argentine telephone
companies are prohibited from supplying video programming to subscribers through
the telephone system. However, active discussions are reportedly occurring in
the executive and legislative branches of the Argentine government concerning a
possible deregulation of the telecommunications industry, including deregulation
of providers of voice, data and video services. Deregulation will likely result
in direct competition among telephone companies and cable television companies
with regard to the supply of voice, data and video signals. While deregulation
will provide the Company and other cable television operators the opportunity to
compete in additional markets, it will also subject such companies to
competition from additional competitors who are well capitalized and technically
competent.
Cable television systems, such as the systems operated by the Company, are
also subject to competition from alternative means of signal transmission
including, but not limited to, Microwave Multi-Point Distribution Systems
("MMDS"), ultra high frequency systems ("UHF"), Microwave Master Antenna
Television Systems ("MATV"), Satellite Master Antenna Television Systems
("SMATV"), Home Satellite Television Systems ("HSTV") and Direct Broadcast
Satellite ("DBS"). The advantages of DBS over cable include the quality of
signal and quantity of channel offerings. Certain providers recently began
offering DBS in Argentina. Although DBS is relatively expensive and lacks local
programming, widespread acceptance of DBS in Argentina could have a material
adverse effect on the Company. See "Business -- Competition" and "-- Operating
Strategy."
LABOR RELATIONS. In Argentina, labor unions are strong and influential.
Approximately 80% of the Company's Argentine employees are unionized. In the
future, the Company's efforts to modernize its operations and the potential
negative effects of any Argentine inflation on real wages could result in labor
conflicts. Accordingly, no assurances can be given that strikes or any other
type of conflict with unions or personnel will not have a material adverse
effect on the Company. See "Business -- Employees."
LIMITED INSURANCE COVERAGE. The Company's operating subsidiaries obtain
insurance in type and amount customary for the property in their systems.
However, consistent with industry practice in the United States,
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<PAGE> 15
they do not insure the entire cable portion of cable television systems. Any
catastrophe affecting a significant portion of a system's cable could result in
substantial uninsured losses.
BENEFITS OF THE OFFERING TO CURRENT SHAREHOLDERS. Current beneficial
holders of the Company's Common Stock will benefit directly from the Offering.
Upon completion of the Offering, the Company is required to offer to redeem $6.0
million in principal balance of certain debt that is outstanding or, if the debt
holders elect not to have their notes redeemed, keep cash on hand equal to the
principal balance thereof until such debt matures in February 1998. The debt is
outstanding to a group of investors that includes a director, beneficial holders
of over 5% of the Company's capital stock, and certain other shareholders.
Winston J. Churchill, a director of the Company and the beneficial owner of over
5% of the outstanding Common Stock, and his wife own $200,000 in principal
amount of this debt. The South America Fund N.V., the beneficial owner of over
5% of a class of the Company's voting securities, owns $1.0 million in principal
amount of the debt, which may also be deemed to be owned by BEA Associates, the
beneficial owner of over 5% of the outstanding Common Stock. Each of Clarex
Limited and Banque Nationale de Paris (Paris), beneficial owners of over 5% of a
class of the Company's voting securities, own $500,000 in principal amount of
this debt. In addition, the Company will use up to $500,000 of the proceeds of
the Offering to repay a loan made to the Company in August 1997 by the Jack R.
Crosby Inter Vivos Trust. Jack R. Crosby, the Chairman of the Board and Chief
Executive Officer of the Company, established the Jack R. Crosby Inter Vivos
Trust, which holds 172,043 shares of Common Stock, but is neither a trustee nor
a beneficiary of the trust. See "Use of Proceeds," "Certain Transactions" and
"Principal and Selling Shareholders."
CONVERTIBLE PREFERRED STOCK. The Company's Articles of Incorporation
preclude the declaration or payment of dividends on the Common Stock unless
dividends on the Series 1990 Preferred Stock and Series 1995 Preferred Stock
have been declared and paid in full or declared and a sum sufficient to pay such
declared dividends set aside. The Company paid $637,000 and $1.5 million in
dividends on both series of preferred stock in fiscal year 1996 and 1997,
respectively. In addition, in the event of liquidation, the holders of Series
1990 Preferred Stock are entitled to receive $5.00 per share plus accrued and
unpaid dividends before the holders of Common Stock or Series 1995 Preferred
Stock are entitled to receive any of the liquidation proceeds. In the event of
liquidation, the holders of Series 1995 Preferred Stock are entitled to receive
$100.00 per share plus accrued and unpaid dividends before the holders of Common
Stock are entitled to receive any of the liquidation proceeds. Consequently,
because the Series 1990 Preferred Stock and the Series 1995 Preferred Stock are
entitled to receive preferential dividends and preferential treatment on
liquidation, the Series 1990 Preferred Stock and the Series 1995 Preferred Stock
could recover disproportionately higher returns than the Common Stock,
particularly if the proceeds of a liquidation were less than or only marginally
greater than the aggregate liquidation preference for the Series 1990 Preferred
Stock and the Series 1995 Preferred Stock. In addition, the holders of the
Series 1990 Preferred Stock and Series 1995 Preferred Stock have the option of
converting into Common Stock if it appears that the Common Stock will recover
more than the Series 1990 Preferred Stock or the Series 1995 Preferred Stock,
respectively, in the event of liquidation. See "Description of Capital
Stock -- Preferred Stock."
DILUTION. Purchasers of Common Stock in the Offering will incur immediate
and substantial dilution in the net tangible book value per share of the Common
Stock from the offering price as compared to the increase in net tangible book
value per share that will accrue to existing shareholders. Based on an offering
price of $ per share, such dilution would have been equal to
$ at June 30, 1997. See "Dilution."
MARKET FOR COMMON STOCK; ILLIQUID SECURITIES. Until the effective date of
the Offering, the Common Stock has been quoted on the Nasdaq Small-Cap Market.
There have been periods of significant volatility in the market price and
trading volume of the Common Stock, which in many cases were unrelated to the
operating performance of, or announcements concerning, the Company. General
market price declines or market volatility in the future could adversely affect
the price of the Common Stock. In addition, the trading price of the Common
Stock has been and is likely to continue to be subject to significant
fluctuations in response to variations in quarterly operating results, the
successful integration of acquired companies, changes in management,
competitors, regulatory changes, general trends in the industry, recommendations
by securities industry analysts and other events or factors. This volatility has
been exacerbated by the lack of a
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<PAGE> 16
significant public float in the Common Stock, which has the effect of reducing
liquidity in the Company's Common Stock in the hands of institutional and other
large holders, thus reducing interest among market analysts and contributing to
limited market support. There can be no assurance that an adequate trading
market can be maintained for the Common Stock. Also, many lending institutions
in the United States will not permit the use of low-priced or thinly traded
securities as collateral for loans. See "Price Range of Common Stock."
ABSENCE OF DIVIDENDS. The Company has not historically declared or paid
dividends on its Common Stock and has no plans to do so in the foreseeable
future. In addition, the Company's Articles of Incorporation preclude the
declaration or payment of dividends on the Common Stock unless the Series 1990
Preferred Stock dividends and the Series 1995 Preferred Stock dividends have
been declared and paid in full or declared and a sum sufficient to pay such
declared dividends set aside. The terms of certain of the Company's debt, which
matures in February 1998, restrict the ability of the Company to pay dividends
on the Common Stock for so long as that debt is outstanding. See "Dividend
Policy."
SHARES ELIGIBLE FOR FUTURE SALE. After the completion of the Offering, the
Company will have 23,189,785 shares of Common Stock outstanding. Of those
shares, a total of 21,580,851 will be freely tradable without restriction or
further registration under the Securities Act, unless purchased or held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The Company's executive officers and directors, the Selling
Shareholders and certain other shareholders, who own an aggregate of
shares of Common Stock (including shares to be sold in the Offering),
and the Company have agreed that they will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other sale or disposition)
any shares of Common Stock or other capital stock or any securities convertible
into or exercisable or exchangeable for, or any rights to purchase or acquire
any shares of Common Stock or other capital stock of the Company for a period of
180 days after the date of this Prospectus without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, except for
options granted pursuant to the Company's existing stock option programs.
Prudential Securities Incorporated may, in its sole discretion, at any time and
without notice, release all or any portion of the shares of Common Stock subject
to such agreements. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
the prevailing market price for the Common Stock and could impair the Company's
ability to raise capital through a public offering of equity securities. See
"Shares Eligible for Future Sale."
IMMUNITY OF CERTAIN ASSETS FROM ATTACHMENT. Under Argentine law, attachment
of a company's property prior to execution and attachment of a company's
property in aid of execution will not be ordered by courts of Argentina with
respect to property that is located in Argentina and determined by such courts
to be dedicated to the provision of essential public services. A substantial
portion of the Company's assets may be considered to be dedicated to the
provision of an essential public service. If an Argentine court were to make
such a determination with respect to certain of the Company's assets, such
assets would not be subject to attachment, execution or other legal process and
the ability of a creditor of the Company to realize a judgment against the
assets of the Company may be adversely affected.
ANTI-TAKEOVER PROVISIONS. The new Texas Business Combination Law, which
becomes effective September 1, 1997, restricts certain transactions between a
public corporation and affiliated shareholders. The statute, which will be
applicable to the Company, may have the effect of inhibiting a non-negotiated
merger or other business combinations involving the Company. See "Description of
Capital Stock -- Statutory Business Combination Provision."
In addition, the Company's Articles of Incorporation authorize 5,000,000
shares of preferred stock, $1.00 par value ("Preferred Stock"), of which only
833,114 shares are currently issued and outstanding. The Preferred Stock may be
issued in series from time to time with such designations, rights, preferences
and limitations as the Board of Directors of the Company may determine by
resolution. Additional series of Preferred Stock might be issued that would
grant dividend preferences and liquidation preferences to preferred shareholders
over holders of the Common Stock. Unless the nature of a particular transaction,
applicable
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<PAGE> 17
statutes or Nasdaq rules require such approval, the Board of Directors has the
authority to issue Preferred Stock without shareholder approval. The issuance of
Preferred Stock may have the effect of delaying or preventing a change in
control of the Company without any further action by the shareholders. See
"Description of Capital Stock -- Preferred Stock."
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<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of 10,000,000 shares of
Common Stock offered by the Company hereby, at an assumed public offering price
of $ per share (the last reported sales price of the Common Stock on
the Nasdaq Small-Cap Market on August , 1997), after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company, are estimated to be $ million ($ million if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any
proceeds from the sale of Common Stock by the Selling Shareholders.
Approximately $6.4 million of the net proceeds of the Offering will be used
to repay indebtedness under the 13% Senior Notes (the "Acquisition Notes")
issued by the Company in February 1997. The Acquisition Notes were issued in
connection with the Company's acquisitions of Televiedma S.R.L. and Cable Viedma
S.R.L., and were purchased by a group of investors that included current
shareholders of the Company. The Acquisition Notes mature on February 7, 1998,
bear interest at 13.0% per annum and have an outstanding principal balance of
$6.0 million. Interest is payable semi-annually beginning in August 1997.
Pursuant to the terms of the Acquisition Notes, upon receipt of the net proceeds
of the Offering, the Company is required to offer to redeem all of the
Acquisition Notes. To the extent holders of the Acquisition Notes choose not to
have their Acquisition Notes redeemed, the Company must maintain cash on its
books equal to the principal balance of those unredeemed Acquisition Notes until
the maturity date.
Approximately $500,000 of the net proceeds of the Offering will be used to
repay an unsecured revolving credit facility made available to the Company in
August 1997 by the Jack R. Crosby Inter Vivos Trust (the "Interim Loan"). The
proceeds of the Interim Loan were used by the Company for working capital
purposes. The Interim Loan bears interest at 11.0% per annum and principal and
interest is payable on demand.
The Company and an affiliate of Prudential Securities Incorporated, one of
the Underwriters, are negotiating the terms of a credit facility, in an amount
between $10.0 million and $15.0 million (the "Credit Facility"), to be closed
prior to the closing of the Offering. The net proceeds of the Credit Facility,
if any, will be used by the Company to repay the Interim Loan, for capital
expenditures, including purchases of converter boxes, possible acquisitions and
general working capital purposes, pending the closing of the Offering. Any and
all principal and interest outstanding under the Credit Facility will be repaid
out of the net proceeds of the Offering and the Credit Facility will terminate
as of the closing of the Offering. Prudential Securities Incorporated intends to
comply with Rule 2720 of the Rules of Fair Practice of the National Association
of Securities Dealers, Inc.
The remaining net proceeds will be used primarily to finance the expansion
of the Company's business, including acquisitions of cable television systems.
The Company anticipates that it will exercise an option to acquire a cable
television system serving San Martin de los Andes, Neuquen Province for
approximately $2.6 million. While the Company has had discussions regarding the
acquisition of additional cable television systems in Argentina, the Company has
no present commitments or agreements regarding any other transactions. However,
the Company continues to evaluate potential acquisitions and negotiate with
several potential acquisition candidates. It is possible that an agreement in
principle or a definitive agreement as to one or more acquisitions will be
executed prior to the consummation of the Offering. The time within which the
Company will use the net proceeds of the Offering will depend upon the number,
size and timing of future acquisitions, factors that are difficult to predict
with certainty. To the extent not used for acquisitions, the net proceeds will
be used for general corporate purposes, capital expenditures, including
purchases of converter boxes, and working capital. Pending these uses, the net
proceeds will be invested in short-term, investment grade or government
securities.
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PRICE RANGE OF COMMON STOCK
The Common Stock is included for quotation in the Nasdaq Small-Cap Market
under the symbol "TESC." The following table sets forth, for the periods
indicated, the high and low bid information for the Common Stock, as reported by
the Nasdaq Small-Cap Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1996
First Quarter............................................. $4 $1 7/8
Second Quarter............................................ 39/16 2 3/4
Third Quarter............................................. 3 7/8 2 3/4
Fourth Quarter............................................ 4 3/8 2 1/2
FISCAL YEAR ENDED MARCH 31, 1997
First Quarter............................................. $4 1/2 $3 1/4
Second Quarter............................................ 4 1/8 2 7/8
Third Quarter............................................. 4 5/8 2 7/8
Fourth Quarter............................................ 45/16 3 1/4
FISCAL YEAR ENDING MARCH 31, 1998
First Quarter............................................. $4 1/8 $215/16
Second Quarter (through August , 1997)................
</TABLE>
These quotations may reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
The last reported sales price of the Common Stock on August , 1997, as
reported by the Nasdaq Small-Cap Market, was $ per share. At August 7, 1997,
the 13,189,785 shares of Common Stock outstanding were held by approximately 346
shareholders of record. The Company estimates that there were approximately
1,650 beneficial owners of the Common Stock at August 7, 1997.
The Company has applied to have the Common Stock included for quotation
under the symbol "TESC" by the Nasdaq National Market.
DIVIDEND POLICY
The Company has not historically declared or paid dividends on its Common
Stock and has no plans to do so in the foreseeable future. In addition, the
Company's Articles of Incorporation preclude the declaration or payment of
dividends on the Common Stock unless the Series 1990 Preferred Stock dividends
and the Series 1995 Preferred Stock dividends have been declared and paid in
full or declared and a sum sufficient to pay such declared dividends set aside.
The terms of the Acquisition Notes, which mature in February 1998, restrict the
ability of the Company to pay dividends on the Common Stock for so long as the
Acquisition Notes are outstanding.
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DILUTION
Purchasers of the shares of Common Stock offered hereby will experience an
immediate and substantial dilution in the net tangible book value per share of
their Common Stock from the offering price. At June 30, 1997, the net tangible
book value of the Company was approximately ($279,000), or ($0.02) per share.
Net tangible book value per share is the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding.
Net tangible book value dilution per share represents the difference
between the amount paid by purchasers of shares of Common Stock in the Offering
and the pro forma net tangible book value per share of Common Stock immediately
after completion of the Offering. After giving effect to the conversion of the
outstanding Preferred Stock and the sale of the shares of Common Stock offered
hereby at an assumed offering price of $ per share (after deducting the
underwriting discounts and commissions and estimated offering expenses), the pro
forma net tangible book value of the Company at June 30, 1997 would have been
approximately $ per share. This amount represents an immediate increase
in such net tangible book value of $ per share to the existing
shareholders and an immediate dilution of $ to new investors purchasing
shares at the assumed offering price. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price............................... $
Net tangible book value before the Offering............... $
Increase attributable to sale of Common Stock to new
investors..............................................
------
Pro forma net tangible book value after the Offering........
------
Dilution in net tangible book value to new investors........ $
</TABLE>
The foregoing table assumes no exercise of the outstanding stock options
and warrants after June 30, 1997. If all outstanding options and warrants at
June 30, 1997 were included above, the pro forma net tangible book value per
shares at June 30, 1997, after giving effect to the Offering, would have been
$ and the dilution per share to new investors would have been
$ .
18
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997 and as adjusted to reflect the sale by the Company of 10,000,000 shares
of Common Stock offered hereby at an assumed offering price of $ per
share and the application of the net proceeds therefrom. See "Use of Proceeds."
This information should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 797 $
======== ========
Total debt.................................................. $ 7,227 $
-------- --------
Minority interest........................................... 872
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value, 5,000,000 shares
authorized:
Series 1990 Convertible preferred stock, 693,864 shares
issued and outstanding............................... 694
Series 1995 Convertible preferred stock, 139,250 shares
issued and outstanding............................... 139
Common stock, $.02 par value, 50,000,000 shares
authorized, 13,189,785 shares issued and outstanding;
23,189,785 shares issued and outstanding as
adjusted(1)............................................ 264
Additional paid-in capital................................ 66,553
Accumulated deficit....................................... (35,472)
-------- --------
Total stockholders' equity........................ 32,178
-------- --------
Total capitalization.............................. $ 40,277 $
======== ========
</TABLE>
- ---------------
(1) Excludes 8,152,640 shares issuable upon exercise of outstanding options and
warrants and conversion of convertible preferred stock.
19
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected consolidated financial and other data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus. The historical
statement of operations data set forth below with respect to the years ended
March 31, 1995, 1996 and 1997 and the historical balance sheet data as of March
31, 1996 and 1997, are derived from the Company's audited Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus. The
historical statement of operations data set forth below with respect to the
years ended March 31, 1993 and 1994 and the historical balance sheet data as of
March 31, 1993, 1994 and 1995, are derived from the Company's audited
Consolidated Financial Statements not included herein. The historical statement
of operations data set forth below with respect to the three months ended June
30, 1996 and 1997, and the historical balance sheet data as of June 30, 1997,
are derived from the Company's unaudited Consolidated Financial Statements. In
the opinion of management, the unaudited financial statements have been prepared
on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations as of such
dates and for such periods. The results for the three month period ended June
30, 1997 are not necessarily indicative of the results to be expected for any
future period. The Company's Argentine cable television operations are not
reflected in the Company's consolidated results of operations for periods prior
to fiscal 1996. Consequently, financial results from previous periods should not
be considered comparable to the results over the two most recent fiscal years.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED MARCH 31, JUNE 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
----- ------- ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ -- $ -- $ -- $ 16,009 $ 22,580 $ 5,402 $ 7,129
Operating costs....................................... -- -- -- 11,432 16,264 3,915 5,202
General and administrative expenses................... 917 851 1,468 3,062 3,691 878 862
Depreciation.......................................... -- -- 12 1,910 3,603 806 1,330
Amortization of franchise costs....................... -- -- -- 1,075 1,413 333 444
----- ------- ------- -------- -------- ------- -------
Operating loss........................................ (917) (851) (1,480) (1,470) (2,391) (530) (709)
Interest and other income (expense)................... (7) 228 1,127 425 254 94 5
Interest expense...................................... 27 15 3 356 346 39 320
----- ------- ------- -------- -------- ------- -------
Loss from continuing operations
before provision for income taxes................... (951) (678) (356) (1,401) (2,483) (475) (1,024)
Income tax expense(1)................................. (338) (206) -- 117 899 113 114
Income from discontinued operations, net.............. 951 3,529 585 -- -- -- --
Extraordinary item.................................... 304 -- -- -- -- -- --
Cumulative effect of a change in accounting
principle........................................... -- 785 -- -- -- -- --
Minority interest in the loss of consolidated
subsidiaries........................................ -- -- -- 23 -- 14 16
----- ------- ------- -------- -------- ------- -------
Net income (loss)..................................... 642 3,882 229 (1,495) (3,382) (574) $(1,112)
Preferred stock dividends............................. 347 347 347 637 1,495 383 365
----- ------- ------- -------- -------- ------- -------
Net income (loss) applicable to common stock.......... $ 295 $ 3,353 $ (118) $ (2,132) $ (4,877) $ (957) $(1,487)
===== ======= ======= ======== ======== ======= =======
Net income (loss) per share applicable to common
stock............................................... $0.04 $ 0.49 $ (0.02) $ (0.19) $ (0.38) $ (0.08) $ (0.12)
===== ======= ======= ======== ======== ======= =======
OTHER OPERATING DATA:
System cash flow(2)................................... $ -- $ -- $ -- $ 4,577 $ 6,316 $ 1,487 $ 1,927
EBITDA(2)............................................. -- -- -- 1,515 2,625 609 1,065
Net cash provided by (used in) operating activities... -- -- (96) 456 3,779 567 600
Net cash provided by (used in) investing activities... -- -- (4,143) (13,782) (16,671) (2,283) (1,071)
Net cash provided by (used in) financing activities... -- -- (414) 19,076 5,985 73 (356)
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 791 $ 6,148 $ 2,779 $ 8,529 $ 1,623 $ 797
Total assets.............................................. 14,701 16,155 23,018 44,245 49,627 48,001
Debt...................................................... 578 73 3,246 448 7,262 7,227
Redeemable preferred stock................................ 694 694 694 842 833 833
Total stockholders' equity................................ 11,857 15,321 15,210 37,423 33,621 32,178
</TABLE>
- ---------------
(1) Income tax regulations of Argentina do not allow losses of one subsidiary to
offset income from another subsidiary in a consolidated return, resulting in
income tax expense for the Company despite net losses in those years.
(2) "System cash flow" is defined as revenues less operating costs. "EBITDA" is
defined as net income (loss) before: (i) minority interest in the loss of
consolidated subsidiaries; (ii) income from discontinued operations; (iii)
income tax expense; (iv) interest expense; (v) interest and other income;
(vi) amortization of franchise costs; and (vii) depreciation. Although
system cash flow and EBITDA are not measures of performance calculated in
accordance with GAAP, management believes that they are useful to an
investor in evaluating the Company because they are measures widely used in
the cable television industry to evaluate performance. System cash flow and
EBITDA are not meaningful for the fiscal years ended March 31, 1995 and
before, because the Company's cable operations were not consolidated in
those fiscal years. However, system cash flow and EBITDA should not be
considered in isolation or as substitutes for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP as a measure of liquidity or profitability.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus. The Consolidated Financial Statements provide additional
information regarding the Company's financial activities and condition.
Moreover, this discussion contains forward looking statements that include risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward looking statements.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 Compared to the Three Months Ended June 30,
1997
During the period ended June 30, 1997, the Company operated cable
television systems serving 11 cities, principally in southern Argentina. During
the same period of the prior year the Company provided cable television service
to eight Argentine cities. The Company acquired a competing cable television
system serving Reconquista and Avellaneda, Santa Fe Province in August 1996,
acquired another system serving Comodoro Rivadavia, Chubut Province in December
1996, and acquired two companies operating cable television systems serving the
adjoining cities of Viedma, Rio Negro Province and Carmen de Patagones, Buenos
Aires Province in February 1997. In March 1997, the Company also acquired a
company operating a UHF system competing with the Company in San Carlos de
Bariloche, Rio Negro Province. The results of the operations of these acquired
systems are included in the Company's Consolidated Financial Statements from the
dates of their respective acquisition.
Revenues. Revenues for the period increased 32.0% from $5.4 million in the
period ending in 1996 to $7.1 million in the period ending in 1997 primarily as
a result of the acquisitions listed above. Aggregate subscriber revenue from the
cable television systems in operation during the 1997 period increased by
approximately 5.0% over the same period in 1996 primarily as a result of a rate
increase implemented in the Reconquista/Avellaneda market and from an increase
in the number of basic subscribers served.
Operating Costs. Operating costs increased 32.9% from $3.9 million in the
period ending in 1996 to $5.2 million in the period ending in 1997 primarily as
a result of the acquisitions listed above. As a percentage of revenues,
Argentine cable television system operating costs increased from 72.5% in the
period ending in 1996 to 73.0% in the period ending in 1997. Franchise and gross
receipts taxes increased primarily as a result of the expiration of the
Company's exemption from franchise fees payable to COMFER in Rio Gallegos and
Ushuaia during the fiscal year ended March 31, 1997 ("Fiscal 1997") and the
implementation by the Province of Tierra del Fuego of a gross receipts tax equal
to 3% of revenues in late Fiscal 1997. The Company has requested extensions of
the franchise fee exemptions retroactive to the original expiration dates from
COMFER. However, the Company is not able to predict whether the extensions will
be granted. Operating costs for the cable television systems in operation during
both periods declined in the period ending in 1997 when compared to the period
ending in 1996 as a result of reductions in personnel expenses, bad debts and
other expenses achieved under the Company's management. One of the new systems
incurred operating losses before depreciation and amortization, which reduced
the Company's overall operating margins. The Company expects the financial
performance of this system to improve significantly as restructuring and
rebuilding measures are implemented.
General and Administrative Expenses. General and administrative expenses
decreased 1.9% from $878,000 in the period ending in 1996 to $862,000 in the
period ending in 1997. As a percentage of revenues, general and administrative
expense decreased from 16.3% in the period ending in 1996 to 12.1% in the period
ending in 1997.
Depreciation and Amortization. Depreciation and amortization increased
55.8% from $1.1 million in the period ending in 1996 to $1.8 million in the
period ending in 1997 due primarily to the amortization of franchise costs of
the acquisitions listed above and the depreciation of capital expenditures in
existing cable television systems and the additional cable television plant of
the newly acquired companies.
22
<PAGE> 25
Other Income (Expense). The Company had net other income of $55,000 in the
period ending in 1996, while it had net other expense of $315,000 in the period
ending in 1997. This change was due primarily to an $85,000 decrease in interest
income and a $281,000 increase in interest expense associated with debt incurred
in the last quarter of Fiscal 1997.
Income Tax Expense. The Company experienced a net loss before provision for
income taxes and minority interests for both periods. However, it incurred
income tax expense in both periods primarily due to Argentine income tax
regulations that prohibit the deduction of losses from one subsidiary against
income from another subsidiary in a consolidated return.
Preferred Stock Dividends. Preferred stock dividends decreased by 4.8%
from $383,000 for the period ending in 1996 to $365,000 for the period ending in
1997 due to the conversion of certain shares of Series 1995 Preferred Stock.
Year Ended March 31, 1996 Compared to the Year Ended March 31, 1997
For the fiscal year ended March 31, 1996 ("Fiscal 1996") and Fiscal 1997,
the operations of the Argentine Cable Companies and Argentine Joint Venture
Companies (the "Latin American Operations") were included in the Company's
consolidated statement of operations. The Company's results of operations for
Fiscal 1996 and Fiscal 1997 tend not to be directly comparable as a result of
acquisition activities. The Company's acquisitions during Fiscal 1996 and Fiscal
1997 include: (i) Teveca S.R.L. and Cable Plus Bariloche S.A. (collectively
"BTC") in July 1995; (ii) SIR TV S.R.L. ("SIR TV") in December 1995; (iii) TV
Nieve S.A. ("TV Nieve") in April 1996; (iv) Canal 4 Rawson Video Cable ("Canal 4
Rawson") in May 1996; (v) TV SIS S.R.L. ("TV SIS") in August 1996; (vi) Comodoro
Rivadavia Sociedad Comercial Colectivade Television y Radiodifusion ("Comodoro
Rivadavia") in December 1996; (vii) Televiedma S.R.L. ("Televiedma") and Cable
Viedma S.R.L. ("Cable Viedma") in February 1997; and (viii) Vision Codificada
S.A. ("Vision") in March 1997. The results of operations for these systems are
included in the Company's Consolidated Financial Statements from the dates of
their respective acquisition.
Revenues. Revenues increased 41.0% from $16.0 million in Fiscal 1996 to
$22.6 million in Fiscal 1997 primarily as a result of the acquisitions listed
above. Aggregate subscriber revenue from the systems in operation during both
fiscal years remained approximately level. Although revenues increased as a
result of a rate increase implemented in the Reconquista/Avellaneda market and
from a premium service launched in August 1995 offering sports programming and
exclusive soccer coverage in all systems, the increase was offset by overall
declines in revenues from basic services attributable to a decrease in basic
subscribers.
Operating Costs. Operating costs increased 42.3% from $11.4 million in
Fiscal 1996 to $16.3 million in Fiscal 1997 primarily as a result of the
acquisitions listed above. As a percentage of revenues, operating costs in
connection with the Argentine Cable Companies increased from 71.4% in Fiscal
1996 to 72.0% in Fiscal 1997. Franchise and gross receipts taxes increased by
approximately $280,000 as the Company's exemption from COMFER fees in Rio
Gallegos and Ushuaia expired during Fiscal 1997. In addition, the Province of
Tierra del Fuego implemented a new gross receipts tax equal to 3% of revenues.
Although the new acquisitions in Comodoro Rivadavia, Viedma and Carmen de
Patagones had operating losses during Fiscal 1997, the Company expects these
operations to improve as a result of combining the operations of Cable Viedma
and Televiedma and as the Company completes the post-acquisition restructuring
and rebuilding program for Comodoro Rivadavia. The acquisition and subsequent
consolidation of competing cable television systems in Ushuaia, Rawson and
Reconquista/Avellaneda have enabled the Company to reduce costs and increase
operating margins in those markets.
General and Administrative Expenses. General and administrative expenses
increased 20.6% from $3.1 million in Fiscal 1996 to $3.7 million in Fiscal 1997.
The increase in expenses was primarily attributable to expanded operations and
acquisition activity in Argentina and expenditures incurred in exploring
possible financing and strategic opportunities. As a percentage of revenues,
general and administrative expenses decreased from 19.1% in Fiscal 1996 to 16.3%
in Fiscal 1997.
23
<PAGE> 26
Depreciation and Amortization. Depreciation and amortization increased
68.1% from $3.0 million in Fiscal 1996 to $5.0 million in Fiscal 1997. This
increase was attributable to the amortization of franchise costs related to new
acquisitions and increased depreciation of capital expenditures in existing
cable television systems and the additional cable television plant acquired in
the new acquisitions.
Other Income (Expense). Other income (expense) increased from net other
income of $69,000 in Fiscal 1996 to net other expense of $92,000 in Fiscal 1997.
This change was due to: (i) a $106,000 decrease in interest income; (ii) a
$65,000 decrease in other income primarily as a result of a Fiscal 1996
transaction that was not duplicated in Fiscal 1997; and (iii) a $10,000 decline
in interest expense.
Income Tax Expense. Income tax expense increased from $117,000 in Fiscal
1996 to $899,000 in Fiscal 1997 primarily as a result of the increase in taxable
income of an Argentine subsidiary. Although the Company had a net loss for each
of Fiscal 1996 and Fiscal 1997, it had income tax expense primarily due to
Argentine income tax regulations that prohibit the deduction of losses from one
subsidiary against income from another subsidiary in a consolidated return.
Preferred Stock Dividends. Preferred stock dividends increased by 135% from
$637,000 in Fiscal 1996 to $1,495,000 in Fiscal 1997 due to the issuance of the
Series 1995 Preferred Stock in December 1995.
Year Ended March 31, 1995 Compared to the Year Ended March 31, 1996
The Company consolidated the results from its Latin American Operations in
Fiscal 1996. During the year ended March 31, 1995 ("Fiscal 1995"), the Company's
interests in the Latin American Operations were accounted for at cost.
Therefore, those results of operations were not consolidated for financial
reporting purposes. The Company disposed of its oil and gas field service
business in the fiscal year ended March 31, 1994 and, accordingly, for Fiscal
1995 the Company recorded no sales. As a result, period-to-period comparability
for Fiscal 1995 compared to Fiscal 1996 is of limited value.
Revenues. Revenues for Fiscal 1996 were $16.0 million. During Fiscal 1996,
the Company's average subscriber revenues increased as a result of the
introduction of tiered programming.
Operating Costs. Operating costs for Fiscal 1996 were $11.4 million. During
Fiscal 1996, the Company's cable television operations serving eight cities were
consolidated into five operational clusters to pursue enhanced operating
efficiencies.
General and Administrative Expenses. General and administrative expenses
increased from $1.5 million in Fiscal 1995 to $3.1 million in Fiscal 1996. The
primary reason for the increase was the inclusion of general and administrative
expenses totaling $1.6 million relating to the Latin American Operations whereas
only initial start-up costs of $200,000 were included in Fiscal 1995.
Depreciation and Amortization. Depreciation and amortization for Fiscal
1996 was $3.0 million as a result of amortization of franchise costs and
depreciation associated with the Latin American Operations.
Other Income (Expense). Other income, net of other expense, decreased from
$1.1 million in Fiscal 1995 to $69,000 in Fiscal 1996 primarily as a result of
the decrease in interest income and the increase in interest expense. Interest
income declined as a result of decreased rates earned on the Company's interest-
bearing assets and the lower level of interest-bearing assets held. Interest
expense increased primarily as a result of the consolidation into the Company's
financial statements of interest-bearing liabilities incurred in connection with
the acquisition activity.
Income Tax Expense. Income tax expense for Fiscal 1996 was $117,000,
although the Company recognized a net loss for the year. The Company had income
tax expense primarily due to Argentine income tax regulations that prohibit the
deduction of losses from one subsidiary against income from another subsidiary
in a consolidated return. In Fiscal 1995 the Company incurred $177,000 in income
tax expense as a result of income from discontinued operations.
Preferred Stock Dividends. Preferred stock dividends increased by 83.4%
from $347,000 in Fiscal 1995 to $637,000 in Fiscal 1996 due to the issuance of
the Series 1995 Preferred Stock in December 1995.
24
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company held $797,000 of cash and cash equivalents,
all of which were held in accounts outside of the United States. Cash and cash
equivalents are generally not subject to or impacted by changes in conditions or
trends in any single industry. However, they may be subject to significant
changes in overall economic conditions, and the funds held in accounts outside
of the United States may be subject to diminution in value caused by foreign
currency devaluation or governmental action.
Cash provided by operations for Fiscal 1996 and Fiscal 1997 was $456,000
and $3.8 million, respectively. The increase in Fiscal 1997 was primarily
attributable to the cash generated by the acquired cable television systems.
Cash provided by operations for the first quarter of fiscal 1998 was $600,000.
The Company anticipates that cash provided from operations will increase during
the year as the operating efficiencies are attained in the most recently
acquired cable television systems.
Cash used in investing activities for Fiscal 1996 and Fiscal 1997 was $13.8
million and $16.7 million, respectively. Cash used in investing activities
relates primarily to acquisitions of cable television systems and capital
expenditures to upgrade those systems. The Company has consummated eight
acquisitions in the past two fiscal years, including: (i) BTC in July 1995; (ii)
SIR TV in December 1995; (iii) TV Nieve in April 1996; (iv) Canal 4 Rawson in
May 1996; (v) TV SIS in August 1996; (vi) Comodoro Rivadavia in December 1996;
(vii) Televiedma and Cable Viedma in February 1997; and (viii) Vision in March
1997. Cash used in investing activities for the first three months of fiscal
1998 was $1.1 million. Cash used in investing activities during this period
related primarily to capital expenditures to connect additional subscribers and
to upgrade cable television systems.
Cash provided by financing activities for Fiscal 1996 and Fiscal 1997 was
$19.1 million and $6.0 million, respectively. In Fiscal 1996, cash provided by
financing activities relates primarily to proceeds from the private placement of
equity securities in the amount of $22.7 million, which was offset by dividends
paid on preferred stock in the amount of $587,000 and principal payments on debt
in the amount of $2.9 million. In Fiscal 1997, cash provided by financing
activities relates primarily to the issuance of debt in the amount of $7.1
million, including the Acquisition Notes, and $690,000 from the exercise of
warrants, which was offset by dividends paid on preferred stock in the amount of
$1.3 million. Cash used in financing activities in the first quarter of fiscal
1998 was $356,000. Cash used in financing activities during this period was
primarily due to the repayment of debt and payment of dividends on Preferred
Stock in the amount of $321,000.
In February 1997, the Company issued the Acquisition Notes, with an
aggregate principal amount of $6.0 million. Interest at the rate of 13% per
annum is payable semi-annually beginning in August 1997. The Acquisition Notes
are not subject to prepayment (except at the holder's option in the event the
Company issues securities or debt sufficient to retire the Acquisition Notes)
and are due and payable in full in February 1998. In connection with the
issuance of the Acquisition Notes, the Company: (i) granted warrants to purchase
210,000 shares of Common Stock and (ii) incurred approximately $50,000 of costs
and issued, as a financial advisory fee, 22,500 shares of Common Stock and
warrants to purchase an additional 90,000 shares of Common Stock. The warrants
are exercisable at any time at an exercise price of $4.00 per share and expire
on February 7, 2002. The proceeds of the Acquisition Notes were used to fund the
Cable Viedma and Televiedma acquisitions.
In August 1997, the Jack R. Crosby Inter Vivos Trust, a shareholder of the
Company, made available to the Company a $500,000 unsecured revolving credit
facility for working capital. Amounts outstanding under this facility are due
and payable on demand and bear interest at the rate of 11.0% per annum. Jack R.
Crosby, the Chairman of the Board and Chief Executive Officer of the Company,
established this trust, but is neither a trustee nor a beneficiary. Mr. Crosby
disclaims beneficial ownership of the assets of the trust, including the shares
of Common Stock held. The loan from the Jack R. Crosby Inter Vivos Trust was
approved by all of the disinterested directors of the Company who determined
that the loan was on terms no less favorable to the Company than those which
could have been obtained from unaffiliated third parties.
The Series 1995 Preferred Stock provides for cumulative, annual dividends
in the amount of $8.00 per share payable on a quarterly basis. The Series 1990
Preferred Stock provides for cumulative, annual dividends
25
<PAGE> 28
in the amount of $0.50 per share payable on a quarterly basis. For Fiscal 1997,
this resulted in approximately $1.3 million of cash outflow compared to
approximately $600,000 for the comparable period in the prior year, principally
as a result of the issuance of the Series 1995 Preferred Stock in December 1995.
The Company has not paid dividends on its Common Stock, and it has no plans to
make any such payments in the future.
Working capital requirements vary with business conditions and the nature
of the business being conducted. The Company's management seeks to minimize
working capital requirements to the extent practicable. In the opinion of
management, the Company has adequate cash flow from operations to meet the
on-going operating requirements of the existing Latin American Operations
through the fiscal year ending March 31, 1998. The Company continues to be
actively involved in the acquisition and development of cable television and
communications properties in Argentina and Latin America, and it incurs expenses
in identifying and pursuing opportunities before any acquisition decision is
made. The Company expects that any additional acquisitions and the repayment of
the Acquisition Notes will be financed through cash provided by the Offering,
cash generated from operations and additional debt and equity financing.
IMPACT OF INFLATION; EXCHANGE RATES
Inflation has not had a material impact on the operations of the Company
during the past three years. In the opinion of management, inflation should not
have a material impact on the results of operations in fiscal 1998. However,
management is unable to predict future rates of inflation in Argentina or its
financial impact on the Company. It is possible that the Argentine government
will be unable to maintain control over inflation and sustain the current
Argentine Peso to U.S. Dollar conversion ratio. Economic volatility and
sustained high unemployment could diminish the ability of subscribers to pay for
service, resulting in an increase in bad debts and reductions in the number of
subscribers.
Funds held in accounts in Argentina (approximately $797,000 at June 30,
1997) and current receivables maintained in Argentine Pesos could decline in
value before such amounts are converted to hard assets or U.S. Dollars. In
addition, the Argentine government could impose price freezes, prohibit the
transfer of funds outside Argentina and adopt other measures that alone, or
together with those previously mentioned, could have a material adverse impact
on the Company.
While management will monitor the exchange rates and take appropriate
measures in response to perceived risks, the Company has no current plan to
implement a policy of hedge transactions to reduce the Company's exposure to
foreign currency exchange rate risks. Accordingly, the Company could experience
losses and a negative impact on earnings with respect to its holdings solely as
a result of devaluation of the Argentine Peso against the U.S. Dollar. Argentina
does not restrict the removal or conversion of local or foreign currency.
However, there can be no assurance that such policies will not be adopted in the
future in reaction to a sustained deterioration of their financial markets.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share" ("FAS 128"). This standard is effective
for periods ending after December 15, 1997 and early adoption is not permitted.
Adoption of FAS 128 is not expected to have a material effect on the Company's
calculation of primary and fully diluted earnings per share.
Also in February 1997, FASB issued Statement No. 129, "Disclosure of
Information about Capital Structure" ("FAS 129"). FAS 129 is applicable to all
entities and requires that disclosure about an entity's capital structure
include a brief discussion of rights and privileges for securities outstanding.
FAS No. 129 is effective for financial statements for periods ending after
December 15, 1997.
In June 1997, FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("FAS 130"). FAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. The provisions of FAS 130
shall be effective for fiscal years beginning after December 15, 1997.
26
<PAGE> 29
BUSINESS
Tescorp acquires, develops and operates cable television and
telecommunication systems in Argentina, with concentrations in the Patagonia and
Tierra del Fuego regions. Management anticipates that it will continue to focus
the Company's acquisition activity in Argentina. However, the Company is also
exploring cable and other telecommunications opportunities in other Latin
American markets that are consistent with the Company's strategy. At June 30,
1997, the Company provided cable television service to approximately 70,000
subscribers. In addition, the Company holds a license to provide data services
to its customers under the name "Patagonia On-Line(TM)."
From April 1994 (when the Company acquired its first cable television
system) through June 1997, the Company acquired 15 cable television companies in
13 transactions. The acquisitions have been completed at an average price of
approximately $605 per subscriber, an amount that management believes is lower
than the average price per subscriber paid by the major MSOs in the Argentine
market.
The Company owns and manages the Argentine Cable Companies through the
Argentine Joint Venture Companies, which are owned 97% by Tescorp and 3% by its
Joint Venture Partners, with the Company having an additional preference to
receive the aggregate amount of its advances to those subsidiaries, plus 12% per
annum (the "Priority Return"), in preference to any other distributions. The
Company has granted to a third party a 1% profits interest in its ownership in
the Argentine Joint Venture Companies. Therefore, the Company has the right to
receive 100% of the distributions from the Argentine Joint Venture Companies
until it has received the Priority Return, and 96% of the distributions
thereafter.
HISTORY
The Company was incorporated in 1980 and, through fiscal 1994, it operated
businesses in the oil and gas service industry. The Company's only remaining
operations in that industry were sold in February 1994, and in April 1994 the
Company commenced its current business strategy with the acquisition of its
first cable television system in Argentina. Since that time, the Company has
operated exclusively in the cable television business in Argentina.
ARGENTINE MARKET
Management believes that Argentina is an attractive market because of the
following factors:
Attractive Demographics. Argentina represents the third largest market in
Latin America with a total population of 34.8 million. Management estimates that
88% of the approximately 10.6 million households are located in densely
populated cities, which contributes to the efficient utilization of
telecommunications technologies, particularly cable television. The population
is relatively affluent and well-educated. Argentina's 1996 per capita GDP was
$8,132, the highest in Latin America, and the nation's literacy rate of
approximately 96% is among the highest in the world.
27
<PAGE> 30
1996 LATIN AMERICA GDP PER CAPITA IN U.S. DOLLARS
LATIN AMERICA GDP PER CAPITA
Positive Economic Environment; Stable Currency. In 1991, the Argentine
government implemented the Convertibility Plan and the Economic Reform Plan to
promote a stable currency, free market policies and economic efficiencies. Under
the Convertibility Plan, every Argentine Peso in circulation is fully backed by
one U.S. Dollar held in deposit by the Central Bank, and the Argentine Peso is
convertible on a one-for-one basis into U.S. Dollars. The Economic Reform Plan
resulted in the adoption of free market policies, the privatization of
state-owned businesses, and the reduction of the role of government in business.
Passage of and adherence to the Convertibility Plan and Economic Reform Plan is
generally considered to have resulted in a stabilization in the value of the
Argentine Peso relative to the U.S. Dollar, a sharp reduction in the level of
inflation, economic growth, the influx of foreign investment, improvements in
infrastructure, and increased economic efficiency. Since 1994, the inflation
rate in Argentina has been lower than that of the United States, and the
Argentine Peso has traded on world markets on parity with or at a slight
discount to the U.S. Dollar. See "Risk Factors -- Country Risks -- Argentine
Economic Risks."
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<PAGE> 31
Strong Demand for Cable Television Services. The cable television industry
in Argentina delivers service to approximately 5.2 million subscribers. The
average revenue per cable subscriber is approximately $32.00 per month compared
to approximately $36.00 per month in the United States and the penetration of
cable television is the second highest in the world at approximately 49%
compared to approximately 68% penetration in the United States. The following
table summarizes Latin American cable television penetration:
1996 LATIN AMERICA CABLE PENETRATION OF TOTAL HOUSEHOLDS
1996 LATIN AMERICA CABLE PENETRATION
Management believes that the following factors have contributed to the high
penetration of cable television in Argentina:
- High demand for sports, news and movie entertainment
- High relative population density and ready availability of aerial space
required for economic construction of cable television systems
- Highest per capita GDP in Latin America
- Generally, fewer than four "over-the-air" signals available outside of
Buenos Aires
- Improved quality of signal received by cable television subscribers
Industry Fragmentation. Management estimates that the Argentine
subscription television market is served by as many as 1,000 independent
companies. This highly fragmented environment resulted from regulations adopted
in 1958 that limited licensure to Argentine individuals and prohibited licensees
from holding more than one license. In 1992, these regulations were amended to
allow companies and individuals to hold multiple licenses, which stimulated
market consolidation and facilitated the organization of MSOs.
Possible Future Convergence with Telephony. At present, Argentine cable
television systems are prohibited from offering telephony services, and Telecom
and Telefonica, the holders of the two geographic monopoly concessions for
telephony, are prohibited from offering video programming. The monopoly
concessions granted to Telecom and Telefonica expire in November 1997, but they
have the right to apply for an extension of their concessions through November
2000. Upon expiration of the telephone monopoly period, management believes that
the telecommunications industry will be significantly deregulated and
telecommunications convergence will occur as multiple services are offered for
sale through common delivery systems. While the timing and scope of such
deregulation is uncertain, management believes that deregulation of the
telecommunications industry will enable the Company and other telecommunications
providers to bundle telephony, video and data services for delivery to customers
through integrated telecommunications networks. See "-- Competition" and "Risk
Factors -- Competition."
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<PAGE> 32
ACQUISITION AND EXPANSION STRATEGY
From April 1994 (when the Company acquired its first cable television
system) through June 1997, the Company acquired 15 cable television companies in
13 transactions. The acquisitions have been completed at an average price of
approximately $605 per subscriber, an amount that management believes is lower
than the average price per subscriber paid by the major MSOs in the Argentine
market. The following table summarizes certain information regarding the
acquisitions of the Company's cable television systems:
TESCORP ACQUISITION HISTORY
<TABLE>
<CAPTION>
PURCHASE ESTIMATED PURCHASE
DATE PRICE SUBSCRIBERS PRICE PER
NAME OF COMPANY LOCATION OF OPERATIONS ACQUIRED (IN THOUSANDS) AT ACQUISITION SUBSCRIBER
--------------- ---------------------- -------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Televisora Austral S.A. Ushuaia, Tierra del 4/7/94 $ 1,500 2,700 $556
Fuego Province
Canal 2 TV Austral S.A.(1) Rio Gallegos, Santa 8/16/94 4,900 10,100 485
Cruz Province
Reconquista Televisora Color S.R.L.(2) Reconquista, Santa Fe 12/9/94 4,587 8,600 533
Province
Avellaneda Video Cable S.R.L.(2) Avellaneda, Santa Fe 2/7/95 1,320 2,600 508
Province
Cable Vision Gallegos S.A.(1) Rio Gallegos, Santa 3/1/95 1,850 3,300 561
Cruz Province
Teveca S.R.L.(3) San Carlos de 7/3/95 6,480 8,450 767
Cable Plus Bariloche S.A.(3) Bariloche, Rio Negro
Province
SIR TV S.R.L. Trelew, Rawson & 12/20/95 6,500 12,000 542
Puerto Madryn, Chubut
Province
TV Nieve S.A.(4) Ushuaia, Tierra del 4/1/96 1,350 1,400 964
Fuego Province
Canal 4 Rawson Video Cable(5) Rawson, Chubut 5/31/96 500 1,000 500
Province
TV SIS S.R.L.(2) Reconquista and 8/30/96 1,450 3,100 468
Avellaneda, Santa Fe
Province
Comodoro Rivadavia Sociedad Comercial Comodoro Rivadavia, 12/23/96 3,500 4,130 847
Colectiva de Television y Chubut Province
Radiodifusion(5)
Cable Viedma S.R.L.(6) Viedma, Rio Negro 2/28/97 6,300 9,300 677
Televiedma S.R.L.(6) Province
Carmen de Patagones,
Buenos Aires Province
Vision Codificada S.A.(3) San Carlos de 3/1/97 960 1,380 696
Bariloche, Rio Negro ------- ------ ----
Province
TOTAL/AVERAGE $41,197 68,060 $605(7)
======= ====== ====
</TABLE>
- ---------------
(1) Presently known as Cablemax S.A.
(2) Presently known as ARTV S.A.
(3) Presently known as BTC S.A., which is 80% owned by the Company through the
Argentine Joint Venture Companies. Teveca S.R.L. and Cable Plus Bariloche
S.A. were acquired simultaneously. Vision Codificada S.A. was subsequently
acquired.
(4) Presently known as Televisora Austral S.A.
(5) Presently known as Transcable S.A.
(6) Cable Viedma S.R.L. and Televiedma S.R.L. were acquired simultaneously.
(7) Calculated as a weighted average.
The Company plans to continue to pursue an aggressive expansion strategy
primarily through the acquisition of existing cable television systems. The
Company will also consider the establishment of new
30
<PAGE> 33
television systems where existing systems are not available at favorable prices.
The Company seeks to maintain a highly disciplined approach to expansion through
the consideration of many factors, including the: (i) cost of acquisition per
subscriber; (ii) cost of acquisition as a multiple of projected cash flow; (iii)
competitive nature of the market; (iv) pricing of services; (v) technical
conditions of the acquired company; and (vi) availability and cost of financing.
The Company identifies potential candidates for acquisition through direct
relationships with sellers, referrals and opportunities presented by third
parties. The Company believes that the Argentine telecommunications industry is
in the process of consolidating and that there are numerous acquisition
opportunities. The Company is presently evaluating and negotiating a number of
potential acquisitions, none of which are, individually, material to the
Company. There can be no assurance, however, that the Company will be able to
identify and acquire cable companies on terms favorable to the Company in the
future. See "Risk Factors -- Sustainability of Recent Growth Through
Acquisitions."
Since April 1994, the Company has expanded from a single cable television
system to a network of 13 systems in 11 cities, operating in seven "clusters."
The Company has focused its acquisition activities by concentrating
geographically, clustering its systems and consolidating existing markets.
Concentrating Geographically. The Company concentrates acquisition and
expansion efforts on specific geographic areas to achieve strategic presence.
Management believes that geographic considerations are of major importance in
the ongoing consolidation of the Argentine cable television market and the
anticipated convergence of telecommunications services.
Clustering. The Company focuses its acquisition efforts on creating
"clusters" of cable television systems. Cable television clusters enable the
Company to benefit from economies of scale through reduced marketing and
personnel costs, particularly in systems where cable television service can be
delivered through a central head-end reception facility. Clusters allow the
Company to utilize high level management personnel more cost effectively by
spreading the cost of this personnel over a group of systems clustered within
relatively close geographic proximity. In addition, the speed and cost
effectiveness of deploying new products and services are enhanced in operating
clusters. The Company has employed such clustering techniques in the
Avellaneda/Reconquista, Carmen de Patagones/Viedma, and Rawson/Trelew markets.
Consolidating Existing Markets. Historically, the Company has acquired
cable television systems within markets served by more than one cable television
system. Over time, the Company seeks to consolidate markets through acquisition
or attrition. The Company believes that such consolidation increases customer
stability and contributes to improved operating and financial performance. The
Company has consolidated markets through the acquisition of competing cable
television systems in San Carlos de Bariloche, Carmen de Patagones, Rawson, Rio
Gallegos, Trelew, Ushuaia and Viedma. The Company has also consolidated markets
through the acquisition of companies providing competing subscription television
through alternative technologies in Bariloche (UHF system) and Ushuaia (MMDS
system).
OPERATING STRATEGY
The Company seeks to maximize the financial performance of its cable
television systems by: (i) emphasizing customer satisfaction and retention; (ii)
standardizing operations; and (iii) upgrading and expanding existing networks. A
long term strategy of the Company is to develop an interactive, integrated
network that would enable the bundling of video, voice and data services.
Emphasizing Subscriber Satisfaction and Retention. Management believes that
the subscriber base is among the Company's most important assets. A primary goal
of the Company is to retain existing subscribers by providing a high quality
service that is an excellent value relative to its cost, which management
believes leads to increased subscriber satisfaction, reduced subscriber turnover
and heightened subscriber interest in purchasing additional Company services.
Specific measures taken by the Company to emphasize subscriber satisfaction and
retention include:
- Customizing Program Offerings. The Company customizes the mix of
programming selections distributed to subscribers in a manner intended to
meet the individual needs of each community served.
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<PAGE> 34
- Improving Signal Quality. Upon acquiring a cable television system, the
Company initiates immediate action to improve the quality of signal
received by subscribers, thereby improving television picture quality.
This typically involves rebuilding the cable television headend facility
and repairing the network.
- Improving Customer Service. The Company also implements a standardized
organizational structure, provides specialized employee training and
utilizes a customized subscriber billing and management system to improve
the competence and timeliness of customer service at acquired cable
television systems.
- Increasing Subscriber Communication. The Company has a policy of
delivering to subscribers, on a monthly basis, programming guides and
invoices for payment. This enables the Company to communicate regularly
with subscribers regarding new service offerings and policy changes.
- Maintaining Strong Community Image. The Company endeavors to project a
strong community image through professional conduct, visible improvements
in service and plant, and involvement in local affairs. Through local
managers and branding, the Company strives to maintain a strong local
presence.
Standardizing Operations. The systems acquired by the Company have had
dissimilar operations. Upon consummation of an acquisition, the Company
immediately begins to standardize operations to create a homogeneous operating
environment that provides uniform and timely financial reporting, strong cash
controls, uniform organization, improved service to customers and reliable
communications. This typically results in improvements in the financial
performance and operating efficiencies of its cable television systems. Specific
measures taken by the Company include:
- Standardizing Procedures. The Company implements standardized procedures
for connecting, disconnecting and billing customers, and begins
delivering to subscribers monthly invoices for payment and a programming
guide.
- Installing Communications Systems. The Company installs a local area
network and electronic mail system to provide for timely and cost
effective communication and data transfer between the corporate
headquarters, regional offices and individual cable television
operations.
- Centralizing Accounting and Administrative Functions. The Company
standardizes the general ledger accounting system and accounts receivable
system and consolidates most administrative functions, including the
acquisition of programming, at its regional and corporate headquarters.
- Training Personnel. The Company provides on-going training to its
managers, customer service representatives, accounting personnel and
technical personnel to improve operating efficiencies and customer
service.
Upgrading and Expanding Existing Networks. The Company's current systems
have a bandwidth of 300 Mhz to 330 Mhz, which enables the Company to deliver an
average of approximately 35 channels of programming. The Company plans to
upgrade existing systems in selected markets to 550 Mhz to 750 Mhz bandwidth,
thereby enabling it to provide better value to its customers by: (i) increasing
the number of program channels offered; (ii) offering additional services; and
(iii) improving service to customers. Expanding existing networks will provide
an opportunity to increase the subscriber count by extending service to homes
not previously served by the Company and to increase revenues per subscriber by
selling additional services. In Fiscal 1996, the Company began offering a
premium soccer channel to subscribers and achieved an average 21% penetration at
June 30, 1997. Additionally, the Company has begun installing converter boxes in
certain of its markets to reduce piracy and increase revenue through improved
penetration.
Developing an Interactive, Integrated Network. A long-term strategy of the
Company is to develop an interactive, integrated telecommunications network,
which would enable the Company to bundle multiple types of telecommunications
services for sale to subscribers. Such a network would enable the Company to
increase revenues from the sale of additional services, to improve signal
quality and network reliability and to solidify market share.
32
<PAGE> 35
The Company currently operates a separate network in each city served that
consists primarily of a coaxial cable television network designed with "tree and
branch" architecture and supplemented in certain markets with MMDS or UHF
technologies. In each of its markets, the Company has designed a new hybrid
fiber optic, coaxial cable ("HFC") network featuring an architecture commonly
referred to as "fiber to the node." The HFC design would provide the Company
with the technical capacity to transmit and receive signals from subscribers,
thereby facilitating the sale of additional telecommunications services.
The Company believes that a good opportunity exists to sell bundled
services to subscribers for additional cost. The Company presently holds the
licenses necessary to provide certain data transmission services using the name
"Patagonia On-Line(TM)," which services may include internet, intranet and
e-mail services. Deregulation of the telecommunications industry in Argentina
could provide the Company with the legal authority to provide additional types
of telecommunications services such as telephony and voice communications.
Approximately 70% of the Company's subscribers pay their monthly bill in person
at the Company's offices, which creates an opportunity for employees of the
Company to sell additional services to subscribers in person.
The ability of the Company to bundle services for sale to subscribers
depends, to a certain extent, upon deregulation of the telecommunications market
and the timing of the construction of an integrated telecommunications network.
At present, the Company is not able to predict whether the telecommunications
industry will be deregulated. The timing of the construction of an integrated
network will be determined by the availability of capital for such projects,
determination by management of the relative merits of developing an interactive
network versus expanding operations through acquisition, the status of
deregulation, and other factors. See "-- Argentine Market."
ARGENTINE CABLE TELEVISION OPERATIONS
The Company's 13 cable television systems are organized into seven locally
managed clusters providing cable television service to 11 cities in Argentina.
At June 30, 1997, the Company's cable television systems passed approximately
131,000 homes and provided services to approximately 70,000 subscribers. In
eight of the 11 markets served, the Company is the sole provider of cable
television services. In all of those markets, the number of terrestrial or
"over-the-air" video television signals available is less than four, and these
signals are typically re-transmissions of the "superstations" serving Buenos
Aires, the capital of Argentina.
Cable television is the primary technology utilized by the Company for the
distribution of video television signals. In the Bariloche and Ushuaia markets,
the Company supplements its cable television systems by delivering video
programming to subscribers using UHF and MMDS technologies, respectively, to
complement its cable television operations and improve its ability to serve the
target market and surrounding markets cost effectively. Additionally, MMDS and
UHF provide alternative mechanisms for the Company to segment or tier channel
offerings.
The Company's cable television systems offer customers packages of
programming services sold in basic and premium tiers. Subscribers purchasing the
basic tier of service receive a variety of program services featuring movie,
news, weather, sports, music, children's, women's and local programming. The
Company customizes the mix of programming selections distributed to basic
subscribers in a manner intended to meet the individual needs of the community
served. Basic subscribers have the option to purchase a channel of premium
sports programming. An upgrade and the introduction of addressable converter
boxes would provide the Company an opportunity to increase the number of premium
services. The rate charged for the basic and premium tiers varies by market.
The following table sets forth certain information for each of the
Company's cable television systems:
33
<PAGE> 36
CABLE TELEVISION SYSTEMS AND SUBSCRIBERS
JUNE 30, 1997
<TABLE>
<CAPTION>
HOMES BASIC PREMIUM
COMPETITION IN SERVICE HOMES BASIC SUBSCRIBER SOCCER
NAME OF COMPANY LOCATION OF OPERATIONS IN MARKET AREA(1) PASSED(2) SUBSCRIBERS PENETRATION SUBSCRIBERS
--------------- ---------------------- ----------- ---------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Televisora Austral S.A. Ushuaia, No 9,844 9,450 5,577 59% 1,771
& TV Nieve S.A. Tierra del Fuego Province
Cablemax S.A. Rio Gallegos, No 18,568 17,825 13,623 76% 4,224
Santa Cruz Province
ARTV S.A. Reconquista & Avellaneda, No 16,923 16,246 11,442 70% 2,161
Santa Fe Province
BTC S.A. & San Carlos de Bariloche, No 18,340 17,606 11,104 63% 1,237
Vision Codificada S.A. Rio Negro Province
SIR TV S.R.L. Trelew, Rawson & Puerto Yes 37,258 35,768 11,432 32% 2,169
Madryn,
Chubut Province
Transcable S.A.(4) Rawson, Yes 5,415 5,198 2,161 42% 426
Chubut Province
Transcable S.A.(4) Comodoro Rivadavia, Yes 36,138 12,000 5,608 47% 1,337
Chubut Province
Cable Viedma S.R.L. Viedma, Rio Negro No 18,638 17,892 9,338 52% 1,097
& Televiedma S.R.L. Province ------- ------- ------ --- ------
& Carmen de Patagones,
Buenos Aires Province
Total/Average 161,124 131,985 70,285 53%(5) 14,422
======= ======= ====== === ======
<CAPTION>
PREMIUM PREMIUM SUBSCRIPTION
SOCCER BASIC SOCCER REVENUE PER
NAME OF COMPANY PENETRATION RATE(3) RATE SUBSCRIBER
--------------- ----------- ------- ------- ------------
<S> <C> <C> <C> <C>
Televisora Austral S.A. 32% $45.00 $8.00 $48.46
& TV Nieve S.A.
Cablemax S.A. 31% 35.00 8.00 37.92
ARTV S.A. 19% 27.00 8.00 28.78
BTC S.A. & 11% 35.00 12.00 38.09
Vision Codificada S.A.
SIR TV S.R.L. 19% 26.58 8.00 28.38
Transcable S.A.(4) 20% 25.00 8.00 25.31
Transcable S.A.(4) 24% 25.00 8.00 27.50
Cable Viedma S.R.L. 12% 33.00 9.00 34.36
& Televiedma S.R.L. --- ------ ----- ------
Total/Average 21%(5) $31.75(5) $8.42(5) $34.05(5)
=== ====== ===== ======
</TABLE>
- ---------------
(1) Based upon 1991 Argentine Census.
(2) Estimated by the Company.
(3) Rate for "Basic Service." The Company has other rates for different classes
of subscribers.
(4) Operates as one cluster.
(5) Percentages and dollar amounts are calculated as weighted averages.
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<PAGE> 37
Subscribers generally pay fixed monthly fees for basic and premium cable
television services, which constitute the principal sources of revenues to the
Company. In addition, other sources of potential revenue for the Company include
the sale of advertising time on locally originated and satellite delivered
programming services.
The Company's cable television systems have an average capacity of
approximately 35 channels, and all are fully operational. The Company plans to
rebuild and modify certain systems to increase channel capacity and improve
signal quality. The Company also intends to extend certain cable television
systems to cover areas not previously served. See "-- Operating
Strategy -- Upgrading and Expanding Existing Networks."
With the exception of the cable television system serving Ushuaia, the
Company's systems are not equipped with addressable decoding converters.
Addressable decoding converters permit the Company to encrypt program signals
and remotely activate and deactivate subscriber service, thereby reducing piracy
and increasing operating efficiency. In March 1997, the Company began installing
addressable decoding converters in Ushuaia. The Company will determine whether
to expand the use of addressable decoding converters in certain of its other
markets based upon the results experienced in Ushuaia.
PROGRAMMING SUPPLIERS
Video programming is acquired under contract from numerous international,
domestic and local suppliers. International and domestic suppliers typically
supply programming to the Company in encrypted digital format via satellite
transmission. Local programming is originated by subcontractors at the Company's
facilities. The Company's programming contracts are generally for a fixed period
of time and are subject to negotiation upon renewal. The Company believes that
it has satisfactory relations with all of its programming suppliers. See "Risk
Factors -- Reliance on Sole Supplier for Soccer Programming."
CABLE ENTRY INTO TELECOMMUNICATIONS
In 1990, the Argentine government privatized the historically inefficient
state-owned telephone company. A monopoly for telephone service in the northern
region was granted to Telecom and a monopoly for telephone service in the
southern region was granted to Telefonica. Through a 50/50 joint venture, the
two companies hold a monopoly on domestic and international long distance
services, and they also control certain data transfer businesses. Although the
privatization has led to improvements in service quality and upgrades to digital
switching, the cost of telephone service remains expensive relative to United
States standards. In Argentina, telephone penetration is 18 telephone lines per
100 persons, compared to 62 telephone lines per 100 persons in the United
States. The monopoly concessions granted to Telecom and Telefonica expire on
November 7, 1997, but Telecom and Telefonica have the right to apply for an
extension of their concessions through November 7, 2000.
Management believes that Telecom, Telefonica and other local telephony
providers will view cable television technology as a means of introducing
telecommunications services into new territories. Recent developments in the
Argentine market indicate that major telecommunications providers are acquiring
interests in cable television companies to position themselves for possible
deregulation and convergence. These acquisitions have included: (i) the
acquisition of a 20% ownership interest in Multicanal S.A., the largest cable
television company in Argentina, by an affiliate of Telefonica; (ii) the
acquisition of a 51% ownership interest in a major cable television operation
located in Neuquen Province of Argentina by affiliates of Telecom; and (iii) the
acquisition of a 50% ownership interest in the parent of Video Cable
Comunicaciones S.A., the second largest cable television company in Argentina,
by US West Media, Inc., an affiliate of US West Company. See "Risk
Factors -- Competition."
COMPETITION
Cable television systems, such as the systems operated by the Company, are
subject to competition from several alternative means of signal transmission
including but not limited to MMDS, UHF, MATV, SMATV, HSTV and DBS. In addition,
cable television systems are subject to competition from other communications
35
<PAGE> 38
and entertainment media, including movie theaters, live sporting events,
interactive computer programs and home video products such as video cassettes.
Certain providers recently began offering DBS in Argentina. The advantages
of DBS include the quality of signal and quantity of channel offerings.
Management of the Company believes that disadvantages of DBS, especially with
regard to Argentina include: high subscriber equipment costs; lack of local
programming offered (for example, local news, weather and sports), which has
been historically produced and delivered by cable television operators;
relatively high penetration of cable television into Argentine households
(approximately 49%); and relatively low penetration of telephones into
households, which may inhibit purchases of "pay per view" programming. While DBS
has obtained an approximate 8% penetration of homes passed by cable television
in the United States, penetration in Argentina is insignificant. Nonetheless,
the potential exists for DBS to garner a significant share of the market in the
future.
In the United States, regional telephone companies have announced plans to
begin offering cable television service through fiber optic trunk lines and
coaxial or copper drops or distribution networks. At present, Argentine
telephone companies are prohibited from supplying video programming to
subscribers through the telephone system. However, active discussions are
reportedly occurring in the executive and legislative branches of the Argentine
government with regards to a possible deregulation of the telecommunications
industry, including deregulation of providers of voice, data and video services.
Affiliates of Telefonica and Telecom have acquired interests in cable television
systems in Argentina. Management also believes that the Argentine
telecommunications industry may be deregulated during the period from 1998 to
2000, and that such deregulation could enable the Company to provide a broad
range of telecommunications services to its existing subscriber base.
Deregulation would likely result in direct competition among telephone companies
and cable television companies with regard to the supply of voice, data and
video signals.
Argentina authorizes competitive cable service in the same markets.
Accordingly, in several of its current markets, the Company faces competition
from other cable television systems for the same subscribers. Also, there are
few regulatory barriers keeping competitors from entering markets currently
serviced principally by the Company. It is likely that many of the cable
television companies targeted by the Company for future acquisition will be
engaged in direct competition with other operations in a given market, requiring
multiple acquisitions to secure the market, if such acquisitions can be
consummated.
REGULATION
COMFER, an Argentine governmental agency that is analogous to the
television broadcast division of the Federal Communications Commission in the
United States, licenses and regulates cable television operations in Argentina.
Prior to October 20, 1994, Argentine law was unclear as to whether persons or
entities other than Argentine citizens could legally hold licenses to operate
cable television systems, and management was advised that COMFER would likely
reject applications to operate such systems submitted by non-Argentine citizens.
Effective October 20, 1994, the United States and Argentina ratified the
Bi-Lateral Treaty, which allows, among other things, for the ownership of
Argentine cable television systems by companies domiciled in the United States.
Effective March 27, 1995, COMFER promulgated Resolution No. 350/95 relating to
the approval of companies domiciled in the United States to own and operate
Argentine cable television systems, and a representative of COMFER has indicated
to the Company's management that COMFER no longer will distinguish between
Argentine and United States applicants in the licensure process. To the
knowledge of the Company, COMFER has issued licenses to two companies controlled
by United States companies since that time. The Company intends to seek
authorization from COMFER as a principal owner of its subsidiaries. The Company
has no assurance that COMFER will approve the Company as an owner of its
subsidiaries. A decision by COMFER to deny such approval would require the
Company to continue to operate systems pursuant to licenses that are held by
subsidiaries whose owners may not have been approved by COMFER, which could have
a material adverse effect on the business, results of operations and financial
condition of the Company. See "Risk Factors -- Issuances of Licenses."
36
<PAGE> 39
EMPLOYEES
At June 30, 1997, the Company employed five full-time employees in the
United States, and contracted with an affiliate of Jack R. Crosby, the Chairman
of the Board and Chief Executive Officer of the Company, for services provided
on a part-time basis by five additional persons. None of these employees is
represented by a labor union. The Company has not experienced any work stoppages
or strikes in the United States as a result of labor disputes. The Company
considers its relations with its United States employees to be good.
At June 30, 1997, the Company had 222 employees in Argentina, of which
approximately 175 are members of the Sindicato Argentino de Television ("SAT"),
a union representing employees of the cable television industry. The Asociacion
Argentina de Television por Cable ("ATVC") is the Argentine cable television
trade association. Certain members of ATVC and SAT entered into the Convencion
Colectiva de Trabajo Nacional para Circuitos Cerrados No. 223/75 (the
"Convencion"), which prescribes work rules for employees of cable television
companies in Argentina. The Company is required by law to adhere to the
Convencion regarding its Argentine operations whether or not its employees are
members of SAT. The Company has not experienced any work stoppages or strikes in
Argentina as a result of labor disputes. Management believes that the Company
has fully complied with the terms of the Convencion and that the relationships
between the Company, its Argentine employees and SAT are good.
PROPERTIES
The Company leases its corporate offices located in Austin, Texas at a cost
of approximately $4,300 per month pursuant to a lease that expires on May 14,
2000. The Company owns a vacant sales/manufacturing facility located in Odessa,
Texas, which was related to the Company's previous operations. The property
owned by the Company is not currently utilized by the Company in any of its
on-going operations. Each of the facilities leased by the Company in the United
States is in good condition and adequately maintained. The facility owned by the
Company is presently vacant, and may require improvements prior to any sale,
lease or other occupancy.
The Company leases or owns various properties in Argentina, including
leases of utility poles for its cable plant. Aggregate monthly rent for all of
the leased property in Argentina is approximately $64,000 at June 30, 1997.
Management believes that all of its Argentine properties are in good condition
and are adequate and suitable for its purposes. Management believes that
alternatives can be found for all of the leased property in Argentina, except
for certain leases of pole space, which may be difficult to replace.
LEGAL PROCEEDINGS
The Company is not aware of any formal legal proceedings pending against it
other than routine litigation, none of which would have a material adverse
effect on the Company if adverse judgments were rendered. From time to time, the
Company may become involved in routine litigation arising in the ordinary course
of business.
37
<PAGE> 40
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jack R. Crosby....................... 71 Chairman of the Board and Chief Executive
Officer
Jack S. Gray, Jr..................... 40 President, Chief Operating Officer and
Director
Neil R. Austrian, Jr................. 32 Senior Vice President and Chief Financial
Officer
David Justice........................ 47 Chief Financial Officer - Latin America
John D. Becker....................... 33 Controller
Osvaldo Rossi........................ 43 Chief Executive Officer of Cabledifusion
S.A.*
Carlos Saba.......................... 42 Chief Operating Officer of Cabledifusion
S.A.*
Winston J. Churchill................. 56 Director
J. Kelly Elliott..................... 66 Director
Lee A. Lahourcade.................... 40 Director
</TABLE>
- ---------------
* Cabledifusion S.A. is a subsidiary of Tescorp that manages its cable
operations in Argentina.
All directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. Executive officers
are elected by and serve at the discretion of the Board of Directors. The Board
of Directors has been expanded to comprise six members, and it is contemplated
that the vacancy will be filled by the Board of Directors, in accordance with
the Bylaws of the Company, with an independent director within 90 days after the
closing of the Offering.
Jack R. Crosby has been Chairman of the Board of Directors of the Company
since its inception in 1980, and became Chief Executive Officer in 1991. Mr.
Crosby is the General Partner of Rust Group, L.P., a Texas limited partnership
holding certain of Mr. Crosby's business assets, and he is the president of Rust
Capital, Ltd. ("Rust Capital"), a small business investment corporation with its
headquarters in Austin, Texas. Mr. Crosby has been involved in the cable
television industry since its infancy, and he was in the first group of cable
television executives recognized by the National Cable Television Association as
a pioneer of the industry. Mr. Crosby has been involved in the development of
cable television systems in the United States, Mexico and Switzerland. Mr.
Crosby presently serves as a director of Prime Cable, Inc. ("Prime Cable") of
Austin, Texas. Prime Cable and its affiliates own and operate cable television
systems in Chicago, Illinois, Las Vegas, Nevada, Anchorage, Alaska and other
markets. A former Director and Chairman of the National Cable Television
Association, Mr. Crosby has provided cable television consulting services to the
governments of West Germany, Austria and Holland. Mr. Crosby also serves as a
director of two other publicly traded companies: National Dentex Corporation, a
manufacturer of dental appliances, and DSI Toys, Inc., a toy manufacturer and
distributor.
Jack S. Gray, Jr. has been a director of the Company since 1989. Since
April 1992, Mr. Gray has been the President and Chief Operating Officer of the
Company. From August 1991 until April 1992, Mr. Gray was President of J&J
Mercantile, an investment firm in Austin, Texas. From April 1991 until August
1991, Mr. Gray was Deputy Director of Appointments in the Office of the
Governor, State of Texas. From 1985 to 1991, he was the Chief Financial Officer
of the "Rust Group" (which collectively refers to the business activities of Mr.
Crosby), and in this capacity, he served as an officer or director of numerous
entities in which Mr. Crosby held direct and indirect ownership interests. Prior
to 1985, Mr. Gray was an investment banker with Duncan, Smith & Co., San
Antonio, Texas.
Neil R. Austrian, Jr. has been a Vice President of the Company since 1994
and was named Senior Vice President and Chief Financial Officer in August 1997.
Mr. Austrian has worked in association with
38
<PAGE> 41
Mr. Crosby for the past seven years and, prior to joining Tescorp, was an
Associate with Rust Capital. Mr. Austrian serves on the Board of Directors of
Software Publishing Corporation.
David Justice has been Chief Financial Officer - Latin America since
joining the Company in September 1995. Mr. Justice is a ten year veteran of the
cable television industry. Prior to joining the Company, Mr. Justice was
employed by Prime Cable, which he joined in 1981 as Controller, and then served
as Treasurer. During his tenure, Prime Cable grew from approximately 25,000
subscribers to 600,000 subscribers, and provided cable television service to
customers in Alaska, New York, Georgia, Texas, Maryland, Nevada, North Carolina,
Indiana and Wyoming. Mr. Justice worked for Seidman & Seidman and Coopers &
Lybrand as a Certified Public Accountant before joining Prime Cable.
John D. Becker has been the Controller of the Company since 1990. Mr.
Becker is a Certified Public Accountant and a member of the American Institute
of Certified Public Accountants, and the Texas Society of Certified Public
Accountants.
Osvaldo Rossi has acted as Chief Executive Officer of Cabledifusion S.A.
since 1995. Mr. Rossi is a native of Argentina who resides in Buenos Aires. Mr.
Rossi is the former Engineering and Technology Advisor to the ATVC, the
Argentine cable television trade association, and is the author of Cable and
Satellite TV, which was published in Argentina in 1990. He has also authored
approximately 60 articles regarding cable television and telecommunications that
have been published in various Latin American newspapers and trade publications.
Mr. Rossi is a founder of Proyectos de Comunicaciones, S.A. ("Proyectos"), a
company that provides engineering and operational consulting services to cable
television and telecommunications companies. Proyectos has had as clients such
Argentine firms as Clarin/Canal 13, Cablevision, Video Cable Comunicaciones,
S.A., and Telintar. Prior to forming Proyectos, Mr. Rossi served at Video Cable
Comunicacion, S.A., one of the largest cable television operators in Argentina,
in several capacities including Vice President of Engineering and Technology.
Mr. Rossi earned an Electronics Engineer certification from the National
University of Technology (Argentina) in 1979.
Carlos Saba has acted as Chief Operating Officer of Cabledifusion S.A.
since 1995. Mr. Saba is a native of Argentina who resides in Buenos Aires. Mr.
Saba is also a founder of Proyectos. Mr. Saba was a founder of Cabtec, S.A. and
Cabtec Industria Eletronica L.T.D.A., companies which designed and manufactured
cable television equipment in Argentina and Brazil under license from C-Cor
Electronics, Inc. Mr. Saba is the founder of several cable television systems in
Argentina and Brazil and from 1981 to 1988 Mr. Saba worked in various
capacities, including Chief Engineer, with Video Cable Comunicaciones, S.A. Mr.
Saba earned a Masters of Business Administration degree from Belgrano University
(Argentina) in 1988 and an Electronics Engineer certification from the National
University of Technology (Argentina) in 1980.
Winston J. Churchill has been a director of the Company since July 1995.
Mr. Churchill formed Churchill Investment Partners, Inc. in 1989 and CIP
Capital, Inc. in 1990, each an investment and venture capital fund, and
continues to be a principal of each. From 1989 to 1993 he served as Chairman of
the Finance Committee of the $24 billion Pennsylvania Public School Employees'
Retirement System.
J. Kelly Elliott has served as a director of the Company since 1983. Since
1990, Mr. Elliott has been Chairman of the Board and Chief Executive Officer of
Sigma Electronics, a manufacturer and distributor of electrical transformers.
Mr. Elliott has also served since 1992 as Chairman and Chief Executive Officer
of Omnicomp Graphics, Inc., a computer graphics company, and Seaboard-Avval,
Inc., an oil field equipment manufacturer. From 1983 through 1989 Mr. Elliott
was President and Chief Executive Officer of the Company. From 1976 to 1983, Mr.
Elliott served as President and Chief Executive Officer of several wholly-owned
subsidiaries of Hughes Tool Company, including Brown Oil Tools and BJ-Hughes,
each of which was engaged in oil field services. In June of 1993, Mr. Elliott
was elected Chairman of the Board of Grant Tensor Geophysical Corporation, a
publicly traded oil field service company, and he served in that capacity
through November 1995.
Lee A. Lahourcade has been a director of the Company since March 1992. Mr.
Lahourcade was president of Rust Capital from June 1988 to June 1992. Since
then, Mr. Lahourcade has served as a principal
39
<PAGE> 42
at Vaughn, Nelson, Scarborough, McConnell, L.P., a money management firm. Prior
to joining Rust Capital, Mr. Lahourcade was a vice president of Merrill Lynch &
Co. in the investment banking area.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of Directors. Each director who is not an employee of the
Company receives $1,000 for each board meeting attended, plus $500 for each
committee meeting attended. Employees of the Company are not paid directors'
fees. No member of the Board of Directors was paid any compensation in the
Company's 1997 fiscal year for his service as a director of the Company other
than pursuant to the standard compensation arrangement for directors.
At the annual meeting of shareholders held in October 1993, the 1993
Non-Employee Directors Stock Option Plan (the "NEDSOP") was approved. Pursuant
to the NEDSOP, non-employee directors are entitled to receive one option to
purchase 8,333 shares of Company Common Stock upon becoming director, a second
option to purchase an additional 8,333 shares at the completion of one year of
service, and a third option to purchase an additional 8,334 shares at the
completion of two years of service.
The NEDSOP was adopted to further the goal of attracting and retaining
highly qualified non-employee directors of the Company and to motivate them to
assert their best efforts for the Company. As a result of changes effected at
last year's annual meeting, non-employee directors are eligible to participate
in the Company's 1991 Incentive Plan. As employees, neither Mr. Gray nor Mr.
Crosby is eligible to participate in the NEDSOP.
Compensation of Executive Officers. The following table sets forth certain
information for the fiscal years ended March 31, 1997, 1996 and 1995, with
respect to the Chief Executive Officer (Jack R. Crosby) and the President and
Chief Operating Officer (Jack S. Gray, Jr.) at March 31, 1997. There were no
other executive officers of the Company who earned annual compensation that
exceeded $100,000 during fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME PRINCIPAL POSITION SALARY BONUS OTHER OPTIONS)* COMPENSATION
---- ------------------ -------- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1997
Jack R. Crosby................... Chairman and CEO $150,000 -- -- 275,000 --
Jack S. Gray, Jr................. President and COO $125,000 -- -- 225,000 --
1996
Jack R. Crosby................... Chairman and CEO $112,500 -- -- 250,000 --
Jack S. Gray, Jr................. President and COO $125,000 -- -- 175,000 --
1995
Jack R. Crosby................... Chairman and CEO $100,000 -- -- -- --
Jack S. Gray, Jr................. President and COO $125,000 -- -- -- --
</TABLE>
- ---------------
* Options granted include a limited stock appreciation right that becomes
exercisable at the employee's option only if there is a change in control of
the Company.
Stock Option Grants in 1997. The Company maintains an incentive stock
option plan, pursuant to which 2,000,000 shares of Common Stock are issuable to
employees of the Company. The following table shows information concerning
individual grants of stock options during fiscal 1997 to the named executive
officers.
<TABLE>
<CAPTION>
NO. OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED
OPTIONS TO EXPIRATION
NAME GRANTED* EMPLOYEES EXERCISE PRICE DATE
---- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Jack R. Crosby................................ 275,000 45.8 $3.5625 3/11/07
Jack S. Gray, Jr.............................. 225,000 37.5 $3.5625 3/11/07
</TABLE>
40
<PAGE> 43
- ---------------
* All options shown are exercisable in three equal annual installments beginning
March 31, 1998.
Stock Option Exercises and Holdings. The following table shows information
regarding stock option exercises and unexercised options held as of the end of
fiscal 1997 by the named executive officers.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-----------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF IN-THE-MONEY
OPTIONS OPTIONS
OPTIONS --------------------------- -----------------------------
NAME EXERCISED EXERCISABLE UNEXERCISABLE EXERCISABLE* UNEXERCISABLE*
---- --------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Jack R. Crosby..................... 0 327,083 522,917 $590,104 $266,146
Jack S. Gray, Jr................... 0 302,083 197,917 $577,604 $241,146
</TABLE>
- ---------------
* Based on closing price of $3.50 on March 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation decisions for executive officers are made by the Compensation
Committee of the Board of Directors, which currently consists of Lee A.
Lahourcade, J. Kelly Elliott and Winston J. Churchill. Mr. Elliott served as the
President and Chief Executive Officer of the Company from 1983 through 1989. See
"Certain Transactions."
CERTAIN TRANSACTIONS
During fiscal 1996, J. Kelly Elliott, a director of the Company, was
indebted to the Company in the amount of approximately $84,000, including
accrued and unpaid interest by virtue of a loan that had been made in 1989. In
March 1996, the Company agreed that Mr. Elliott could satisfy his obligation by
assigning to the Company 21,567 shares of outstanding Common Stock, which was
then trading at approximately $3.75 per share, and cash of approximately $5,000.
The note was satisfied on these terms during the first quarter of fiscal 1997
and the Company retired the Common Stock.
Rust Management Services, Inc., a Texas corporation ("RMSI") of which Jack
R. Crosby, the Chairman and Chief Executive Officer of the Company, is the sole
shareholder, has provided the part-time services of several of its employees to
the Company. Pursuant to this arrangement, the Company's pro rata share of the
expenses associated with RMSI's employment of these individuals is reimbursed by
the Company at RMSI's cost. During the fiscal year ended March 31, 1997,
payments to RMSI pursuant to this arrangement were approximately $174,000.
The Company leases its executive offices in Austin, Texas in a six-story
office building from a limited partnership that includes as a minority interest
limited partner a trust for which Jack S. Gray Jr., President and Chief
Operating Officer of the Company, is the trustee. Mr. Gray is not a beneficiary
of the trust and serves without compensation. The limited partnership purchased
the building in June 1996.
In February 1997, the Company sold $6.0 million in principal amount of the
Acquisition Notes, and detachable warrants to purchase an aggregate of 210,000
shares of Common Stock for $4.00 per share, to a group of investors that
included a director and other beneficial holders of over 5% of the Company's
capital stock. As a result of the placement: (i) Winston J. Churchill, a
director of the Company and the beneficial owner of over 5% of the outstanding
Common Stock, and his wife purchased $200,000 in principal amount of the
Acquisition Notes and warrants to purchase 7,000 shares of Common Stock; (ii)
The South America Fund N.V., the beneficial owner of over 5% of a class of the
Company's voting securities, purchased $1,000,000 in principal amount of the
Acquisition Notes and warrants to purchase 35,000 shares of Common Stock; (iii)
Clarex Limited, the beneficial owner of over 5% of a class of the Company's
voting securities, purchased $500,000 in principal amount of the Acquisition
Notes and warrants to purchase 17,500 shares of Common Stock; and (iv) Banque
Nationale de Paris (Paris), the beneficial owner of over 5% of a class of the
Company's voting securities, purchased $500,000 in principal amount of the
Acquisition Notes and warrants to purchase 17,500 shares of Common Stock. The
Acquisition Notes and warrants received by The South
41
<PAGE> 44
America Fund N.V. may be deemed to be owned by BEA Associates, the beneficial
owner of over 5% of the outstanding Common Stock.
In addition, in connection with the placement of the Acquisition Notes and
warrants, Arnhold S. & Bleichroeder, Inc., which may be deemed to be the
beneficial owner of over 5% of the outstanding Common Stock, received 22,500
shares of Common Stock and warrants to purchase an additional 90,000 shares of
Common Stock for $4.00 per share as a placement fee and for other professional
services provided in connection with the placement.
In August 1997, the Jack R. Crosby Inter Vivos Trust, a shareholder of the
Company, made available to the Company a $500,000 unsecured revolving credit
facility for working capital purposes. Amounts outstanding under this facility
are due and payable on demand and bear interest at the rate of 11.0% per annum.
Jack R. Crosby, the Chairman of the Board and Chief Executive Officer of the
Company, established the Jack R. Crosby Inter Vivos Trust, but is neither a
trustee nor a beneficiary of the trust. Mr. Crosby disclaims beneficial
ownership of the assets of the trust, including 172,043 shares of Common Stock.
The loan from the Jack R. Crosby Inter Vivos Trust was approved by all of the
disinterested directors of the Company, who determined that the loan was on
terms no less favorable to the Company than those that could have been obtained
from unaffiliated third parties.
42
<PAGE> 45
PRINCIPAL AND SELLING SHAREHOLDERS
HOLDINGS OF COMMON STOCK
The following table gives information concerning the beneficial ownership
of the Company's Common Stock by: (i) each of the named executive officers; (ii)
each of the Company's directors; (iii) all directors and executive officers of
the Company as a group; (iv) the Selling Shareholders; and (v) each person known
to the Company to be the beneficial owner of more than 5% of the Common Stock.
<TABLE>
<CAPTION>
SHARES OF COMMON
SHARES OF COMMON STOCK STOCK BENEFICIALLY
BENEFICIALLY OWNED PRIOR TO OWNED AFTER THE
THE OFFERING OFFERING
NAME AND ADDRESS ---------------------------- SHARES -------------------
OF BENEFICIAL OWNER(1) NUMBER PERCENT BEING OFFERED NUMBER PERCENT
---------------------- ------------ ---------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Jack R. Crosby............................ 544,794(2) 4.0% -0- 544,794
Jack S. Gray, Jr.......................... 638,306(3) 4.7% -0- 638,306
Winston J. Churchill...................... 1,271,406(4) 9.6% -0- 1,271,406
J. Kelly Elliott.......................... 58,664(5) * -0- 58,664
Lee A. Lahourcade......................... 26,880(6) * -0- 26,880
All directors and executive officers as a
group (six persons)..................... 2,561,139(7) 18.1% -0- 2,561,139
SELLING AND 5% SHAREHOLDERS:
BEA Associates............................ 2,250,000(8) 15.5%
Argentina Equity Investment Partnership... 1,855,000(9) 13.1%
K-G, L.P.................................. 1,271,406(10) 9.6%
Frederick M. Danziger..................... 1,271,406(10) 9.6%
John Fletcher............................. 1,271,406(10) 9.6%
W&M Management Company, Inc............... 1,271,406(10) 9.6%
Arnhold & S. Bleichroeder, Inc............ 1,223,850(11) 8.6%
Harvey Sandler............................ 928,200(12) 7.0%
21st Century Communications Partners,
L.P..................................... 928,200(12) 7.0%
21st Century Communications T-E Partners,
L.P..................................... 928,200(12) 7.0%
21st Century Communications Foreign
Partners, L.P........................... 928,200(12) 7.0%
Sandler Investment Partners, L.P.......... 928,200(12) 7.0%
Sandler Capital Management................ 928,200(12) 7.0%
ARH Media Corp............................ 928,200(12) 7.0%
</TABLE>
All percentages in this section were calculated on the basis of outstanding
securities plus securities deemed to be beneficially owned under Rule 13d-3 of
the Exchange Act.
- ---------------
* less than 1%
(1) Unless otherwise indicated, the address for all officers and directors of
the Company is 327 Congress Avenue, Suite 200, Austin, Texas 78701. The
information as to beneficial ownership is based on statements furnished to
the Company by the beneficial owners. As used in this table, "beneficial
ownership" means the sole or shared power to vote, or to direct the
disposition of, a security. For purposes of this table, a person is deemed
at August , 1997 to have "beneficial ownership" of any security that such
person has the right to acquire within 60 days of August , 1997. Unless
noted otherwise, stockholders possess sole voting and dispositive power
with respect to shares listed on this table.
(2) Includes 136,460 shares held directly and 408,334 shares purchasable within
60 days upon exercise of options. Excludes 172,043 shares held by the Jack
R. Crosby Inter Vivos Trust as to which members of Mr. Crosby's immediate
family are the beneficiaries, but over which neither Mr. Crosby nor any
43
<PAGE> 46
member of his immediate family has any voting or investment power. Also
excludes 853,752 shares held by K-G, L.P., which is a limited partnership
in which the Sharpe Irrevocable Inter Vivos Trust, as to which Mr. Crosby's
wife is the sole beneficiary, is a limited partner.
(3) Includes 242,628 shares held directly, a total of 12,343 shares issuable
upon conversion of 9,850 shares of Series 1990 Preferred Stock held by Mr.
Gray directly and in trust for the benefit of his child, and 383,334 shares
purchasable within 60 days upon exercise of options.
(4) Includes 300,000 shares held directly by Mr. Churchill and his wife, 62,500
shares held by Winston J. Churchill Retirement Plan, 15,334 shares
purchasable within 60 days upon exercise of options, 40,000 shares issuable
upon conversion of 1,250 shares of Series 1995 Preferred Stock, and 853,572
shares held by K-G, L.P., as disclosed in footnote 10.
(5) Includes 9,394 shares held directly and 49,270 shares purchasable within 60
days upon exercise of options.
(6) Includes 1,880 shares issuable upon conversion of 1,500 shares of Series
1990 Preferred Stock held by Mr. Lahourcade directly and 25,000 shares
purchasable within 60 days upon exercise of options.
(7) Includes 897,939 shares purchasable within 60 days upon exercise of
options, 40,000 shares issuable upon conversion of shares of Series 1995
Preferred Stock and 14,223 shares issuable upon conversion of shares of
Series 1990 Preferred Stock.
(8) Includes 1,855,000 shares beneficially owned by Argentina Equity Investment
Partnership and 395,000 shares beneficially owned by The South America Fund
N.V. The address of this beneficial owner is 153 East 53rd Street, One
Citicorp Center, New York, New York 10022.
(9) Includes 895,000 shares held directly and 960,000 shares issuable upon
conversion of Series 1995 Preferred Stock. The address of this beneficial
owner is c/o BEA Associates, 153 East 53rd Street, One Citicorp Center, New
York, New York 10022.
(10) Includes 853,572 shares held by K-G, L.P., 300,000 shares held directly by
Winston J. Churchill, 62,500 shares held by Winston J. Churchill Retirement
Plan, 40,000 shares issuable upon conversion of 1,250 shares of Series 1995
Preferred Stock held by Mr. Churchill and his wife. K-G, L.P. John
Fletcher, W&M Management Company, Inc., Frederick M. Danziger and Mr.
Churchill have filed a Schedule 13D in which they indicated they were
members of a "group" for the purposes of Section 13(d) of the Exchange Act.
The address of this beneficial owner is 641 Lexington Avenue, 29th Floor,
New York, New York 10022.
(11) Includes 576,150 shares purchasable within 60 days upon exercise of
warrants and 536,000 shares issuable upon conversion of 16,750 shares of
Series 1995 Preferred Stock. Arnhold & S. Bleichroeder, Inc. disclaims
beneficial ownership of 621,700 of these shares. The address of this
beneficial owner is 1345 Avenue of the Americas, New York, New York 10022.
(12) Harvey Sandler, 21st Century Communications Partners, L.P., 21st Century
Communications T-E Partners, L.P., 21st Century Communications Foreign
Partners, L.P., Sandler Investment Partners, L.P., Sandler Capital
Management and ARH Media Corp. filed a Schedule 13D in which they indicated
that they were members of a "group" for purposes of Section 13(d) of the
Exchange Act. The address of this beneficial owner is 767 Fifth Avenue,
45th Floor, New York, New York 10153.
44
<PAGE> 47
HOLDINGS OF PREFERRED STOCK
The following table gives information concerning the beneficial ownership
of the Company's Preferred Stock by: (i) each of the named executive officers;
(ii) each of the Company's directors; (iii) all directors and executive officers
of the Company as a group; and (iv) each person known to the Company to be the
beneficial owner of more than 5% of any series of Preferred Stock. Each share of
Series 1990 Preferred Stock and Series 1995 Preferred Stock is currently
convertible into approximately 1.25 shares of Common Stock and 32 shares of
Common Stock, respectively.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
SERIES 1990 STOCK SERIES 1995 STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------ ------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
--------------------------------------- ------- -------- ------- --------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Jack R. Crosby..................................... -0- * -0- *
Jack S. Gray, Jr.(2)............................... 9,850 1.4% -0- *
Winston J. Churchill(3)............................ -0- * 1,250 *
J. Kelly Elliott................................... -0- * -0- *
Lee A. Lahourcade.................................. 1,500 * -0- *
All directors and executive
officers as a group (six persons)................ 11,350 1.6% 1,250 *
5% SHAREHOLDERS:
BEA Associates..................................... -0- * 40,000 28.7%
Argentina Equity Investment Partnership............ -0- * 30,000 21.5%
SC Fundamental, Inc.(4)............................ -0- * 20,000 14.4%
SC Fundamental Value BVI, Inc.(4).................. -0- * 20,000 14.4%
The SC Fundamental Value Fund, L.P.(4)............. -0- * 20,000 14.4%
Gary N. Siegler(4)................................. -0- * 20,000 14.4%
Peter M. Collery(4)................................ -0- * 20,000 14.4%
Arnhold & S. Bleichroeder, Inc.(5)................. -0- * 16,750 12.0%
Banque Nationale de Paris (Switzerland)............ -0- * 15,500 11.1%
The South America Fund N.V.(6)..................... -0- * 10,000 7.2%
Clarex Limited(7).................................. -0- * 10,000 7.2%
First Eagle Fund N.V.(8)........................... -0- * 10,000 7.2%
Special Situation Fund, L.P. III(9)................ 57,500 8.3% -0- *
Mervyn L. Lapin(10)................................ 46,534 6.7% -0- *
Kenneth Pasternak(11).............................. 40,000 5.8% -0- *
</TABLE>
All percentages in this section were calculated on the basis of outstanding
securities plus securities deemed to be beneficially owned under Rule 13d-3 of
the Exchange Act.
- ---------------
* less than 1%
(1) Unless otherwise indicated, the address for all officers and directors of
the Company is 327 Congress Avenue, Suite 200, Austin, Texas 78701. The
information as to beneficial ownership is based on statements furnished to
the Company by the beneficial owners. As used in this table, "beneficial
ownership" means the sole or shared power to vote, or to direct the
disposition of, a security. For purposes of this table, a person is deemed
at August , 1997 to have "beneficial ownership" of any security that such
person has the right to acquire within 60 days of August , 1997. Unless
noted otherwise, stockholders possess sole voting and dispositive power
with respect to shares listed on this table.
(2) Shares held by Mr. Gray directly and in trust for the benefit of his child.
(3) Shares held by Mr. Churchill and his wife.
45
<PAGE> 48
(4) The SC Fundamental Value Fund, L.P., SC Fundamental Value BVI, Inc., SC
Fundamental, Inc., Gary N. Siegler and Peter M. Collery filed a Schedule
13D in which they indicated that they were members of a "group" for
purposes of Section 13(d) of the Exchange Act. The address of this
beneficial owner is 711 Fifth Avenue, New York, New York 10022.
(5) Arnhold & S. Bleichroeder, Inc. disclaims beneficial ownership of these
shares.
(6) The address of this beneficial owner is c/o BEA Associates, 153 East 53rd
Street, New York, New York 10022.
(7) The address of this beneficial owner is Scotiabank Building, 3rd Floor,
Rawson Square, Wassau, N.P. Bahamas.
(8) The address of this beneficial owner is c/o Arnhold & S. Bleichroeder,
Inc., 1345 Avenue of the Americas, New York, New York 10022.
(9) The address of this beneficial owner is 153 East 53rd Street, New York, New
York 10022.
(10) The address of this beneficial owner is 323 W. Meadow Drive, Vail, Colorado
81657.
(11) The address of this beneficial owner is 525 Washington Blvd., Suite 2401,
Jersey City, New Jersey 07310.
46
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
The capital stock of the Company consists of 55,000,000 authorized shares,
of which 50,000,000 are designated Common Stock, with a par value of $.02 per
share, and 5,000,000 are designated preferred stock, with a par value of $1.00
per share (the "Preferred Stock").
COMMON STOCK
At June 30, 1997, there were 13,189,785 shares of Common Stock issued and
outstanding, 869,504 shares reserved for issuance upon conversion of the 1990
Preferred Stock, 4,456,000 shares reserved for issuance upon conversion of the
1995 Preferred Stock, 2,000,000 shares reserved for issuance under stock options
granted, or to be granted, to employees of the Company under the Company's
Amended and Restated 1991 Incentive Plan, 150,000 shares reserved for issuance
under stock options granted, or to be granted, to nonemployee directors under
the NEDSOP and 910,470 shares reserved for issuance upon exercise of the certain
outstanding warrants and options granted outside the Company's stock option
plans. The Board of Directors has approved a 1-for-3 reverse stock split,
pursuant to which every three outstanding shares of Common Stock would be
converted into one share of Common Stock. It is contemplated that such reverse
split will be submitted to the shareholders of the Company for approval at the
next annual meeting of such shareholders, currently anticipated to occur in
October 1997.
The holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors in its discretion
from funds legally available therefor. Upon liquidation or dissolution of the
Company and the satisfaction of creditors and the preferences and rights of
holders of Preferred Stock outstanding, if any, the holders of shares of Common
Stock are entitled to receive all assets remaining available for distribution to
the stockholders. All of the outstanding shares of Common Stock are fully paid
and nonassessable, and the shares of Common Stock to be outstanding upon
completion of the Offering will be fully paid and nonassessable. The Common
Stock has no preemptive, exchange or conversion rights.
STATUTORY BUSINESS COMBINATION PROVISION
Effective September 1, 1997, a new Part Thirteen of the Texas Business
Corporation Act (the "Texas Business Combination Law") will restrict certain
transactions between a public corporation organized under Texas law, or its
majority-owned subsidiaries, and any person holding 20% or more of the
corporation's outstanding voting stock, together with the affiliates or
associates of such person (an "Affiliated Shareholder"). The Texas Business
Combination Law prevents, for a period of three years following the date that a
person becomes an Affiliated Shareholder, the following types of transactions,
whether in one transaction or a series of transactions, between the corporation
and the Affiliated Shareholder (unless certain conditions, described below, are
met): (a) mergers, share exchanges or conversions, (b) sales, leases, exchanges,
mortgages, pledges, transfers or other dispositions of assets of the corporation
or any subsidiary with an aggregate market value equal to 10% or more of (i) the
aggregate market value of the consolidated assets, (ii) the aggregate market
value of the outstanding stock of the corporation or (iii) the consolidated net
income of the corporation, (c) issuances or transfers by the corporation to an
Affiliated Shareholder of any stock of the corporation except by the exercise of
warrants or rights, or a share dividend paid, pro rata to all shareholders of
the corporation after the Affiliated Shareholder's acquisition date, (d)
adoptions of any plan or proposal for the liquidation or dissolution of the
corporation pursuant to any agreement, arrangement or understanding with an
Affiliated Shareholder, (e) reclassifications of securities, recapitalizations
of the corporation, mergers with a subsidiary or pursuant to which the assets
and liabilities of the corporation are allocated among two or more entities, or
any other transactions, whether or not involving an Affiliated Shareholder,
proposed by, or pursuant to an agreement, arrangement or understanding with an
Affiliated Shareholder, that have the effect of increasing the proportionate
share of the stock of any class or series of the corporation which is owned by
the Affiliated Shareholder, and (f) receipt by the Affiliated Shareholder of the
benefit (except proportionately as a shareholder) of loans, advances,
guarantees, pledges or other financial assistance or a tax credit or other tax
advantage provided by the corporation.
47
<PAGE> 50
The three-year ban does not apply if either the proposed transaction or the
transaction by which the Affiliated Shareholder became an Affiliated Shareholder
is approved by the board of directors of the corporation prior to the date such
shareholder becomes an Affiliated Shareholder. Business combinations are also
permitted within the three-year period if approved, at an annual or special
meeting of shareholders called for that purpose not less than six months after
the date such Affiliated Shareholder becomes an Affiliated Shareholder, by the
affirmative vote of the holders of at least 66 2/3% of the outstanding voting
stock not owned by the Affiliated Shareholder.
The Texas Business Combination Law does not apply to any transaction (a)
with an Affiliated Shareholder who becomes an Affiliated Shareholder
inadvertently, if such Affiliated Shareholder, as soon as practicable, divests
itself of a sufficient number of shares of voting stock to no longer be an
Affiliated Shareholder and, but for the inadvertent acquisition, such Affiliated
Shareholder was not an Affiliated Shareholder at any time during the preceding
three year period, (b) with an Affiliated Shareholder who was an Affiliated
Shareholder on December 31, 1996 and remains an Affiliated Shareholder
continuously thereafter until the announcement date of such transaction, (c)
with an Affiliated Shareholder who becomes an Affiliated Shareholder through a
transfer of shares of the corporation by will or intestate succession and who
remains an Affiliated Shareholder continuously thereafter until the announcement
date of such transaction, and (d) with a wholly-owned subsidiary organized under
Texas law, if such subsidiary is not affiliated with an Affiliated Shareholder
other than through such Affiliated Shareholder's ownership of voting stock of
the corporation. In addition, the Texas Business Combination Law will not apply
to any Texas corporation (i) the original articles of incorporation or bylaws of
which expressly elect not to be governed by the Texas Business Combination Law;
(ii) that, prior to December 31, 1997, adopts an amendment to its articles of
incorporation or bylaws making such an election, (iii) that, after December 31,
1997, adopts an amendment to its articles of incorporation or bylaws making such
an election that is approved by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock, provided that any such amendment will
take effect 18 months after the date of the vote and would not apply to
transactions with an Affiliated Shareholder whose share acquisition date was on
or prior to the date of such vote. The Company does not currently contemplate
adopting such a charter or bylaw amendment and therefore will be covered by the
Texas Business Combination Law for the foreseeable future.
PREFERRED STOCK
The Board of Directors is authorized, without any further action by the
shareholders, to establish the terms and approve the issuance of shares of
Preferred Stock from time to time in such series, to divide such shares of
Preferred Stock into one or more classes or series and, in connection with the
creation of any such class or series, to fix the designation, powers and
relative, participatory, optional or other special rights of such class or
series, and the qualifications, limitations, or restrictions thereof. At June
30, 1997, there were 693,864 shares of Series 1990 Preferred Stock and 139,250
shares of Series 1995 Preferred Stock issued and outstanding.
The Series 1990 Preferred Stock calls for the payment of annual dividends
of $.50 per share, payable on a quarterly basis. In addition, in the event of
liquidation, the holders of the Series 1990 Preferred Stock are entitled to
receive $5.00 plus accrued and unpaid dividends before the holders of Common
Stock and Series 1995 Preferred Stock are entitled to receive any of the
liquidation proceeds. Each share of 1990 Preferred Stock is currently
convertible into approximately 1.25 shares of Common Stock. The Series 1995
Preferred Stock calls for annual dividends of $8.00 per share, payable on a
quarterly basis, except that holders who have so elected may have such dividends
paid in shares of Common Stock. In the event of liquidation, the holders of
Series 1995 Preferred Stock are entitled to receive $100.00 plus accrued and
unpaid dividends before the holders of Common Stock are entitled to receive any
of the liquidation proceeds. Each share of Series 1995 Preferred Stock is
convertible into 32 shares of Common Stock, subject to certain adjustments.
Neither the Series 1990 Preferred Stock nor the Series 1995 Preferred Stock have
any preemptive rights.
Shares of Series 1990 Preferred Stock are redeemable at the option of the
Company at a price equal to $5.00 per share plus any accrued and unpaid
dividends. Terms of the Series 1990 Preferred Stock provide that the Company may
redeem no fewer than 70,000 shares at any one time unless all outstanding shares
are being
48
<PAGE> 51
redeemed. Only one redemption per quarter is permitted and the Company is
precluded from making a partial redemption if there are fewer than 200,000
shares of Series 1990 Preferred Stock outstanding. To date, all dividends on the
Series 1990 Preferred Stock have been paid by the Company.
In the event that the quoted price of the Common Stock exceeds $4.6875,
subject to certain adjustments, for a period of 20 trading days beginning on any
trading day on or after December 15, 1998, the Company shall have the right to
compel the conversion of all, but not less than all, of the Series 1995
Preferred Stock into Common Stock. Subject in all respects to this provision,
the holders of shares of Series 1995 Preferred Stock shall have the right, at
their option, to convert all or any part of such shares into Common Stock.
VOTING
Each share of the Common Stock and 1990 Preferred Stock is entitled to one
vote, and each share of the Series 1995 Preferred Stock is entitled to 32 votes,
on all matters to come before the Company's shareholders, voting as a single
class, except certain matters as to which the Preferred Stock is entitled to
vote as a separate class as provided by law or by the provisions of the
Company's Articles of Incorporation setting forth the rights and preferences for
the Preferred Stock. The Company's Articles of Incorporation do not permit
cumulative voting, which means that the holders of a majority of the votes
represented by Common Stock or Preferred Stock entitled to vote at a
shareholder's meeting present in person or by proxy can elect all of the
directors if they choose to do so, and in such event, the holders of the
remaining shares will not be able to elect any directors. A quorum for a meeting
of shareholders consists of a majority of the votes represented by shares of
Common Stock or Preferred Stock entitled to vote at such meeting present in
person or by proxy.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is American Stock
Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
After the completion of the Offering, the Company will have 23,189,785
shares of Common Stock outstanding (24,989,785 if the Underwriters'
over-allotment option is exercised in full). Of those shares, a total of
21,580,851 (23,380,851 if the Underwriters' over-allotment option is exercised
in full) will be freely tradable without restriction or further registration
under the Securities Act, unless purchased or held by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144"). In general, under Rule 144 as currently in effect, any affiliate of the
Company who has beneficially owned restricted securities for at least one year
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 232,000 shares based upon the number of shares assumed to be
outstanding after the Offering) or the reported average weekly trading volume in
the over-the-counter market for the four weeks preceding the sale. Sales under
Rule 144 are also subject to certain manner of sale restrictions and notice
requirements and to the availability of current public information concerning
the Company. All shares of Common Stock held by affiliates of the Company will
be eligible for sale immediately following consummation of the Offering pursuant
to Rule 144, subject to certain restrictions under Rule 144.
The Company's executive officers and directors and certain shareholders of
the Company (including the Selling Shareholders), who own an aggregate of
shares of Common Stock (including shares to be sold in the
Offering), and the Company have agreed that they will not, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition any shares of Common Stock or other capital stock or
any securities convertible into or exercisable or exchangeable for, or any
rights to purchase or acquire any shares of Common Stock or other capital stock
of the Company for a period of 180 days after the date of this Prospectus
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, except for options granted pursuant to the Company's
existing stock option programs. Prudential Securities Incorporated may, in its
sole discretion, at
49
<PAGE> 52
any time and without notice, release all or any portion of the shares of Common
Stock subject to such agreements. Sales of substantial amounts of Common Stock
in the public market, or the perception that such sales could occur, could
adversely affect the prevailing market price for the Common Stock and could
impair the Company's ability to raise capital through a public offering of
equity securities.
Under various agreements, holders of approximately shares of Common
Stock, or share equivalents, have registration rights regarding those shares,
shares of which are offered hereby by the Selling Shareholders. Holders
of approximately shares of Common Stock have the right to demand that the
Company register for offer and sale their shares of Common Stock under the
Securities Act at certain times. In addition, the holders of shares
(which excludes the shares of stock to be sold by the Selling
Shareholders in the Offering) may require the Company to use its best efforts to
include those shares in any registration statement filed by the Company in
connection with a sale of Common Stock to the public. Under each of the
agreements setting forth these "piggyback" rights, however, the managing
underwriter of the public offering may limit the number of shares that will be
included in the registration statement. All of these piggyback registration
rights have been waived in connection with the Offering.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
prevailing market price for the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
Company's future ability to raise capital through an offering of equity
securities.
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated is acting as representative (the "Representative"), have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock set forth opposite their
respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ----------
<S> <C>
Prudential Securities Incorporated..........................
----------
Total............................................. 12,000,000
==========
</TABLE>
The Company and the Selling Shareholders are obligated to sell, and the
Underwriters are obligated to purchase, all the shares of Common Stock offered
hereby, if any are purchased.
The Underwriters, through their Representative, have advised the Company
and the Selling Shareholders that they propose to offer the shares of Common
Stock initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession of
$ per share; and that such dealers may reallow a concession of
$ per share to certain other dealers. After the public offering, the
public offering price and the concessions may be changed by the Representative.
The Company has granted the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
1,800,000 additional shares of Common Stock at the public offering price, less
underwriting discounts and commissions, as set forth on the cover page of this
Prospectus. The Underwriters may exercise such option solely for the purpose of
covering over-allotments incurred in the sale
50
<PAGE> 53
of the shares of Common Stock offered hereby. To the extent such option to
purchase is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares as the number set forth next to such Underwriter's name in the
preceding table bears to 12,000,000.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
The Company, its executive officers and directors and certain shareholders
of the Company who own an aggregate of shares of Common Stock have agreed
not to, directly or indirectly, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract of sale, pledge, grant of any option to
purchase or other sale or disposition) of any shares of Common Stock or other
capital stock of the Company or any securities convertible into, or exercisable
or exchangeable for, any shares of Common Stock or other capital stock of the
Company or any right to purchase or acquire Common Stock or other capital stock
of the Company for a period of 180 days after the date of this Prospectus
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, except for options granted pursuant to the Company's
existing stock option plans. Prudential Securities Incorporated may, in its sole
discretion, at any time and without prior notice release all shares or any
portion thereof subject to such agreements.
In connection with the Offering, certain Underwriters and selling group
members (if any) who are qualified registered market makers on the Nasdaq
Small-Cap Market may engage in passive market making transactions in the Common
Stock on the Nasdaq Small-Cap Market in accordance with Rule 103 under
Regulation M under the Exchange Act during the business day prior to the pricing
of the Offering before the commencement of offers and sales of Common Stock.
Passive market makers must comply with applicable volume and price limitations
and must be identified as such. In general, a passive market maker must display
its bid at a price in excess of the highest independent bid for such security;
if all independent bids are lowered below the passive market maker's bid,
however, such bid must then be lowered when certain purchase limits are
exceeded.
In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Shareholder, and
in such case may purchase Common Stock in the open market following completion
of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
1,800,000 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, Prudential Securities Incorporated, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or any selling group member participating in the Offering) for the account of
the other Underwriters, the selling concession with respect to Common Stock that
is distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph are required and, if they are
undertaken, then they may be discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby are being passed upon for the Company by Hughes & Luce,
L.L.P., Austin, Texas. Troop Meisinger Steuber & Pasich, LLP, Los Angeles,
California has acted as counsel for the Underwriters in connection with certain
legal matters relating to the Offering.
51
<PAGE> 54
EXPERTS
The consolidated financial statements of the Company as of March 31, 1996
and 1997, and for each of the years in the three-year period ended March 31,
1997 have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, registration statements, proxy
statements, and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York
10048. Copies of such materials can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy statements, information statements and other information regarding the
Company. The Commission's Web site address is http://www.sec.gov.
The Company furnishes its shareholders with annual reports containing
audited financial statements and such other periodic reports as it determines to
furnish or as may be required by law.
The Company has filed with the Commission a Registration Statement on Form
S-2 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the Common Stock offered hereby. As used
herein, the term "Registration Statement" means the initial Registration
Statement and any and all amendments thereto. This Prospectus omits certain
information contained in said Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements herein
concerning the contents of any contract or other document are not necessarily
complete and in each instance reference is made to such contract or other
document filed with the Commission as an exhibit to the Registration Statement,
or otherwise, each such statement being qualified by and subject to such
reference in all respects.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which the Company previously filed with the
Commission pursuant to the Exchange Act (File No. 0-18663), are incorporated and
made a part of this Prospectus by reference: the Company's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1997, as amended by a Form 10-KSB/A,
Amendment No. 1, and the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997.
Any statement or information contained in a document incorporated or deemed
to be incorporated herein by reference shall be deemed modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that is incorporated by reference in this Prospectus (other than
exhibits and schedules to such documents, unless such exhibits or schedules are
specifically incorporated by reference into such documents). Such a request
should be directed to Neil R. Austrian, Jr. at the principal executive offices
of the Company which are located at 327 Congress Avenue, Suite 200, Austin,
Texas 78701, or if by telephone, (512) 476-2995.
52
<PAGE> 55
TESCORP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1996 and 1997,
and June 30, 1997 (unaudited)............................. F-3
Consolidated Statements of Operations for the fiscal years
ended March 31, 1995, 1996 and 1997, and for the three
months ended June 30, 1996 and 1997 (unaudited)........... F-4
Consolidated Statements of Stockholders' Equity for the
fiscal years ended March 31, 1995, 1996 and 1997, and for
the three months ended June 30, 1997 (unaudited).......... F-5
Consolidated Statements of Cash Flows for the fiscal years
ended March 31, 1995, 1996 and 1997, and for the three
months ended June 30, 1996 and 1997 (unaudited)........... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Tescorp, Inc.:
We have audited the accompanying consolidated balance sheets of Tescorp,
Inc. and subsidiaries as of March 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tescorp,
Inc. and subsidiaries as of March 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Austin, Texas
June 3, 1997
F-2
<PAGE> 57
TESCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1997, AND JUNE 30, 1997 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------- JUNE 30,
1996 1997 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents.......................... $ 8,529,100 $ 1,623,375 $ 796,508
Accounts receivable-subscribers, net............... 1,596,676 2,208,417 2,265,348
Prepaid expenses and other assets.................. 2,036,461 1,306,904 1,137,539
Plant and equipment, net........................... 7,132,938 11,639,281 11,344,331
Franchise costs, net of amortization............... 24,949,470 32,848,985 32,456,905
------------ ------------ ------------
Total assets............................. $ 44,244,645 $ 49,626,962 $ 48,000,631
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................... $ 1,311,578 $ 1,435,522 $ 1,687,413
Accrued license and copyright fees................. 1,718,450 1,795,300 1,693,619
Income taxes payable............................... 461,140 1,384,833 1,540,684
Accrued payroll and social charges................. 422,734 738,476 742,824
Accrued taxes...................................... 502,612 273,020 213,701
Other liabilities.................................. 938,821 2,229,614 1,846,017
Debt............................................... 447,651 7,262,237 7,226,842
------------ ------------ ------------
Total liabilities........................ 5,802,986 15,119,002 14,951,100
------------ ------------ ------------
Minority Interest.................................. 1,018,702 887,303 871,713
------------ ------------ ------------
Stockholders' Equity:
Preferred stock, $1 par value, 5,000,000 shares
authorized:
Series 1990 Convertible preferred stock, $5
redemption value per share, 704,684 shares
authorized and 693,864 shares issued and
outstanding with an aggregate preference on
liquidation of $3,469,320..................... 693,864 693,864 693,864
Series 1995 Convertible preferred stock, $100
redemption value per share, 200,000 shares
authorized and 148,500, 139,250 and 139,250
shares outstanding at March 31, 1996 and 1997,
and June 30, 1997 respectively, with an
aggregate preference on liquidation of
$14,850,000, $13,925,000 and $13,925,000
respectively.................................. 148,500 139,250 139,250
Common stock, $.02 par value, 50,000,000 shares
authorized and 12,495,091, 13,178,007 and
13,189,785 issued and outstanding at March 31,
1996 and 1997, and June 30, 1997
respectively.................................. 249,902 263,560 263,796
Additional paid-in capital....................... 65,359,628 66,508,484 66,552,931
Accumulated deficit.............................. (28,959,437) (33,984,501) (35,472,023)
------------ ------------ ------------
37,492,457 33,620,657 32,177,818
Less treasury stock, 100,000 shares of common, at
cost.......................................... (69,500) -- --
------------ ------------ ------------
Total stockholders' equity............... 37,422,957 33,620,657 32,177,818
Commitments and contingencies...................... -- -- --
------------ ------------ ------------
Total liabilities and stockholders'
equity................................. $ 44,244,645 $ 49,626,962 $ 48,000,631
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 58
TESCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997, AND FOR THE
THREE MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................... $ -- $16,009,116 $22,580,466 $5,401,912 $ 7,128,763
Operating costs and expenses:
Operating costs...................... -- 11,432,377 16,263,772 3,915,365 5,202,358
General and administrative
expenses.......................... 1,468,118 3,062,005 3,691,258 878,453 861,780
Depreciation......................... 11,921 1,909,646 3,603,230 805,515 1,330,078
Amortization of franchise costs...... -- 1,075,379 1,413,654 332,720 443,596
----------- ----------- ----------- ---------- -----------
Total operating costs and
expenses................... 1,480,039 17,479,407 24,971,914 5,593,053 7,837,812
----------- ----------- ----------- ---------- -----------
Operating loss......................... (1,480,039) (1,470,291) (2,391,448) (530,141) (709,049)
----------- ----------- ----------- ---------- -----------
Other income (expense):
Interest income...................... 1,000,571 322,135 215,761 87,545 2,258
Other income......................... 126,597 103,030 38,394 6,748 3,019
Interest expense..................... (2,775) (355,879) (346,100) (38,798) (319,874)
----------- ----------- ----------- ---------- -----------
Total other income (expense),
net........................ 1,124,393 69,286 (91,945) 55,495 (314,597)
----------- ----------- ----------- ---------- -----------
Loss from continuing operations before
provision for income taxes........... (355,646) (1,401,005) (2,483,393) (474,646) (1,023,646)
Income tax expense..................... -- 117,602 898,551 113,363 114,232
----------- ----------- ----------- ---------- -----------
Loss from continuing operations........ (355,646) (1,518,607) (3,381,944) (588,009) (1,137,878)
Discontinued operations (see Note 13):
Income from discontinued operations
(net of income tax expense of
$177,000 in 1995)................. 584,692 -- -- -- --
----------- ----------- ----------- ---------- -----------
Income (loss) before minority
interest............................. 229,046 (1,518,607) (3,381,944) (588,009) (1,137,878)
Minority interest in the (income) loss
of consolidated subsidiaries......... -- 23,310 (115) 14,296 15,590
----------- ----------- ----------- ---------- -----------
Net income (loss)...................... 229,046 (1,495,297) (3,382,059) (573,713) (1,122,288)
Preferred stock dividends.............. (346,936) (636,436) (1,495,060) (383,734) (365,234)
----------- ----------- ----------- ---------- -----------
Net loss applicable to common stock.... $ (117,890) $(2,131,733) $(4,877,119) $ (957,447) $(1,487,522)
=========== =========== =========== ========== ===========
Net income (loss) per share applicable
to common stock:
Loss from continuing operations...... $ (0.10) $ (0.19) $ (0.38) $ (0.08) $ (0.12)
Income from discontinued
operations........................ 0.08 -- -- -- --
----------- ----------- ----------- ---------- -----------
Loss per share applicable to common
stock................................ $ (0.02) $ (0.19) $ (0.38) $ (0.08) $ (0.12)
=========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 59
TESCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1995, 1996 AND 1997, AND THE THREE MONTHS ENDED JUNE 30,
1997 (UNAUDITED)
<TABLE>
<CAPTION>
SERIES 1990 SERIES 1995
CONVERTIBLE CONVERTIBLE COMMON STOCK
PREFERRED STOCK PREFERRED STOCK PAR VALUE $.02 ADDITIONAL
------------------- ------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------- -------- ------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1994................. 693,864 $693,864 -- $ -- 7,096,715 $141,934 $41,264,928
Net income...............................
Exercise of warrants and other........... 50,718 1,015 5,072
Dividends on convertible preferred
stock..................................
------- -------- ------- -------- ---------- -------- -----------
Balances at March 31, 1995................. 693,864 $693,864 -- $ -- 7,147,433 $142,949 $41,270,000
Net loss.................................
Private placement of Series 1995
preferred stock........................ 148,500 148,500 13,850,018
Private placement of common stock........ 4,800,000 96,000 8,596,992
Conversion of minority interests......... 534,616 10,692 1,593,156
Dividends in the form of common stock to
holders of the Series 1995 preferred
stock making such election............. 13,042 261 49,462
Dividends on convertible preferred
stock..................................
------- -------- ------- -------- ---------- -------- -----------
Balances at March 31, 1996................. 693,864 $693,864 148,500 $148,500 12,495,091 $249,902 $65,359,628
Net loss.................................
Exercise of stock purchase warrants...... 434,102 8,682 681,604
Issuance of common stock and warrants for
debt placement fee....................... 22,500 450 273,599
Dividends in the form of common stock to
holders of the Series 1995 preferred
stock making such election............... 51,881 1,037 190,323
Dividends on convertible preferred
stock..................................
Conversion of preferred stock............ (9,250) (9,250) 296,000 5,920 3,330
Repurchase and retirement of common
stock.................................. (21,567) (431)
Retirement of treasury stock............... (100,000) (2,000)
------- -------- ------- -------- ---------- -------- -----------
Balances at March 31, 1997................. 693,864 $693,864 139,250 $139,250 13,178,007 $263,560 $66,508,484
Net loss (unaudited).......................
Dividends in the form of common stock to
holders of the Series 1995 preferred
stock making such election (unaudited)... 11,778 236 44,447
Dividends on convertible preferred stock
(unaudited)..............................
------- -------- ------- -------- ---------- -------- -----------
Balances, at June 30, 1997 (unaudited)..... 693,864 $693,864 139,250 $139,250 13,189,785 $263,796 $66,552,931
======= ======== ======= ======== ========== ======== ===========
<CAPTION>
TOTAL
ACCUMULATED TREASURY STOCKHOLDERS'
DEFICIT STOCK EQUITY
------------ -------- -------------
<S> <C> <C> <C>
Balances at March 31, 1994................. $(26,709,814) $(69,500) $ 15,321,412
Net income............................... 229,046 229,046
Exercise of warrants and other........... 6,087
Dividends on convertible preferred
stock.................................. (346,936) (346,936)
------------ -------- ------------
Balances at March 31, 1995................. $(26,827,704) $(69,500) $ 15,209,609
Net loss................................. (1,495,297) (1,495,297)
Private placement of Series 1995
preferred stock........................ 13,998,518
Private placement of common stock........ 8,692,992
Conversion of minority interests......... 1,603,848
Dividends in the form of common stock to
holders of the Series 1995 preferred
stock making such election............. 49,723
Dividends on convertible preferred
stock.................................. (636,436) (636,436)
------------ -------- ------------
Balances at March 31, 1996................. $(28,959,437) $(69,500) $ 37,422,957
Net loss................................. (3,382,059) (3,382,059)
Exercise of stock purchase warrants...... 690,286
Issuance of common stock and warrants for
debt placement fee....................... 274,049
Dividends in the form of common stock to
holders of the Series 1995 preferred
stock making such election............... 191,360
Dividends on convertible preferred
stock.................................. (1,495,060) (1,495,060)
Conversion of preferred stock............ --
Repurchase and retirement of common
stock.................................. (80,445) (80,876)
Retirement of treasury stock............... (67,500) 69,500 --
------------ -------- ------------
Balances at March 31, 1997................. $(33,984,501) $ -- $ 33,620,657
Net loss (unaudited)....................... (1,122,288) (1,122,288)
Dividends in the form of common stock to
holders of the Series 1995 preferred
stock making such election (unaudited)... 44,683
Dividends on convertible preferred stock
(unaudited).............................. (365,234) (365,234)
------------ -------- ------------
Balances, at June 30, 1997 (unaudited)..... $(35,472,023) $ -- $ 32,177,818
============ ======== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 60
TESCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997, AND FOR THE THREE MONTHS
ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------------------------ -------------------------
1995 1996 1997 1996 1996
------------ ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 229,046 $ (1,495,297) $ (3,382,059) $ (573,713) $(1,122,288)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Income from discontinued operations............ (584,692) -- -- -- --
Depreciation expense........................... 11,921 1,909,646 3,603,230 805,515 1,330,078
Amortization of franchise costs................ -- 1,075,379 1,413,654 332,720 443,596
Amortization of debt issuance costs and debt
discount..................................... -- 137,670 38,778 -- 45,800
Deferred income tax expense.................... (18,000) (293,320) (30,141) (33,740) (41,295)
Minority interest in the income (loss) of
consolidated subsidiaries.................... -- (23,310) 115 (14,296) (15,590)
Changes in operating assets and liabilities
excluding effects of acquired businesses:
Accounts receivable from subscribers........... -- (397,682) (27,898) (183,575) (56,931)
Prepaid expenses and other assets.............. 260,592 (1,222,598) 961,080 440,939 108,334
Accounts payable............................... 37,889 110,903 (298,534) (185,291) 251,891
Accrued expenses and other liabilities......... (32,362) 655,074 1,501,091 (21,444) (343,103)
------------ ------------ ------------ ----------- -----------
Net cash provided by (used in) operating
activities............................... (95,606) 456,465 3,779,316 567,115 600,492
------------ ------------ ------------ ----------- -----------
Cash flows from investing activities:
Proceeds from the sale of fixed assets........... -- 182,471 -- -- --
Property additions............................... (134,705) (2,136,022) (2,713,903) (454,030) (1,035,128)
Proceeds from the maturity of short term
investments.................................... 5,175,594 -- -- -- --
Proceeds from note received on sale of
discontinued operations........................ 3,000,000 -- -- -- --
Proceeds from principal repayment on mortgage
receivable..................................... 16,483 26,037 11,226 2,655 15,231
Acquisition of cable television systems, net of
cash acquired.................................. (12,200,225) (11,854,415) (13,967,834) (1,831,930) (51,516)
------------ ------------ ------------ ----------- -----------
Net cash used in investing activities...... (4,142,853) (13,781,929) (16,670,511) (2,283,305) (1,071,413)
------------ ------------ ------------ ----------- -----------
Cash flows from financing activities:
Issuance of debt................................. -- -- 7,087,592 -- --
Principal payments on debt....................... (73,128) (2,944,659) (273,006) (85,033) (35,395)
Decrease in cash overdraft....................... -- (84,138) -- -- --
Dividends paid on preferred stock................ (346,936) (586,713) (1,303,700) (332,745) (320,551)
Distribution to minority shareholder of
subsidiary..................................... -- -- (215,702) -- --
Private placement proceeds, net of issuance
costs.......................................... -- 22,691,510 -- -- --
Exercise of warrants............................. 6,087 -- 690,286 490,286 --
------------ ------------ ------------ ----------- -----------
Net cash provided by (used in) financing
activities............................... (413,977) 19,076,000 5,985,470 72,508 (355,946)
Net cash provided by discontinued operations....... 1,283,417 -- -- -- --
------------ ------------ ------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents...................................... (3,369,019) 5,750,536 (6,905,725) (1,643,682) (826,867)
Cash and cash equivalents at beginning of period... 6,147,583 2,778,564 8,529,100 8,529,100 1,623,375
------------ ------------ ------------ ----------- -----------
Cash and cash equivalents at end of period......... $ 2,778,564 $ 8,529,100 $ 1,623,375 $ 6,885,418 $ 796,508
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 61
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1996 AND 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND PRINCIPLES OF CONSOLIDATION
Tescorp, Inc. ("Tescorp") is a Texas corporation that was organized in
1980. The accompanying consolidated financial statements include the accounts of
Tescorp, its subsidiaries and companies in which it holds majority joint venture
interests (referred to herein collectively as the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company is engaged in the business of acquiring and developing cable
television systems and communications properties in Latin America. During the
fiscal years ended March 31, 1996 and 1997, the Company continued to concentrate
its operations in Argentina. The Company presently provides cable television
service to eleven Argentine cities in six provinces. Prior to March 31, 1995,
the Company did not consolidate the financial results of the operations in
Argentina because the requirements for consolidation, as set forth in Statement
No. 94 of the Financial Accounting Standards Board, had not been met. The
Company consolidated the statement of income for these operations for periods
beginning after March 31, 1995.
Effective as of April 1994, the Company entered into a contractual Joint
Venture (the "Joint Venture") to acquire cable television and communications
properties in Latin America. The Company utilized the Joint Venture structure to
comply with Argentine regulatory policies in effect prior to March 31, 1995. The
Company organized two new subsidiaries to facilitate the Company's participation
in the Joint Venture: Austral Communications Corp. ("Austral"), a Delaware
corporation which is a wholly owned subsidiary of the Company, and
Comunicaciones Austral S.A. ("CASA"), an Argentine Sociedad Anonima which is a
97 percent owned subsidiary of Austral. Additionally, the Company and its
Argentine partners in the Joint Venture (the "Joint Venture Partners") organized
two new Argentine Sociedades Anonimas both of which are 97 percent owned by
Austral: Cabledifusion S.A. ("Cabledifusion") and SMR S.A. ("SMR"). Hereinafter,
Cabledifusion, SMR and CASA are collectively referred to as the Argentine Joint
Venture Companies. The Joint Venture Partners hold the remaining 3% ownership of
the Argentine Joint Venture Companies.
The Joint Venture is managed by CASA as Managing Venturer. Cabledifusion is
responsible for the management of the cable television systems in Argentina.
SMR, which was originally organized to pursue licenses to own and operate
businesses deploying Enhanced Specialized Mobile Radio and/or related
technologies in Argentina, and CASA hold direct ownership interests in certain
Argentine cable companies.
During the time period from April 1, 1994 through March 31, 1996, the Joint
Venture Partners acquired pursuant to the Joint Venture the following Argentine
companies which own and operate cable television systems in Argentina:
Televisora Austral S.A. ("Televisora Austral"), CableMax S.A. ("CableMax") which
was formerly known as Canal 2 TV Austral S.A., ARTV S.A. ("ARTV") which was
formerly known as Reconquista Televisora Color S.A., Avellaneda Video Cable S.A.
("AVC") which was merged into ARTV in December 1996, Cable Vision Gallegos S.A.
("CVG"), BTC S.A. ("BTC") which was formerly known as Teveca S.R.L., CablePlus
Bariloche S.A. ("CablePlus"), and SIR TV S.R.L. ("SIR TV").
In fiscal 1997, Televisora Austral acquired all of the outstanding equity
of TV Nieve, S.A. ("TV Nieve"), a company which provides MMDS television service
in the city of Ushuaia, Tierra del Fuego Province. Additionally, the Company and
the Joint Venture Partners formed Transcable, S.A. ("Transcable") to own and
operate cable television systems in Argentina. Transcable is effectively 97
percent owned by the Company. During fiscal 1997: Transcable acquired
substantially all of the assets of a cable television system in Rawson, Chubut
Province and certain cable television assets of Comodoro Rivadavia Sociedad
Comercial Colectiva de Television y Radiofusion ("Comodoro") which operated a
cable television system located in Comodoro Rivadavia, Chubut Province; ARTV
acquired substantially all of the assets of TV SIS, S.R.L. ("TV SIS") which
operated a competing cable television system in Reconquista and Avellaneda,
Santa Fe
F-7
<PAGE> 62
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Province; CASA acquired all of the equity interests in Cable Viedma S.R.L.
("Cable Viedma") and Televiedma, S.R.L. ("Televiedma") which operate cable
television systems in Viedma, Rio Negro Province and Carmen de Patagones, Buenos
Aires Province; and BTC acquired Vision Codificada S.A. ("Vision") a company
which operates a UHF wireless system in San Carlos de Bariloche, Rio Negro
Province (the same city in which BTC provides cable television service). (See
Note 3).
Hereinafter, the companies operating cable television systems in the
locations listed below are referred to as the Argentine Cable Companies.
<TABLE>
<CAPTION>
NAME OF COMPANY LOCATION (CITY -- PROVINCE)
--------------- ---------------------------
<S> <C>
Televisora Austral/TV
Nieve...................... Ushuaia -- Tierra del Fuego
CableMax/CVG................. Rio Gallegos -- Santa Cruz
ARTV......................... Reconquista -- Santa Fe
Avellaneda -- Santa Fe
BTC/CablePlus/Vision......... San Carlos de Bariloche -- Rio Negro
SIR TV....................... Trelew, Rawson and Puerto Madryn -- Chubut
Transcable................... Rawson -- Chubut
Comodoro Rivadavia -- Chubut
Cable Viedma/Televiedma...... Carmen de Patagones -- Buenos Aires
Viedma -- Rio Negro
</TABLE>
Acquisitions of cable television properties prior to December 31, 1995 were
funded by the Company through loans (the "Partner Loans") to the Joint Venture
Partners. Historically, the ownership of Cabledifusion, SMR and the Argentine
Cable Companies was held subject to the Joint Venture by the Joint Venture
Partners or nominees of the Company. After December 31, 1995, acquisitions of
cable television properties were funded by the Company through loans to the
Argentine Joint Venture Companies or the Argentine Cable Companies. Amounts
advanced under these loans and the Partner Loans bear interest at the rate of
12% per annum. In addition to acquisitions, these funds provided for the payment
of the debts of and capital improvements to the operations of the Argentine
Cable Companies and provided financing for the formation and initial costs of
the Argentine Joint Venture Companies. During the three year period ended March
31, 1997, the Company had advanced to the Joint Venture Partners, the Argentine
Joint Venture Companies and the Argentine Cable Companies an aggregate of
approximately $38.9 million and earned the right to a preferred return equal to
the accrued interest in the amount of approximately $6.8 million (together, the
"Priority Amount").
Upon commencement of the Joint Venture, the Company held through Austral a
90 percent Joint Venture interest in the Argentine Cable Companies,
Cabledifusion and SMR. The Company granted to two domestic partners an aggregate
6.6 percent profits interest in its portion of the Joint Venture after the
Company has received distributions equal to the Priority Amount. Thus, the
Company initially held an indirect 84 percent interest in the economic benefits
of the Argentine Cable Companies and Argentine Joint Venture Companies which
were obligated to repay the Partner Loans plus accrued interest. The effect of
this arrangement was to provide the Company with an opportunity to recoup all
funds invested through the repayment of the principal of the loans, a return
equal to the interest accrued and paid on the loans and 84 percent of all
remaining economic benefits associated with the Argentine Cable Companies and
Argentine Joint Venture Companies.
In fiscal 1996, the Company increased to 97 percent its Joint Venture
interest in the Argentine Cable Companies, Cabledifusion and SMR and modified
the terms of the profits interest agreements to provide only one domestic
partner with an approximate 1% participation in the Joint Venture after
distributions to the Company equal to the Priority Amount. To effect these
changes in ownership, the Company issued 534,616 shares of newly issued common
stock and 3 percent of the stock of CASA. Following the recovery of
F-8
<PAGE> 63
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
its investment plus a 12% return, the Company will have a 96 percent interest in
all remaining economic benefits associated with the Argentine Joint Venture
Companies and the Joint Venture's interest in the Argentine Cable Companies.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of June 30, 1996 and 1997,
and for the three months ended June 30, 1996 and 1997, are unaudited, and
certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been omitted. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
consolidated financial statements have been included. The results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers cash equivalents to include time deposits, certificates of deposit and
highly liquid debt instruments with original maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at discrete points in time based on relevant
market information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision.
The Company believes that the carrying amounts of its current assets,
current liabilities and debt approximate the fair value of such items.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts totaled $446,831 and $421,178 at March
31, 1996 and 1997, respectively.
PLANT AND EQUIPMENT
Plant and equipment are stated at historical cost, including acquisition
costs allocated to tangible assets acquired. Improvements or betterments of a
permanent nature are capitalized.
Depreciation is computed using the straight-line method over the estimated
useful life of the asset, ranging from 5 to 20 years.
Expenditures for maintenance and repairs are charged to earnings as
incurred. The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts in the year of
disposal. Gains or losses resulting from property disposals are credited or
charged to operations.
FRANCHISE COSTS
Franchise costs consist of the value of the license to own and operate the
cable television system and the value of the cable television subscribers that
existed as of the acquisition date. Franchise costs include the difference
between the cost of acquiring cable television systems and amounts assigned to
their tangible assets. The amounts assigned to tangible assets were determined
based upon an appraisal of such assets conducted by an independent, third party
engineer with expertise in the cable television and communications industries.
The franchise costs are amortized on a straight-line basis over their estimated
life, not to exceed 20 years.
F-9
<PAGE> 64
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-lived Assets to Be Disposed Of ("FAS 121"), effective for fiscal years
beginning after December 15, 1995. FAS 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles (including
but not limited to goodwill) related to those assets to be held and used in its
operations. The Company adopted this policy effective April 1, 1996. Such
adoption did not have a significant effect on the financial position or results
of operations of the Company.
It is the Company's policy to periodically evaluate the franchise costs to
determine whether there has been any impairment in value in accordance with FAS
121. This evaluation includes, among other things, a review of the fair market,
going concern value of the cable television systems and the value of the
tangible and intangible assets of such systems.
Fair market, going concern value is usually estimated by applying the cash
flow multiple or price per subscriber valuation methods commonly used in the
cable television industry. The valuation method is applied based upon the type
and amount of information available regarding the sale of comparable cable
television companies owned by independent third parties. Using the cash flow
method, the Company determines the fair market, going concern value of its cable
television companies by calculating the product of the aggregate amount of
undiscounted cash flow provided by the operations of the cable television
systems and the estimated average multiple of cash flow paid by independent
third parties for cable television systems which are comparable to those in
which the Company has an ownership interest. Using the price per subscriber
method, the Company determines the fair market, going concern value of the cable
television companies by calculating the product of the number of subscribers
served by the cable television systems which are comparable to those in which
the Company has ownership interests.
Franchise costs are net of accumulated amortization in the amount of
$1,075,378 and $2,489,033 at March 31, 1996 and 1997, respectively.
MINORITY INTERESTS
Recognition of minority interests' share of income or loss of consolidated
subsidiaries is limited to the amount of such minority interests' allocable
portion of the common equity of those consolidated subsidiaries.
REVENUE RECOGNITION
Monthly cable service revenue is recognized in the period in which services
are provided. Cable installation revenue is recognized in the period the related
services are provided to the extent of direct selling costs. Any remaining
amount is deferred and recognized over the average period that subscribers are
expected to remain connected to the cable television system.
INCOME TAXES
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Loss attributable to common shareholders was calculated by dividing net
loss applicable to common stock (this is calculated by deducting preferred stock
dividends from net loss) by the weighted average number of common shares
outstanding. Common stock equivalents were not used in the calculation, since
their inclusion
F-10
<PAGE> 65
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
would cause an anti-dilutive effect. Fully diluted earnings per share amounts
are not presented for fiscal 1995, 1996 or 1997 because they do not materially
differ from primary earnings per share.
For the fiscal years ending March 31, 1995, 1996 and 1997, the weighted
average number of common shares outstanding was 7,111,712; 11,573,696 and
12,880,261, respectively. The weighted number of common stock and common stock
equivalent shares for the fiscal years ending March 31, 1995, 1996 and 1997 was
7,361,765; 12,126,385 and 13,498,815, respectively.
FOREIGN CURRENCY TRANSLATION
Foreign currency assets and liabilities are translated into U. S. dollars
at current rates in effect at the balance sheet date. Since April 1991, the
Argentine government has maintained an exchange rate of one Argentine peso to
one U.S. dollar, therefore there are no recognized transaction gains or losses.
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 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal year 1995 and 1996
amounts to conform to the fiscal year 1997 presentation.
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock Based Compensation" ("FAS 123"), which
establishes financial accounting and reporting standards for stock-based
employee compensation plans as well as transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees. As
allowed by FAS 123, the Company continues to account for stock-based employee
compensation pursuant to APB Opinion No. 25. The Company has included the
disclosures required by FAS 123 in Note 9. The adoption of this standard, in the
opinion of management, did not have a material impact on the Company's results
of operations, financial position or cash flows.
F-11
<PAGE> 66
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUPPLEMENTAL CASH FLOW INFORMATION
During the fiscal years ended March 31 and the three months ended June 30,
1996 and 1997 (unaudited), the Company had the following significant non-cash
investing and financing activities:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
---------------------------------- -------------------------
1995 1996 1997 1996 1997
---------- ---------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Issuance of common stock and warrants as
a placement fee for debt.............. $ -- $ -- $274,049 $ -- $ --
Distribution of common stock to holders
of Series 1995 preferred stock
electing to receive dividends in the
form of common stock.................. $ -- $ 49,723 $191,360 $50,989 $44,683
Acquisition of Company's common stock in
satisfaction of an outstanding
obligation............................ $ -- $ -- $ 80,876 $80,876 $ --
Granting of minority interest to joint
venture partners...................... $1,230,054 $1,207,412 $ -- $ -- $ --
Common stock issued for conversion of
minority interests.................... $ -- $1,603,848 $ -- $ -- $ --
</TABLE>
Cash payments for income taxes and interest for the years ended March 31
were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Income tax.......................................... $ 8,130 $ 51,547 $ 5,000
Interest expense.................................... $ 5,039 218,209 $188,532
</TABLE>
NOTE 3 -- ACQUISITIONS
1996 ACQUISITIONS
BTC/CablePlus. In July 1995, Austral committed to loan to the Joint Venture
Partners $6.6 million to acquire pursuant to the Joint Venture 80 percent of the
outstanding equity of BTC and CablePlus, the companies that provide cable
television service to San Carlos de Bariloche which is located in the Argentine
Province of Rio Negro. Using proceeds from the loan, the Joint Venture Partners
acquired the 80 percent interest in BTC and CablePlus pursuant to the Joint
Venture for approximately $6.6 million including the assumption of certain
liabilities, of which approximately $5.3 million has been identified as
franchise costs. In addition to the $6.6 million purchase price, the Joint
Venture Partners paid approximately $125,000 of closing costs. The assets of
CablePlus have been contributed to BTC and CablePlus is being liquidated.
BTC, which is the only provider of cable television service in San Carlos
de Bariloche, had competed against Vision, a local UHF which provides a service
similar to cable television. BTC acquired Vision in March 1997 (see "1997
ACQUISITIONS").
SIR TV. In December 1995, Austral committed to loan to the Joint Venture
Partners $6.7 million to acquire pursuant to the Joint Venture the outstanding
equity of SIR TV which provides cable television service to Trelew, Rawson and
Puerto Madryn, all of which are located in the Argentine Province of Chubut.
Using proceeds from the loan, the Joint Venture Partners acquired SIR TV
pursuant to the Joint Venture for approximately $6.5 million including the
assumption of certain liabilities, of which approximately $4.2 million has been
identified as franchise costs. In addition to the $6.5 million purchase price,
the Joint Venture has paid approximately $200,000 of closing costs.
The cable television markets in Trelew, Rawson and Puerto Madryn are highly
competitive, and SIR TV has multiple cable television competitors in each
market. Subsequent to the close of fiscal 1996, Transcable
F-12
<PAGE> 67
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquired substantially all of the assets of Canal 4 Rawson which had provided
cable television service in competition to SIR TV in Rawson.
1997 ACQUISITIONS
TV Nieve. On April 1, 1996, the Company agreed to transfer to Televisora,
an option (the "TV Nieve Option") to purchase for approximately $174,000 a
minority interest in the equity of TV Nieve, a company which provides MMDS
television service in the city of Ushuaia, Argentina. On the same day,
Televisora purchased the remaining majority interest in the equity of TV Nieve
for approximately $1.15 million less the outstanding balance of the TV Nieve
liabilities. Accordingly, Televisora now owns all of the outstanding equity of
TV Nieve.
The aggregate purchase price for TV Nieve was approximately $1.3 million
including the price paid for the TV Nieve Option, of which approximately
$500,000 has been identified as franchise costs. The Company advanced to
Televisora the funds necessary to consummate the acquisition of TV Nieve. In
addition to the purchase price, Televisora incurred approximately $50,000 of
closing costs relating primarily to the payment of legal and accounting fees.
Canal 4 Rawson. Transcable acquired substantially all of the assets of
Canal 4 Rawson for approximately $500,000 on May 31, 1996. Canal 4 Rawson
provides cable television service to the city of Rawson in the Chubut Province,
Argentina. The Company currently provides cable television services to the
tri-city area of Trelew, Rawson and Puerto Madryn. In addition to the purchase
price, Transcable incurred approximately $15,000 of closing costs in connection
with this transaction.
TV SIS. Effective August 30, 1996, the Company closed its purchase of
substantially all of the assets of TV SIS S.R.L. ("TV SIS"), for approximately
$1.45 million, of which approximately $925,000 has been identified as franchise
costs. The Company has paid approximately $804,000 of the aggregate purchase
price, and the balance will be paid upon the fulfillment of certain conditions
of the purchase agreement, and incurred approximately $25,000 of closing costs
in connection with this transaction
Comodoro. On December 23, 1996, Transcable acquired substantially all of
the assets of Comodoro, a company that provides cable television service to
approximately 5,000 subscribers in the Argentine city of Comodoro Rivadavia,
which is located in the Chubut Province. The purchase price was approximately
$3.5 million, of which approximately $2.62 million has been identified as
franchise costs. In addition to the purchase price, the Company incurred
approximately $50,000 of closing costs.
Televiedma. On February 11, 1997, the Company acquired the stock of
Televiedma S.R.L., a company that provides cable television service to
approximately 3,500 subscribers in the Argentine cities of Viedma, Rio Negro
Province and Carmen de Patagones, Buenos Aires Province. The purchase price was
approximately $2.2 million, subject to certain adjustments.
Cable Viedma. On February 28, 1997, the Company acquired the stock of Cable
Viedma S.R.L., a company that provides cable television service to approximately
6,000 subscribers in the Argentine cities of Viedma, Rio Negro Province and
Carmen de Patagones, Buenos Aires Province. The purchase price was approximately
$4.0 million, subject to certain adjustments. In connection with the Cable
Viedma and Televiedma acquisitions, the Company incurred approximately $120,000
of closing costs in addition to the purchase price and approximately $4.32
million has been identified as franchise costs. The acquisitions of Cable Viedma
and Televiedma were funded from the proceeds of $6.0 million of senior debt
issued by the Company in February 1997 (see Note 6). The Company plans to merge
the operations of Televiedma and Cable Viedma as both companies operate in the
same market.
Vision. In March 1997, BTC entered into an agreement to acquire 100% of the
stock of Vision Codificada, a company which operates a UHF television system in
San Carlos de Bariloche. On April 2,1997
F-13
<PAGE> 68
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
but effective March 1,1997, BTC acquired the stock of Vision for approximately
$1.2 million, of which approximately $850,000 has been identified as franchise
costs. The acquisition of Vision was financed from a loan in the amount of
approximately $1.1 million from the minority partner of BTC (see Note 6). In
addition to the purchase price, the Company incurred approximately $10,000 of
closing costs.
The 1996 Acquisitions and the 1997 Acquisitions were completed for
approximately $26.65 million less net liabilities assumed. All of the 1996
Acquisitions and 1997 Acquisitions were accounted for using the purchase method
of accounting and in all cases the sellers were not affiliated with the Company.
Accordingly, the assets and liabilities have been recorded at their estimated
fair value at the date of acquisition, which resulted in franchise costs of
approximately $18.7 million that will be amortized over a 20 year period from
the date of acquisition. The allocation of the purchase price below is, in
certain instances, based on preliminary information and is therefore subject to
revision when additional information concerning asset and liability valuations
is obtained. The determination of the final fair values of the assets and
liabilities of the 1995 acquisitions resulted in adjustments in 1996 to increase
other assets by approximately $300,000, decrease other liabilities by
approximately $600,000 and to reduce franchise cost by approximately $900,000.
In the opinion of the Company's management, the asset and liability valuation
for the purchases discussed above should not be materially different than the
allocations shown below. A summary of the purchase price allocation is as
follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Accounts receivable and other assets........................ $ 952,000 $ 847,000
Property and equipment...................................... 4,610,000 5,396,000
Franchise costs............................................. 8,420,000 9,313,000
Accounts payable and other liabilities...................... (1,573,000) (1,139,000)
Bank debt................................................... (8,000) --
Deferred income taxes....................................... (247,000) (365,000)
Minority interest........................................... (307,000) (84,000)
----------- -----------
$11,847,000 $13,968,000
=========== ===========
</TABLE>
The following unaudited condensed consolidated pro forma statements of
operations present the results of operations for the years ended March 31, 1996
and 1997, as if the 1996 Acquisitions and 1997 Acquisitions had occurred on
April 1, 1995. However, the pro forma results do not include adjustments for the
acquisition of Canal 4 Rawson, TV SIS, Comodoro and Vision, as these
acquisitions were not significant. Revenues included in the results of
operations for the year ended March 31, 1997 for these cable television systems
totaled approximately $1.2 million. Additionally, the pro forma results are not
necessarily indicative of the financial results that might have occurred had the
transaction included in the pro forma statements actually taken place on April
1, 1995, or of future results of operations.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues.................................................... $25,416,150 $26,130,251
Net loss.................................................... (2,399,490) (3,803,377)
Net loss applicable to common stock......................... (3,035,926) (5,298,437)
Loss per share applicable to common stock................... (0.26) (0.41)
</TABLE>
F-14
<PAGE> 69
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- PLANT AND EQUIPMENT
Plant and equipment at March 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Cable systems and related assets............................ $ 7,148,848 $14,616,807
Support equipment........................................... 352,974 619,235
Leasehold improvements...................................... 978,513 1,207,931
Office furniture and equipment.............................. 579,086 701,743
----------- -----------
9,059,421 17,145,716
Less: Accumulated depreciation.............................. (1,926,483) (5,506,435)
----------- -----------
$ 7,132,938 $11,639,281
=========== ===========
</TABLE>
NOTE 5 -- OTHER LIABILITIES
Other liabilities at March 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Due to sellers under the terms of purchase agreements....... $ -- $1,069,876
Net deferred tax liability.................................. 275,472 435,686
Advances from subscribers................................... 180,892 183,951
Accrued preferred stock dividends........................... 86,734 86,734
Other accrued liabilities................................... 395,723 453,367
-------- ----------
$938,821 $2,229,614
======== ==========
</TABLE>
F-15
<PAGE> 70
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- DEBT
The debt of the Company at March 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Senior notes payable to a group of investors bearing
interest at a rate of 13% per annum ("Senior Notes").
Semi-annual interest payments begin in August 1997. The
notes mature in February 1998............................. $ -- $6,000,000
Note payable to minority shareholder of a subsidiary,
bearing interest at the rate of 12% per annum, payable in
monthly installments of $50,000 plus interest............. -- 1,087,592
Note payable to an individual in monthly installments of
$2,000, increasing to $3,000 in March 1998, including
principal and imputed interest, maturing in March 2000.
Interest has been imputed at the rate of 10% per annum.... 112,875 100,724
Note payable to an individual in monthly installments of
$15,000 including principal and imputed interest, maturing
in July 1997. Interest has been imputed at the rate of 10%
per annum................................................. 259,520 73,161
Note payable to a bank, bearing interest at the rate of 16%
per annum, payable in monthly installments of $380 plus
interest and maturing in May 1997......................... 5,304 760
Note payable to a bank, bearing interest at the rate of 18%
per annum, payable in monthly installments of $965
including interest and maturing in June 1999.............. 28,337 --
Note payable to a bank, bearing interest at the rate of
17.4% per annum, payable in monthly installments of $5,000
plus interest and maturing in September 1996.............. 30,000 --
Note payable to a bank, bearing interest at the rate of
21.7% per annum, payable in monthly installments of $1,340
plus interest and maturing in December 1996............... 11,615 --
-------- ----------
$447,651 $7,262,237
======== ==========
</TABLE>
The debt of the Company is unsecured. The terms of the Senior Notes
restrict the Company from incurring any indebtedness secured by assets existing
at the date of issuance or any debt senior to the Senior Notes. Aggregate
maturities on debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
<S> <C>
March 31, 1998.............................................. $6,640,787
March 31, 1999.............................................. 566,508
March 31, 2000.............................................. 54,942
March 31, 2001.............................................. --
March 31, 2002.............................................. --
</TABLE>
F-16
<PAGE> 71
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES
Total income tax expense for the fiscal years ended March 31 consisted of
the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
United States
Current........................................ $195,000 $ 19,090 $ --
Deferred....................................... (18,000) (157,000) 175,000
-------- --------- ---------
177,000 (137,910) 175,000
-------- --------- ---------
Foreign
Current........................................ -- 391,832 928,692
Deferred....................................... -- (136,320) (205,141)
-------- --------- ---------
-- 255,512 723,551
-------- --------- ---------
Total.................................. $177,000 $ 117,602 $ 898,551
======== ========= =========
</TABLE>
The provision for income taxes for the fiscal years ended March 31, differs
from that computed at the federal statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- ---------
<S> <C> <C> <C>
Tax (benefit) computed at statutory rates........ $138,000 $ (476,000) $(904,000)
Loss of consolidated foreign subsidiaries not
subject to tax................................. 68,000 1,075,000 529,000
Differential in foreign and U.S. tax rates....... -- (58,000) (25,000)
Amortization of franchise costs.................. -- 366,000 481,000
Amortization of deferred tax credit.............. -- (55,000) (98,000)
Other non-taxable items.......................... (38,000) (178,000) 265,000
Change in the valuation allowance................ -- (544,000) 650,000
Other............................................ 9,000 (12,398) 551
-------- ---------- ---------
Total.................................. $177,000 $ 117,602 $ 898,551
======== ========== =========
</TABLE>
The components of and changes in the net deferred tax asset as of March 31,
were as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Federal regular tax operating loss carryforwards.......... $ 3,124,000 $ 3,600,000
Allowance for doubtful accounts........................... 85,000 84,000
Foreign tax credit........................................ 84,000 84,000
Alternative minimum tax................................... 35,000 35,000
Other..................................................... -- --
----------- -----------
3,328,000 3,803,000
Valuation allowance....................................... (3,153,000) (3,803,000)
Deferred tax asset........................................ 175,000 --
Deferred tax liability -- plant and equipment............. (275,472) (435,686)
----------- -----------
Net deferred tax liability...................... $ (100,472) $ (435,686)
=========== ===========
</TABLE>
At March 31, 1997, the Company had net operating loss carryforwards that
could be utilized to offset future taxable income of an estimated $10.6 million
for federal income tax purposes. These carryforwards expire in 1999 through
2012. However, as a result of a change in control in prior years as defined
under Section 382 of the Internal Revenue Code, the annual utilization of the
net operating loss carryforward is estimated to be limited to approximately $1.3
million of annual taxable income per year. During the year
F-17
<PAGE> 72
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended March 31, 1997, the valuation allowance related to the deferred tax assets
was increased by $650,000 primarily due to the realization of additional net
operating losses and other deferred tax assets that are not more likely than not
to be actually realized.
NOTE 8 -- CAPITAL STOCK
SERIES 1990 PREFERRED STOCK
Annual dividends of $0.50 per share on the Series 1990 10% Convertible
preferred stock ("1990 Preferred Stock") are payable on a quarterly basis. Each
share of 1990 Preferred Stock is convertible into shares of the Company's common
stock determined by dividing $5.00 by a conversion price of $3.99 per share.
Shares of 1990 Preferred Stock are redeemable at the option of the Company
at a price equal to $5.00 per share plus any accrued and unpaid dividends. Terms
of the 1990 Preferred Stock provide that the Company may redeem no fewer than
70,000 shares at any one time unless all outstanding shares are being redeemed.
Only one redemption per quarter is permitted and the Company is precluded from
making a partial redemption if there are fewer than 200,000 shares of 1990
Preferred Stock outstanding. Holders of 1990 Preferred Stock shares are entitled
to one vote per share on all matters for which holders of common stock may vote
(voting as a single class with the shares of common stock) and are entitled to a
liquidation preference of $5.00 per share plus any accrued or unpaid dividends.
An escrow account arrangement was created at the time of the issuance of
the 1990 Preferred Stock to provide an alternative source of funds for payment
of dividends and liquidation preferences in the event of a default by the
Company. The escrow account arrangement included cash, a $500,000 irrevocable
letter of credit, 100,000 shares of the Company's common stock, and a first lien
mortgage on certain real restate owned by the Company. Effective as of April 1,
1996, under the terms of the Escrow Agreement, the Company was able to have all
items of collateral released from the escrow.
SERIES 1995 PREFERRED STOCK
The 139,250 outstanding shares of Series 1995 8% Convertible preferred
stock ("1995 Preferred Stock") were issued in a private placement transaction
for $100 per share and carry annual dividends of $8.00 per share payable on a
quarterly basis, except that holders who have so elected may have such dividends
paid in shares of common stock. In the event of liquidation, the holders of 1995
Preferred Stock are entitled to receive $100 plus accrued and unpaid dividends
before the holders of common stock are entitled to receive any of the
liquidation proceeds. Each share of 1995 Preferred Stock is convertible into
shares of the Company's common stock by dividing $100.00 by a conversion price
of $3.125 per share, subject to certain adjustments (the "Conversion Rate").
Holders of the 1995 Preferred Stock are entitled to vote as if they had
converted into common stock. However, the 1995 Preferred Stock votes as a class
(separate from the common stockholders).
In the event that the quoted price of the common stock exceeds $4.6875,
subject to certain adjustments, for a period of twenty trading days beginning on
any trading day on or after December 15, 1998, the Company shall have the right
to compel the conversion of all but not less than all of the 1995 Preferred
Stock into common stock at the Conversion Rate. Subject in all respects to this
provision, the holders of shares of 1995 Preferred Stock shall have the right,
at their option to convert all or any part of such shares into common stock.
COMMON STOCK
In May 1995, the Company completed a $9.6 million private placement of
4,800,000 common stock at $2.00 per share. In December 1995, the Company issued
534,616 shares of common stock in connection with the conversion of the minority
interests. In February 1997, the Company issued 22,500 shares of its common
stock as a placement fee on the Senior Debt.
F-18
<PAGE> 73
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- STOCK OPTIONS AND WARRANTS
The Company accounts for its Stock Option Plans in accordance with
Accounting Principles Board ("APB") Opinion No. 25 and the related
interpretations thereof. The following paragraphs summarize the outstanding
options and warrants of the Company. Unless otherwise stated, the exercise price
was equal to or greater than the fair market price of the stock at the date of
grant.
Pursuant to the Company's 1991 Incentive Plan and upon the recommendation
of the compensation committee of the Board of Directors, the Company may grant
stock options and limited stock appreciation rights with respect to an aggregate
of 2,000,000 shares of common stock. The 1991 Incentive Plan permits the
granting of incentive stock options, non-qualified stock options, limited stock
appreciation rights ("LSARs"), restricted stock, reload options, and other
miscellaneous provisions within each stock option grant. Grants of options under
the 1991 Incentive Plan shall be for terms specified by the Committee, except
that the term shall not exceed 10 years. Provisions of the 1991 Incentive Plan
generally provide that in the event of a change of control the LSAR provision of
the option grant (if included in an option grant) would become immediately
exercisable for the period of 60 days following the change of control.
In September 1995, 50,000 options were granted at an exercise price of
$2.75 per share, and are exercisable based on a two year vesting schedule. In
December 1995, 550,000 options were granted at an exercise price of $3.00 per
share and are exercisable based on a three year vesting schedule. In March 1997,
600,000 options were granted at an exercise price of $3.5625 per share. None of
the options granted pursuant to the 1991 Incentive Plan were exercised during
fiscal 1995, 1996 and 1997. At March 31, 1997, 1,850,000 options were
outstanding, and 695,837 were exercisable with exercise prices ranging from
$1.25 to $3.00.
Pursuant to the Company's 1993 Non-Employee Director Stock Option Plan
("NEDSOP"), the Company may grant options with respect to an aggregate of
150,000 shares of common stock. The terms of the NEDSOP provide that each
non-employee director receives a grant of 8,333 options to purchase common stock
upon election or appointment to the Board of Directors. On the first and second
anniversary on the Board, the non-employee director is entitled to receive
another grant of 8,333 options to purchase common stock. Upon adoption, all
non-employee directors who had served at least 2 years on the Board received a
grant of 25,000 options to purchase common stock. A non-employee director who
had served only one year, received a grant of 16,666 options to purchase common
stock.
Additionally, pursuant to the terms of the NEDSOP, effective as of July 8,
1995 and 1996, 8,333 and 8,333 options were granted at an exercise price of
$3.25 and $3.63 per share, respectively. All of the options granted are
exercisable based on a three year vesting schedule. None of the options granted
pursuant to the NEDSOP were exercised during fiscal 1995, 1996 and 1997. At
March 31, 1997, 66,666 options were outstanding and 50,000 shares were
exercisable with exercise prices ranging from $1.21 to $3.25.
In May 1995, the Company issued stock warrants to purchase 288,000 shares
of common stock that expire in May 2000 and have an exercise price of $2.00 per
share. Also in May 1995, the Company issued stock warrants to purchase 120,000
shares of common stock that expire in May 1998. The exercise price for these
warrants is as follows: (i) 30,000 shares at $2.00; (ii) 30,000 shares at $2.50;
(iii) 30,000 shares at $3.00 and (iv) 30,000 shares at $3.50.
In December 1995, the Company issued stock warrants to purchase 178,200
shares of common stock (the "December 1995 Warrants") that expire in December
2000. The December 1995 Warrants have an exercise price of $3.125 per share.
In connection with the issuance of the Senior Notes in February 1997, the
Company issued detachable warrants to purchase 210,000 shares of common stock.
Additionally, for professional services provided in connection with the
placement of the Senior Notes, the Company issued warrants to purchase 90,000
shares of
F-19
<PAGE> 74
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock. The stock warrants have an exercise price of $4.00 per share and
expire in February 2002. In accordance with FAS No. 123, the Company calculated
the fair market value of the stock warrants issued for professional services
provided as approximately $184,000 and capitalized the cost as additional debt
issuance cost to be amortized over the term of the debt.
The Company has additional stock options outstanding which were issued
prior to the recapitalization of the Company in fiscal 1991. These stock options
were issued to certain employees to purchase shares of the Company's common
stock at $6.18 per share and expire in 1998. At March 31, 1997, a total of
24,270 options were outstanding and exercisable. In connection with the
recapitalization of the Company, the number of shares of common stock issuable
upon exercise of these options and the related exercise price have been adjusted
to reflect the exchange of $.01 par value common stock for $.02 par value common
stock.
The estimated fair values noted below are based on the Black-Scholes model
and are stated in current annualized dollars on a present value basis. The key
assumptions used in the model for purposes of these calculations include the
following: (a) a discount rate equal to the 10-year Treasury rate on the date of
grant; (b) a volatility factor; (c) the term of the option or warrant; (d) the
closing price of the respective common stock on the date of grant; and (e) an
expected dividend rate of zero. The actual value that the warrant or option
holders may realize will depend upon the extent to which the stock price exceeds
the exercise price on the date the options are exercised. Accordingly, the value
realized by such holders will not necessarily be the value determined by the
model.
A summary of Warrants and Options outstanding as of and for the fiscal
years ended March 31, is as follows:
<TABLE>
<CAPTION>
1996 1997
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE
& WARRANTS PRICE & WARRANTS PRICE
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year......... 1,647,052 $2.25 2,841,585 $2.46
Granted................................ 1,194,533 $2.74 908,333 $3.71
Exercised.............................. -- -- 434,102 $1.59
Forfeited.............................. -- -- 488,680 $4.05
--------- ----- --------- -----
Outstanding at end of year............... 2,841,585 $2.46 2,827,136 $2.72
========= =========
Options and Warrants exercisable at year
end.................................... 1,888,808 1,659,085
Weighted-average fair value of options
granted during the year................ $1.58 $2.36
</TABLE>
The following table summarizes information about fixed stock options and
stock purchase warrants outstanding at March 31,1997.
<TABLE>
<CAPTION>
OPTIONS AND WARRANTS OUTSTANDING OPTIONS AND WARRANTS
---------------------------------------- EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 3/31/97 LIFE (IN YEARS) PRICE AT 3/31/97 PRICE
- --------------- ----------- --------------- -------- ----------- --------
<C> <C> <C> <C> <C> <C>
$1.21 to $1.63 700,000 6.732 $1.2521 537,500 $1.2528
$2.00 to $2.75 398,000 3.486 $2.1319 373,000 $2.0905
$3.00 to $3.5625 1,404,866 8.297 $3.2708 424,311 $3.0895
$4.00 to $6.18 324,270 4.580 $4.1632 324,270 $4.1632
--------- ---------
$1.21 to $6.18 2,827,136 $2.7130 1,659,081 $2.4797
========= =========
</TABLE>
F-20
<PAGE> 75
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
in these financial statements. Had compensation cost since April 1, 1995 for the
Company's option and warrant grants been determined on the fair value at the
grant dates for awards under those plans consistent with the method of FAS No.
123, the Company's net loss per share for the fiscal years ended March 31 would
have been adjusted to the pro forma amounts indicated below, which may not
necessarily be indicative of pro forma adjustments in future years.
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Net loss applicable to common stock:
As reported........................................... $(2,131,733) $(4,877,119)
----------- -----------
Pro forma............................................. $(2,323,028) $(5,320,795)
----------- -----------
Earnings per share:
As reported........................................... $ (0.19) $ (0.38)
----------- -----------
Pro forma............................................. $ (0.20) $ (0.41)
----------- -----------
</TABLE>
NOTE 10 -- RELATED PARTY TRANSACTIONS
Certain expenses have been allocated to the Company for administrative and
other services provided by an entity affiliated with the Company's principal
stockholder. Such expenses totaled approximately $91,000, $130,000 and $174,000
during fiscal 1995, 1996 and 1997, respectively.
The Company currently leases office space in a six story office building in
downtown Austin. The office building has been acquired by a partnership in which
an officer of the Company serves as a trustee for a trust that is a limited
partner in the partnership.
A former employee of the Company and current member of the board of
directors was indebted to the Company in the amount of approximately $84,000
including accrued and unpaid interest. In March 1996, the Company reached an
agreement with this individual to satisfy his obligation by taking title to
21,567 shares of the outstanding common stock at a price of $3.75 per share and
cash of approximately $5,000. This transaction occurred during the first quarter
of fiscal 1997 and the Company retired the shares of common stock.
In June 1995, the Company loaned $174,000 to its Joint Venture Partners for
the purpose of acquiring an option to acquire an indirect economic interest in
the outstanding equity of TV Nieve S. A., the Company that provides MMDS service
in Ushuaia, Argentina. At March 31, 1996, the Company had not yet elected to
exercise this option to include this interest in the Joint Venture. Accordingly,
the Company included the notes receivable in the amount of $174,000 in other
assets on its balance sheet at March 31, 1996.
NOTE 11 -- OPERATING LEASES
The Company leases various buildings, equipment and office facilities under
operating leases ranging from one year to 12 years. The total minimum future
lease payments under these non-cancelable operating leases having an initial
term of one year or more are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED LEASE EXPENSE
----------------- -------------
<S> <C>
March 31, 1998.............................................. $ 554,253
March 31, 1999.............................................. 417,308
March 31, 2000.............................................. 220,196
March 31, 2001.............................................. 141,964
March 31, 2002.............................................. 122,664
Thereafter.................................................. 334,577
----------
Total............................................. $1,790,962
==========
</TABLE>
F-21
<PAGE> 76
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rental expense under operating leases for the years ended March 31,
1995, 1996 and 1997 was approximately $15,000, $270,000 and $608,000,
respectively.
NOTE 12 -- SEGMENT INFORMATION
The Company's operations by geographic area for the fiscal years ended
March 31 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Argentina................................... $ -- $16,009,116 $22,580,466
United States............................... -- -- --
----------- ----------- -----------
$ -- $16,009,116 $22,580,466
=========== =========== ===========
Operating income (loss)
Argentina................................... $ (200,855) $ 25,832 $ (545,369)
United States............................... (1,279,184) (1,496,123) (1,846,079)
----------- ----------- -----------
$(1,480,039) $(1,470,291) $(2,391,448)
=========== =========== ===========
Identifiable assets
Argentina................................... $19,953,428 $35,491,909 $48,706,226
United States............................... 3,065,016 8,752,736 920,736
----------- ----------- -----------
$23,018,444 $44,244,645 $49,626,962
=========== =========== ===========
</TABLE>
NOTE 13 -- DISCONTINUED OPERATIONS:
Effective February 9, 1994, the Company sold substantially all of the
assets of its Tescorp Seismic Products Company division and the stock of its
Reed Products, Inc. subsidiary (collectively referred to as "Tescorp Seismic")
to a wholly-owned subsidiary of Input/Output, Inc.
Effective July 8, 1993, the Company sold substantially all of the assets of
its Metserco Holdings, Inc. ("Metserco Holdings") subsidiary and the Metserco
Corporation ("Metserco") subsidiary of Holdings to a wholly-owned subsidiary of
Wheatly*TXT Corporation.
Because a sale of the assets of Tescorp Seismic, Metserco Holdings and
Metserco was consummated, the Company has reflected the results from their
operations as discontinued operations separate from the continuing operations of
the Company. Revenues and operating income by each discontinued business segment
for the fiscal year ended March 31, 1995 are as follows:
<TABLE>
<CAPTION>
OIL AND GAS
GEOPHYSICAL PRODUCTION
PRODUCTS PRODUCTS TOTAL
----------- ----------- --------
<S> <C> <C> <C>
Revenues:........................................... $690,880 $ -- $690,880
Operating profit (loss):............................ $747,264 $(69,409) $677,855
</TABLE>
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
From time to time, the Company may have contingent liabilities resulting
from claims and commitments incident to the ordinary course of business.
Management believes that the probable resolution of any such contingencies will
not materially affect the financial position or results of operations of the
Company.
The Comite Nacional de Radiodifusion ("COMFER"), an Argentine governmental
agency which is similar to the Federal Communications Commission in the United
States, licenses and regulates cable television operations in Argentina.
Effective October 20, 1994, the United States and Argentina ratified the
F-22
<PAGE> 77
TESCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Bi-Lateral Trade Agreement which provided, among other things, for the ownership
of Argentine cable television systems by companies domiciled in the United
States. Effective March 27, 1995, COMFER promulgated regulations relating to the
licensure and approval of companies domiciled in the United States to own and
operate Argentine cable television systems, and a representative of COMFER has
indicated to the Company's management that COMFER no longer will distinguish
between Argentine and U.S. applicants in the licensure process.
Based on advice it has received, management is of the opinion that U.S.
companies will be licensed to own and operate Argentine cable television
systems. To date and to the best knowledge of the management of the Company,
COMFER has formally approved or licensed two U.S. companies; however, the
Company has no assurance that COMFER will approve its licensure. Management is
currently seeking licensure of the Company or its subsidiaries with the
assistance of the Joint Venture Partners and local counsel. A decision by COMFER
to deny the licensure of the Company or its affiliated entities to own and
operate cable television systems in Argentina could have a material adverse
impact on the operations and value of the Company.
F-23
<PAGE> 78
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE SELLING SHAREHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 16
Price Range of Common Stock........... 17
Dividend Policy....................... 17
Dilution.............................. 18
Capitalization........................ 19
Selected Consolidated Financial and
Other Data.......................... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 27
Management............................ 38
Principal and Selling Shareholders.... 43
Description of Capital Stock.......... 47
Shares Eligible For Future Sale....... 49
Underwriting.......................... 50
Legal Matters......................... 51
Experts............................... 52
Available Information................. 52
Incorporation of Certain Information
by Reference........................ 52
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
12,000,000 Shares
TESCORP, INC.
Common Stock
---------------------
PROSPECTUS
---------------------
PRUDENTIAL SECURITIES INCORPORATED
, 1997
======================================================
<PAGE> 79
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the estimated expenses to be incurred in
connection with the Offering, all of which will be paid by the Company.
<TABLE>
<S> <C>
Registration fee............................................ $13,591
NASD filing fee............................................. 4,985
NASDAQ listing fee.......................................... 50,000
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving...................................... *
Transfer Agent's fees....................................... *
Blue Sky fees and expenses (including counsel fees)......... *
Miscellaneous expenses...................................... *
-------
Total............................................. $
=======
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act,
the articles of incorporation of a Texas corporation may provide that a director
of that corporation shall not be liable, or shall be liable only to the extent
provided in the articles of incorporation, to the corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that the articles of incorporation cannot provide
for the elimination or limitation of liability of a director to the extent that
the director is found liable for (1) a breach of the director's duty of loyalty
to the corporation or its shareholders, (2) an act or omission not in good faith
that constitutes a breach of duty of the director to the corporation or an act
or omission that involves intentional misconduct or a knowing violation of the
law, (3) any transaction from which the director received an improper benefit,
or (4) an act or omission for which the liability of a director is expressly
provided by an applicable statute. Article 9 of the Company's Restated Articles
of Incorporation states that a director of the Company will not be liable to the
Company or its shareholders for monetary damages to the fullest extent permitted
by any provision of the statutes of Texas that limits the liability of a
director.
In addition, Article 2.02-1 of the Texas Business Corporation Act
authorizes a Texas corporation to indemnify a person who was, is or is
threatened to be made a named defendant or respondent in a proceeding, including
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative because the person is or
was a director. The indemnification is permitted only if it is determined that
the person (1) conducted himself in good faith; (2) reasonably believed (a) in
the case of conduct in his official capacity as a director of the corporation,
that his conduct was in the corporations best interests; and (b) in all other
cases, that his conduct was at least not opposed to the corporation's best
interests; and (3) in the case of any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. A person may be indemnified under
Article 2.02-1 against judgments, penalties (including excise and similar
taxes), fines, settlements, and reasonable expenses actually incurred by the
person (including court costs and attorneys' fees), but if the person is found
liable to the corporation or is found liable on the basis that personal benefit
was improperly received by him, the indemnification is limited to reasonable
expenses actually incurred and may not be made in respect of any proceeding in
which the person has been found liable for willful or intentional misconduct in
the performance of his duty to the corporation. A corporation is obligated under
Article 2.02-1 to indemnify a director or officer against reasonable expenses
incurred by him in connection with a proceeding in which he is named defendant
or respondent because he is or was a director or officer if he has been wholly
successful, on the merits or otherwise, in the defense of the proceeding. Under
Article 2.02-1 a corporation may (i) indemnify and advance expenses to an
officer,
II-1
<PAGE> 80
employee, agent or other person who is or was serving at the request of the
corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another entity to the same extent that
it may indemnify and advance expenses to directors, (ii) indemnify and advance
expenses to directors and such other persons to such further extent, consistent
with law, as may be provided in the corporation's articles of incorporation,
bylaws, action of its board of directors, or contract or as permitted by common
law and (iii) purchase and maintain insurance or another arrangement on behalf
of directors and such other persons against any liability asserted against him
and incurred by him in such capacity or arising out of his status as such a
person. The Bylaws of the Company set forth specific provisions for
indemnification of directors, officers, agents and other persons which are
substantially identical to the provisions of Article 2.02-1 described above. The
Company maintains directors and officers insurance in the aggregate amount of
$4,000,000, with a $50,000 retention for corporate reimbursement and a $150,000
retention for securities claims defense costs, that will be effective through
August 23, 1997. The Company has applied to extend this coverage at the same
level.
ITEM 16. EXHIBITS
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----- ------------------------------------------------------------
<S> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Restated Articles of Incorporation(1)
3.2 -- Statement of Resolution Establishing and Designating the
Registrant's Series 1990 10% Convertible Preferred
Stock(1)
3.3 -- Statement of Resolution Establishing and Designating the
Registrant's Series 1995 8% Convertible Preferred
Stock(2)
3.4 -- Articles of Amendment(3)
3.5 -- Bylaws(1)
5.1 -- Opinion of Hughes & Luce, L.L.P. (to be filed by
Amendment)
10.1 -- Option Agreement between Tescorp, Inc. and John C.
Kerr(1)
10.2 -- Warrant dated July 11, 1990 issued to National City
Venture Corporation(1)
10.3 -- Warrant dated July 11, 1990 issued to Jack A. Morgan,
Jr.(1)
10.4 -- Asset Purchase Agreement among Input/Output, Inc.,
Tescorp Seismic Products, Inc. and Tescorp, Inc. dated
February 4, 1994(4)
10.5 -- Asset Purchase Agreement among Tescorp, Inc. Clif Mock
Company, Metserco Corporation, Wheatly*TXT Corp. and Mock
Holdings, Inc. dated July 8, 1993(5)
10.6 -- Tescorp, Inc. 1993 Non-Employee Directors Stock Option
Plan(6)
10.7 -- Form of Stock Option Agreements between Tescorp, Inc. and
Non-Employee Directors Stock Option Plan Participants(6)
10.8 -- Tescorp, Inc. Amended and Restated 1991 Incentive Plan(7)
10.9 -- Form of Incentive Stock Option Agreements between
Tescorp, Inc. and Tescorp, Inc. 1991 Incentive Plan
Participants(1)
10.10 -- Form of Term Loan Agreement dated December 20, 1995
between Osvaldo Rossi and Carlos Jose Saba and Austral
Communications Corp.(8)
10.11 -- Form of Subscription Agreement between Tescorp, Inc. and
certain subscribers of common stock, $0.02 par value, of
Tescorp, Inc.(9)
10.12 -- Note and Warrant Purchase Agreement(10)
10.13 -- First Amended and Restated Joint Venture Agreement dated
December 9, 1994 to be effective April 7, 1994(11)
</TABLE>
II-2
<PAGE> 81
<TABLE>
<CAPTION>
<S> <S>
10.14 -- Second Amended and Restated Joint Venture Agreement dated
February 28, 1996 to be effective as of December 31,
1995(2)
10.15 -- First Amendment to the Second Amended and Restated Joint
Venture Agreement dated February 28, 1996 to be effective
as of December 31, 1995(2)
10.16 -- Form of Stock Purchase Warrant dated as of December 21,
1995 issued to Arnhold and S. Bleichroeder, Inc. and
assigns(10)
10.17 -- Promissory Note of the Registrant dated August 6, 1997
payable to the order of the Jack R. Crosby Inter Vivos
Trust*
21.1 -- Subsidiaries*
23.1 -- Consent of Hughes & Luce, L.L.P. (contained in Exhibit
5.1)
23.2 -- Consent of Independent Auditors -- KPMG Peat Marwick LLP*
24.1 -- Powers of Attorney (contained on page II-5 of Part II)
</TABLE>
- ---------------
* Filed herewith
(1) Filed as an Exhibit to the Registrant's Form 10 dated June 27, 1990, as
amended by the Registrant's Form 8 dated July 18, 1990, and incorporated
herein by reference.
(2) Filed as an Exhibit to the Registrant's Registration Statement on Form S-3,
Registration 33-94718, and incorporated herein by reference.
(3) Filed as an Exhibit to the Annual Report of the Registrant on Form 10-KSB
for the fiscal year ended March 31, 1997, and incorporated herein by
reference.
(4) Filed as an Exhibit to the Quarterly Report of the Registrant on Form
10-QSB for the period ended December 31, 1993, and incorporated herein by
reference.
(5) Filed as an Exhibit to the Current Report of the Registrant on Form 8-K
dated July 21, 1993, and incorporated herein by reference.
(6) Filed as an Exhibit to the Annual Report of the Registrant on Form 10-KSB
for the year ended March 31, 1994, and incorporated herein by reference.
(7) Filed as an Exhibit to the Registrant's Registration Statement on Form S-8,
Registration No. 333-15565, and incorporated herein by reference.
(8) Filed as an Exhibit to the Current Report of the Registrant on Form 8-K
dated January 3, 1996, and incorporated herein by reference.
(9) Filed as an Exhibit to the Current Report of the Registrant on Form 8-K
dated May 8, 1995, and incorporated herein by reference.
(10) Filed as an Exhibit to the Registrant's Registration Statement on Form S-2,
Registration No. 33-70106, and incorporated herein by reference.
(11) Filed as an Exhibit to the Current Report of the Registrant on Form 8-K
dated July 18, 1995, and incorporated herein by reference.
(b) Financial Statement Schedules:
See Index to Financial Statement Schedules (page S-1).
Financial statement schedules other than those listed above are omitted as
not required or not applicable or because the information is included in the
Financial Statements or notes thereto.
II-3
<PAGE> 82
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the underwriting agreements, the
Company's Articles of Incorporation, Bylaws, Texas law 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
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
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.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus to provide such interim financial information.
II-4
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Austin, State of Texas, on August 12, 1997.
TESCORP, INC.
By: /s/ JACK S. GRAY, JR.
----------------------------------
Jack S. Gray, Jr.,
President and Chief Operating
Officer
Each person whose signature appears below hereby constitutes and appoints
Jack R. Crosby and Jack S. Gray, Jr., and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including posteffective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to such attorneys-in-fact and agents, and each of
the, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that the
attorneys-in-fact and agents or any of them or his or their substitutes may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933 this
Registration Statement has been signed below by the following persons on behalf
of the Registrant in the capacities indicated on August 12, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JACK R. CROSBY Chairman, Chief Executive Officer and
- ----------------------------------------------------- Director
Jack R. Crosby (Principal Executive Officer)
/s/ JACK S. GRAY, JR. President, Chief Operating Officer and
- ----------------------------------------------------- Director
Jack S. Gray, Jr.
/s/ NEIL R. AUSTRIAN, JR. Senior Vice President and Chief Financial
- ----------------------------------------------------- Officer
Neil R. Austrian, Jr. (Principal Financial Officer)
/s/ JOHN D. BECKER Controller
- ----------------------------------------------------- (Principal Accounting Officer)
John D. Becker
/s/ WINSTON J. CHURCHILL Director
- -----------------------------------------------------
Winston J. Churchill
/s/ J. KELLY ELLIOTT Director
- -----------------------------------------------------
J. Kelly Elliott
/s/ LEE A. LAHOURCADE Director
- -----------------------------------------------------
Lee A. Lahourcade
</TABLE>
II-5
<PAGE> 84
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
------- ---------------------- ------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement*
3.1 -- Restated Articles of Incorporation(1)
3.2 -- Statement of Resolution Establishing and Designating the
Registrant's Series 1990 10% Convertible Preferred
Stock(1)
3.3 -- Statement of Resolution Establishing and Designating the
Registrant's Series 1995 8% Convertible Preferred
Stock(2)
3.4 -- Articles of Amendment(3)
3.5 -- Bylaws(1)
5.1 -- Opinion of Hughes & Luce, L.L.P. (to be filed by
Amendment)
10.1 -- Option Agreement between Tescorp, Inc. and John C.
Kerr(1)
10.2 -- Warrant dated July 11, 1990 issued to National City
Venture Corporation(1)
10.3 -- Warrant dated July 11, 1990 issued to Jack A. Morgan,
Jr.(1)
10.4 -- Asset Purchase Agreement among Input/Output, Inc.,
Tescorp Seismic Products, Inc. and Tescorp, Inc. dated
February 4, 1994(4)
10.5 -- Asset Purchase Agreement among Tescorp, Inc. Clif Mock
Company, Metserco Corporation, Wheatly*TXT Corp. and Mock
Holdings, Inc. dated July 8, 1993(5)
10.6 -- Tescorp, Inc. 1993 Non-Employee Directors Stock Option
Plan(6)
10.7 -- Form of Stock Option Agreements between Tescorp, Inc. and
Non-Employee Directors Stock Option Plan Participants(6)
10.8 -- Tescorp, Inc. Amended and Restated 1991 Incentive Plan(7)
10.9 -- Form of Incentive Stock Option Agreements between
Tescorp, Inc. and Tescorp, Inc. 1991 Incentive Plan
Participants(1)
10.10 -- Form of Term Loan Agreement dated December 20, 1995
between Osvaldo Rossi and Carlos Jose Saba and Austral
Communications Corp.(8)
10.11 -- Form of Subscription Agreement between Tescorp, Inc. and
certain subscribers of common stock, $0.02 par value, of
Tescorp, Inc.(9)
10.12 -- Note and Warrant Purchase Agreement(10)
10.13 -- First Amended and Restated Joint Venture Agreement dated
December 9, 1994 to be effective April 7, 1994(11)
10.14 -- Second Amended and Restated Joint Venture Agreement dated
February 28, 1996 to be effective as of December 31,
1995(2)
10.15 -- First Amendment to the Second Amended and Restated Joint
Venture Agreement dated February 28, 1996 to be effective
as of December 31, 1995(2)
10.16 -- Form of Stock Purchase Warrant dated as of December 21,
1995 issued to Arnhold and S. Bleichroeder, Inc. and
assigns(10)
10.17 -- Promissory Note of the Registrant dated August 6, 1997
payable to the order of the Jack R. Crosby Inter Vivos
Trust*
21.1 -- Subsidiaries*
23.1 -- Consent of Hughes & Luce, L.L.P. (contained in Exhibit
5.1)
23.2 -- Consent of Independent Auditors -- KPMG Peat Marwick LLP*
24.1 -- Powers of Attorney (contained on page II-5 of Part II)
</TABLE>
- ---------------
* Filed herewith
<PAGE> 85
(1) Filed as an Exhibit to the Registrant's Form 10 dated June 27, 1990, as
amended by the Registrant's Form 8 dated July 18, 1990, and incorporated
herein by reference.
(2) Filed as an Exhibit to the Registrant's Registration Statement on Form S-3,
Registration 33-94718, and incorporated herein by reference.
(3) Filed as an Exhibit to the Annual Report of the Registrant on Form 10-KSB
for the fiscal year ended March 31, 1997, and incorporated herein by
reference.
(4) Filed as an Exhibit to the Quarterly Report of the Registrant on Form
10-QSB for the period ended December 31, 1993, and incorporated herein by
reference.
(5) Filed as an Exhibit to the Current Report of the Registrant on Form 8-K
dated July 21, 1993, and incorporated herein by reference.
(6) Filed as an Exhibit to the Annual Report of the Registrant on Form 10-KSB
for the year ended March 31, 1994, and incorporated herein by reference.
(7) Filed as an Exhibit to the Registrant's Registration Statement on Form S-8,
Registration No. 333-15565, and incorporated herein by reference.
(8) Filed as an Exhibit to the Current Report of the Registrant on Form 8-K
dated January 3, 1996, and incorporated herein by reference.
(9) Filed as an Exhibit to the Current Report of the Registrant on Form 8-K
dated May 8, 1995, and incorporated herein by reference.
(10) Filed as an Exhibit to the Registrant's Registration Statement on Form S-2,
Registration No. 33-70106, and incorporated herein by reference.
(11) Filed as an Exhibit to the Current Report of the Registrant on Form 8-K
dated July 18, 1995, and incorporated herein by reference.
<PAGE> 1
EXHIBIT 1.1
TESCORP, INC.
_______Shares
Common Stock
UNDERWRITING AGREEMENT
________ ___, 1997
PRUDENTIAL SECURITIES INCORPORATED
As Representative of the several Underwriters
Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Dear Sirs:
Tescorp, Inc., a Texas corporation (the "Company") and certain
stockholders of the Company named in Schedule 2 hereto (hereinafter called the
"Selling Securityholders"), hereby confirm their respective agreement with the
several underwriters named in Schedule 1 hereto (the "Underwriters"), for whom
you have been duly authorized to act as representative (in such capacities, the
"Representative"), as set forth below.
1. Securities. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the several Underwriters an aggregate
of ___ shares (the "Company Securities") of the Company's authorized but
unissued Common Stock, par value $0.02 per share ("Common Stock"). The Selling
Securityholders acting severally and not jointly propose to issue and sell to
the Several Underwriters an aggregate of ____ shares of authorized and
outstanding Common Stock (the "Selling Securityholder Securities"). The Company
Securities and the Selling Securityholder Securities are hereinafter
collectively referred to as the "Firm Securities". The Company also proposes to
issue and sell to the several Underwriters not more than _______________
additional shares of Common Stock if requested by the Representative as
provided in Section 3 of this Agreement. Any and all shares of Common Stock to
be purchased by the Underwriters pursuant to such option are referred to herein
as the "Option Securities", and the Firm Securities and any Option Securities
are collectively referred to herein as the "Securities".
<PAGE> 2
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the several Underwriters
that:
(a) A registration statement on Form S-2 (File No. 333-_________)
with respect to the Securities, including a prospectus subject to completion,
has been filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and one
or more amendments to such registration statement may have been so filed. After
the execution of this Agreement, the Company will file with the Commission
either (i) if such registration statement, as it may have been amended, has
been declared by the Commission to be effective under the Act, either (A) if
the Company relies on Rule 434 under the Act, a Term Sheet (as hereinafter
defined) relating to the Securities, that shall identify the Preliminary
Prospectus (as hereinafter defined) that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b) under the
Act or (B) if the Company does not rely on Rule 434 under the Act, a prospectus
in the form most recently included in an amendment to such registration
statement (or, if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule 430A under
the Act or permitted by Rule 424(b) under the Act, and in the case of either
clause (i)(A) or (i)(B) of this sentence as have been provided to and approved
by the Representatives prior to the execution of this Agreement, or (ii) if
such registration statement, as it may have been amended, has not been declared
by the Commission to be effective under the Act, an amendment to such
registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by the Representatives prior to
the execution of this Agreement. The Company may also file a related
registration statement with the Commission pursuant to Rule 462(b) under the
Act for the purpose of registering certain additional Securities, which
registration shall be effective upon filing with the Commission. As used in
this Agreement, the term "Original Registration Statement" means the
registration statement initially filed relating to the Securities, as amended
at the time when it was or is declared effective, including all financial
schedules and exhibits thereto and including any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Rule 462(b) Registration Statement" means any
registration statement filed with the Commission pursuant to Rule 462(b) under
the Act (including the Registration Statement and any Preliminary Prospectus or
Prospectus incorporated therein at the time such Registration Statement becomes
effective); the term "Registration Statement" includes both the Original
Registration Statement and any Rule 462(b) Registration Statement; the term
"Preliminary Prospectus" means each prospectus subject to completion filed with
such registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means:
2
<PAGE> 3
(A) if the Company relies on Rule 434 under the Act, the Term Sheet
relating to the Securities that is first filed pursuant to Rule
424(b)(7) under the Act, together with the Preliminary Prospectus
identified therein that such Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the Act, the
prospectus first filed with the Commission pursuant to Rule 424(b) under
the Act; or
(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to Rule 424(b) under the
Act, the prospectus included in the Registration Statement;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or suspending
use of any Preliminary Prospectus. When any Preliminary Prospectus was filed
with the Commission it (i) contained all statements required to be stated
therein in accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto was or is
declared effective, it (i) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. When the Prospectus or
any Term Sheet that is a part thereof or any amendment or supplement to the
Prospectus is filed with the Commission pursuant to Rule 424(b) (or, if the
Prospectus or part thereof or such amendment or supplement is not required to
be so filed, when the Registration Statement or the amendment thereto
containing such amendment or supplement to the Prospectus was or is declared
effective) and on the Firm Closing Date and any Option Closing Date (both as
hereinafter defined), the Prospectus, as amended or supplemented at any such
time, (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not or will not include any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing provisions of this paragraph (b) do
not apply to statements or omissions made in any
3
<PAGE> 4
Preliminary Prospectus, the Registration Statement or any amendment thereto or
the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein.
(c) If the Company has elected to rely on Rule 462(b) and the Rule
462(b) Registration Statement has not been declared effective (i) the Company
has filed a Rule 462(b) Registration Statement in compliance with and that is
effective upon filing pursuant to Rule 462(b) and has received confirmation of
its receipt and (ii) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with the filing of the
Rule 462(b) Registration Statement, in compliance with Rule 111 promulgated
under the Act or the Commission has received payment of such filing fee.
(d) The Company and each of its subsidiaries have been duly organized
and are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation and are duly qualified to
transact business as foreign corporations and are in good standing under the
laws of all other jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective businesses requires
such qualification, except where the failure to be so qualified does not amount
to a material liability or disability to the Company and its subsidiaries,
taken as a whole.
(e) The Company and each of its subsidiaries have full power
(corporate and other) to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement and the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus; and the Company has full power (corporate and other) to
enter into this Agreement and to carry out all the terms and provisions hereof
to be carried out by it.
(f) The issued shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable and, except as otherwise set forth in the Prospectus or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus, are
owned beneficially by the Company free and clear of any security interests,
liens, encumbrances, equities or claims.
(g) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus. All of the issued shares of
capital stock of the Company (including the Selling Securityholder Securities)
have been duly authorized and validly issued and are fully paid and
nonassessable. The Company Securities and the Option Securities have been duly
authorized and at the Firm Closing Date or the related Option Closing Date (as
the case may be), after payment therefor in accordance herewith, will
4
<PAGE> 5
be validly issued, fully paid and nonassessable. No holders of outstanding
shares of capital stock of the Company are entitled as such to any preemptive
or other rights to subscribe for any of the Securities, and no holder of
securities of the Company has any right which has not been fully exercised or
waived to require the Company to register the offer or sale of any securities
owned by such holder under the Act in the public offering contemplated by this
agreement.
(h) The capital stock of the Company conforms to the description
thereof contained in the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus.
(i) Except as disclosed in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), there are no
outstanding (A) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of the
Company or any such subsidiary, (B) warrants, rights or options to subscribe
for or purchase from the Company or any such subsidiary any such capital stock
or any such convertible or exchangeable securities or obligations, or (C)
obligations of the Company or any such subsidiary to issue any shares of
capital stock, any such convertible or exchangeable securities or obligations,
or any such warrants, rights or options.
(j) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) fairly present the financial position of
the Company and its consolidated subsidiaries and the results of operations and
changes in financial condition as of the dates and periods therein specified.
Such financial statements and schedules have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved (except as otherwise noted therein). The selected financial
data set forth under the caption "Selected Consolidated Financial Data" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present, on the basis stated in the Prospectus
(or such Preliminary Prospectus), the information included therein.
(k) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered their
report with respect to the audited consolidated financial statements and
schedules included in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), are
independent public accountants as required by the Act and the applicable rules
and regulations thereunder.
(l) The execution and delivery of this Agreement have been duly
authorized by the Company and this Agreement has been duly executed and
delivered by the
5
<PAGE> 6
Company, and is the valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms.
(m) No legal or governmental proceedings are pending to which the
Company or any of its subsidiaries is a party or to which the property of the
Company or any of its subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and are not described therein
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), and no such proceedings have been threatened against the Company
or any of its subsidiaries or with respect to any of their respective
properties; and no contract or other document is required to be described in
the Registration Statement or the Prospectus or to be filed as an exhibit to
the Registration Statement that is not described therein (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) or filed as
required.
(n) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (i) require the consent,
approval, authorization, registration or qualification of or with any
governmental authority, except such as have been obtained, such as may be
required under state securities or blue sky laws and, if the registration
statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act, or (ii)
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
or any of their respective properties are bound (including any franchise
agreement, license, permit or other governmental authorization granted by the
Comite Nacional de Radiodifusion ("COMFER") or any other governing body having
jurisdiction over the Company's cable television operations), or the charter
documents or by-laws of the Company or any of its subsidiaries, or any statute
or any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to the Company or any of
its subsidiaries.
(o) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus, neither the Company
nor any of its subsidiaries has sustained any material loss or interference
with their respective businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding and there has not been
any material adverse change, or any development involving a prospective
material adverse change, in the condition (financial or otherwise), management,
business prospects, net worth, or results of the operations of the Company or
any of
6
<PAGE> 7
its subsidiaries, except in each case as described in or contemplated by the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus.
(p) The Company has not, directly or indirectly, (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of,
the Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company (except for
the sale of Securities by the Selling Securityholders under this Agreement).
(q) The Company has not distributed and, prior to the later of (i)
the Closing Date and (ii) the completion of the distribution of the Securities,
will not distribute any offering material in connection with the offering and
sale of the Securities other than the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or other materials, if any permitted by the Act.
(r) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), (1) the Company
and its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (2) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock; and (3) there has not been any
material change in the capital stock, short-term debt or long-term debt of the
Company and its consolidated subsidiaries, except in each case as described in
or contemplated by the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(s) The Company and each of its subsidiaries have good and marketable
title in fee simple to all items of real property and marketable title to all
personal property owned by each of them, in each case free and clear of any
security interests, liens, encumbrances, equities, claims and other defects,
except such as do not materially and adversely affect the value of such
property and do not interfere with the use made or proposed to be made of such
property by the Company or such subsidiary, and any real property and buildings
held under lease by the Company or any such subsidiary are held under valid,
subsisting and enforceable leases, with such exceptions as are not material and
do not interfere with the use made or proposed to be made of such property and
buildings by the Company or such subsidiary, in each case except as described
in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
7
<PAGE> 8
(t) No labor dispute with the employees of the Company or any of its
subsidiaries exists or is threatened or imminent that could result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(u) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent applications, trademarks,
service marks, trade names, licenses, copyrights and proprietary or other
confidential information currently employed by them in connection with their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of infringement of or conflict with asserted rights of any
third party with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they are
engaged; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(w) No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(x) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any
8
<PAGE> 9
such subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(y) The Company will conduct its operations in a manner that will not
subject it to registration as an investment company under the Investment
Company Act of 1940, as amended, and this transaction will not cause the
Company to become an investment company subject to registration under such Act.
(z) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a material
adverse effect on the Company and its subsidiaries) and has paid all taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable, except
for any such assessment, fine or penalty that is currently being contested in
good faith or as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(aa) Neither the Company nor any of its subsidiaries is in violation
of any federal or state law or regulation relating to occupational safety and
health or to the storage, handling or transportation of hazardous or toxic
materials and the Company and its subsidiaries have received all permits,
licenses or other approvals required of them under applicable federal and state
occupational safety and health and environmental laws and regulations to
conduct their respective businesses, and the Company and each such subsidiary
is in compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals which would not,
singly or in the aggregate, result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(ab) Neither the Company nor any of its subsidiaries nor, to the
Company's best knowledge, any employee or agent of the Company or any
subsidiary has made any payment of funds of the Company or any subsidiary or
received or retained any funds in violation of any law, rule or regulation,
which payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectus.
9
<PAGE> 10
(ac) Each certificate signed by any officer of the Company and
delivered to the Representative or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to each Underwriter as to
the matters covered thereby.
(ad) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither the Company
nor any such subsidiary owns any shares of stock or any other equity securities
of any corporation or has any equity interest in any firm, partnership,
association or other entity, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(ae) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that
(1) transactions are executed in accordance with management's general or
specific authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (3) access to
assets is permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(af) No default exists, and no event has occurred which, with notice
or lapse of time or both, would constitute a default in the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
or any of their respective properties is bound or may be affected in any
material adverse respect with regard to property, business or operations of the
Company and its subsidiaries.
(ag) The Company is in full compliance in all material respects with
all Argentine regulations applicable to the Company.
(ah) Neither the Company nor any of its properties or assets has any
immunity from jurisdiction of any court or from any legal process (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise), except in the case of enforcement
proceedings in Argentina relating to assets and properties of the Company
which, under applicable Argentine law, are deemed to provide an essential
public service.
3. Representations and Warranties of the Selling Securityholders.
Each Selling Securityholder, severally for itself only and not jointly,
represents and warrants to, and agrees with, each of the several Underwriters
and the Company that:
10
<PAGE> 11
(a) Such Selling Securityholder has full power (corporate and other)
to enter into this Agreement and to sell, assign, transfer and deliver to the
Underwriters the Securities to be sold by such Selling Securityholder hereunder
in accordance with the terms of this Agreement; the execution and delivery of
this Agreement have been duly authorized by all necessary corporate action of
such Selling Securityholder; and this Agreement has been duly executed and
delivered by such Selling Securityholder.
(b) Such Selling Securityholder has duly executed and delivered a
power of attorney and custody agreement (with respect to such Selling
Securityholder, the "Power-of-Attorney" and the "Custody Agreement",
respectively), each in the form heretofore delivered to the Representative,
appointing Jack S. Gray, Jr. and Jack R. Crosby as such Selling
Securityholder's attorney-in-fact (the "Attorney-in-Fact") with authority to
execute, deliver and perform this Agreement on behalf of such Selling
Securityholder and appointing American Stock Transfer & Trust Company, as
custodian thereunder (the "Custodian"). Certificates in negotiable form,
endorsed in blank or accompanied by blank stock powers duly executed, with
signatures appropriately guaranteed, representing the Securities to be sold by
such Selling Securityholder hereunder have been deposited with the Custodian
pursuant to the Custody Agreement for the purpose of delivery pursuant to this
Agreement. Such Selling Securityholder has full power (corporate and other) to
enter into the Custody Agreement and the Power-of-Attorney and to perform its
obligations under the Custody Agreement. The execution and delivery of the
Custody Agreement and the Power-of-Attorney have been duly authorized by all
necessary corporate action of such Selling Securityholder; the Custody
Agreement and the Power-of-Attorney have been duly executed and delivered by
such Selling Securityholder and, assuming due authorization, execution and
delivery by the Custodian, are the legal, valid, binding and enforceable
instruments of such Selling Securityholder. Such Selling Securityholder agrees
that each of the Securities represented by the certificates on deposit with the
Custodian is subject to the interests of the Underwriters hereunder, that the
arrangements made for such custody, the appointment of the Attorney-in-Fact and
the right, power and authority of the Attorney-in-Fact to execute and deliver
this Agreement, to agree on the price at which the Securities (including such
Selling Securityholder's Securities) are to be sold to the Underwriters, and to
carry out the terms of this Agreement, are to that extent irrevocable and that
the obligations of such Selling Securityholder hereunder shall not be
terminated, except as provided in this Agreement or the Custody Agreement, by
any act of such Selling Securityholder, by operation of law or otherwise,
whether in the case of any individual Selling Securityholder by the death or
incapacity of such Selling Securityholder, in the case of a trust or estate by
the death of the trustee or trustees or the executor or executors or the
termination of such trust or estate, or in the case of a corporate or
partnership Selling Securityholder by its liquidation or dissolution or by the
occurrence of any other event. If any individual Selling Securityholder,
trustee or executor should die or become incapacitated or any such trust should
be terminated, or if any corporate or partnership Selling Securityholder shall
liquidate or dissolve, or
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if any other event should occur, before the delivery of such Selling
Securityholder Securities hereunder, the certificates for such Securities
deposited with the Custodian shall be delivered by the Custodian in accordance
with the respective terms and conditions of this Agreement as if such death,
incapacity, termination, liquidation or dissolution or other event had not
occurred, regardless of whether or not the Custodian or the Attorney-in-Fact
shall have received notice thereof.
(c) Such Selling Securityholder is the lawful owner of the Securities
to be sold by such Selling Securityholder hereunder and upon sale and delivery
of, and payment for, such Securities, as provided herein, such Selling
Securityholder will convey good and marketable title to such Selling
Securityholder Securities, free and clear of any security interests, liens,
encumbrances, equities, claims or other defects.
(d) Such Selling Securityholder has not, directly or indirectly, (i)
taken any action designed to cause or result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities or (ii) since the filing of the Registration
Statement (A) sold, bid for, purchased, or paid anyone any compensation for
soliciting purchases of, the Securities or (B) paid or agreed to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company (except for the sale of Securities by the Selling
Securityholders under this Agreement).
(e) To the extent that any statements or omissions are made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by such Selling Securityholder
specifically for use therein, such Preliminary Prospectus did, and the
Registration Statement and the Prospectus and any amendments or supplements
thereto, when they become effective or are filed with the Commission, as the
case may be, will conform in all material respects to the requirements of the
Act, the Exchange Act and the respective rules and regulations of the
Commission thereunder and will not 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, in the light of the circumstances
under which they are made, not misleading. Such Selling Securityholder has
reviewed the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) and the Registration Statement, and the
information regarding such Selling Securityholder set forth therein under the
caption "Principal and Selling Shareholders" is complete and accurate. Such
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and the Registration Statement do not include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
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<PAGE> 13
(f) The sale by such Selling Securityholder of Selling Securityholder
Securities pursuant hereto is not prompted by any adverse information
concerning the Company that is not set forth in the Registration Statement or
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(g) The sale of the Selling Securityholder Securities to the
Underwriter by such Selling Securityholder pursuant to this Agreement, the
compliance by such Selling Securityholder with the other provisions of this
Agreement, the Custody Agreement and the consummation of the other transactions
herein contemplated do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority, except
such as have been obtained, such as may be required under state securities or
blue sky laws and, if the registration statement filed with respect to the
Securities (as amended) is not effective under the Act as of the time of
execution hereof, such as may be required (and shall be obtained as provided in
this Agreement) under the Act and the Exchange Act or (ii) conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which such Selling Securityholder or any of
its subsidiaries is a party or by which such Selling Securityholder or any of
its subsidiaries or any of such Selling Securityholder's their respective
properties are bound, or the charter documents or by-laws of such Selling
Securityholder or any of its subsidiaries or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental authority
or any arbitrator applicable to such Selling Securityholder or any of its
subsidiaries.
(h) Such Selling Securityholder does not have, or has waived prior to
the date hereof, any preemptive right, co-sale right or right of first refusal
or other similar right to purchase any of the Securities that are to be sold by
the Company or any of the other Selling Securityholders to the Underwriters
pursuant to this Agreement; such Selling Securityholder does not have, or has
waived prior to the date hereof, any registration right or other similar right
to participate in the offering made by the Prospectus, other than such rights
of participation as have been satisfied by the participation of such Selling
Securityholder in the transaction to which this Agreement relates in accordance
wit the terms of this Agreement; and such Selling Securityholder does not own
any warrants, options or similar rights to acquire, and does not have any right
or arrangement to acquire, any capital stock, rights, warrants, options or
other securities from the Company, other than those described in the
Registration Statement and the Prospectus.
4. Purchase, Sale and Delivery of the Securities. (a) On the basis
of the representations, warranties, agreements and covenants herein contained
and subject to the terms and conditions herein set forth, the Company and the
Selling Securityholders agree, severally and not jointly, to issue and sell to
each of the Underwriters, and each of the Underwriters, severally and not
jointly, agrees to
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<PAGE> 14
purchase from the Company, and the Selling Securityholders, respectively, at a
purchase price of $________ per share, the number of Company Securities and
Selling Securityholder Securities set forth opposite the names of the Company
and the Selling Securityholders, respectively, in Schedule 2 hereto. The
obligation of each Underwriter to the Company and to each Selling
Securityholder shall be to purchase from the Company or such Selling
Securityholder that number of Company Securities or Selling Securityholder
Securities, as the case may be, which (as nearly as practicable, as determined
by you) is in the same proportion to the number of Company Securities or
Selling Securityholder Securities, as the case may be, set forth opposite the
name of the Company or such Selling Securityholder in Schedule 2 hereto as the
number of Firm Securities which is set forth opposite the name of such
Underwriter in Schedule 1 hereto is to the total number of Firm Securities to
be purchased by all Underwriters under this Agreement. In the event that any
Selling Securityholder shall have failed, refused or been unable to perform any
agreement on his, her or its part to be performed hereunder, the Company and
not such Selling Securityholder shall sell to the Underwriters at the request
of the Representative in its sole discretion, and each Underwriter agrees,
severally and not jointly, to purchase from the Company and not from such
Selling Securityholder, at the same price per share as set forth in this
Section 4, the number of Selling Securityholder Securities which were otherwise
to be sold by such Selling Securityholder but for such Selling Securityholder's
failure, refusal or inability to perform any agreement on his, her or its part
to be performed hereunder. The additional shares of Common Stock so sold by the
Company as a result of the provisions of the preceding sentence shall be added
to, and included within, "Company Securities," and shall be subtracted and
excluded from "Selling Securityholder Securities" as may be applicable in the
context of this Agreement.
One or more certificates in definitive form for the Firm Securities that
the several Underwriters have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Representative requests upon notice to the Company at least 48 hours prior to
the Firm Closing Date, shall be delivered by or on behalf of the Company to the
Representative for the respective accounts of the Underwriters, against payment
by or on behalf of the Underwriters of the purchase price therefor by wire
transfer in same-day funds (the "Wired Funds") to the account of the Company
with respect to the Securities to be purchased from the Company and to the
Custodian for the respective accounts of the Selling Securityholders with
respect to the shares being purchased from Selling Securityholders. Such
delivery of and payment for the Firm Securities shall be made at the offices of
Troop Meisinger Steuber & Pasich, LLP, 10940 Wilshire Boulevard, 8th Floor, Los
Angeles, California 90024 at 9:30 A.M., New York time, on __________, 1997, or
at such other place, time or date as the Representative and the Company may
agree upon or as the Representative may determine pursuant to Section 9 hereof,
such time and date of delivery against payment being herein referred to as the
"Firm Closing Date". The Company will make such certificate or certificates for
the Firm Securities
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<PAGE> 15
available for checking and packaging by the Representative at the offices in
New York, New York of the Company's transfer agent or registrar or of
Prudential Securities Incorporated at least 24 hours prior to the Firm Closing
Date.
(b) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Securities. The purchase price
to be paid for any Option Securities shall be the same price per share as the
price per share for the Firm Securities set forth above in paragraph (a) of
this Section 4. The option granted hereby may be exercised as to all or any
part of the Option Securities from time to time within (thirty) days after the
date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange
is open for trading). The Underwriters shall not be under any obligation to
purchase any of the Option Securities prior to the exercise of such option. The
Representative may from time to time exercise the option granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the Company
setting forth the aggregate number of Option Securities as to which the several
Underwriters are then exercising the option and the date and time for delivery
of and payment for such Option Securities. Any such date of delivery shall be
determined by the Representative but shall not be earlier than two business
days or later than five business days after such exercise of the option and, in
any event, shall not be earlier than the Firm Closing Date. The time and date
set forth in such notice, or such other time or such other date as the
Representative and Company may agree upon or as the Representative may
determine pursuant to Section 11 hereof, is herein called the "Option Closing
Date" with respect to such Option Securities. Upon exercise of the option as
provided herein, the Company shall become obligated to sell to each of the
several Underwriters, and, subject to the terms and conditions herein set
forth, each of the Underwriters (severally and not jointly) shall become
obligated to purchase from the Company, the same percentage of the total number
of the Option Securities as to which the several Underwriters are then
exercising the option as such Underwriter is obligated to purchase of the
aggregate number of Firm Securities, as adjusted by the Representative in such
manner as they deem advisable to avoid fractional shares. If the option is
exercised as to all or any portion of the Option Securities, one or more
certificates in definitive form for such Option Securities, and payment
therefor, shall be delivered on the related Option Closing Date in the manner,
and upon the terms and conditions, set forth in paragraph (a) of this Section
4, except that reference therein to the Firm Securities and the Firm Closing
Date shall be deemed, for purposes of this paragraph (b), to refer to such
Option Securities and Option Closing Date, respectively.
(c) The Company and each Selling Securityholder hereby acknowledges
that the wire transfer by or on behalf of the Underwriters of the purchase
price for any Securities does not constitute closing of a purchase and sale of
the Securities. Only
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<PAGE> 16
execution and delivery of a receipt for Securities by the Underwriters
indicates completion of the closing of a purchase of the Securities from the
Company and the Selling Securityholders. Furthermore, in the event that the
Underwriters wired funds to the Company and to the Custodian for the respective
accounts of the Company and the Selling Securityholders prior to the completion
of the closing of a purchase of Securities, the Company and the Selling
Securityholders hereby acknowledge that until the Underwriters execute and
deliver a receipt for the Securities, by facsimile or otherwise, the Company
and the Selling Securityholders will not be entitled to the wired funds and
shall return the wired funds to the Underwriters as soon as practicable (by
wire transfer of same-day funds) upon demand. In the event that the closing of
a purchase of Securities is not completed and the wired funds are not returned
by the Company and the Selling Securityholders to the Underwriters on the same
day the wired funds were received by the Company and the Selling
Securityholders, the Company and the Selling Securityholders agree to pay to
the Underwriters in respect of each day the wired funds are not returned by the
Company or any of the Selling Securityholders, in same-day funds, interest on
the amount of such wired funds in an amount representing the Underwriters' cost
of financing as reasonably determined by Prudential Securities Incorporated.
(d) It is understood that you, may (but shall not be obligated to)
make payment on behalf of any Underwriter or Underwriters for any of the
Securities to be purchased by such Underwriter or Underwriters. No such payment
shall relieve such Underwriter or Underwriters from any of its or their
obligations hereunder.
5. Offering by the Underwriters. Upon your authorization of the
release of the Firm Securities, the several Underwriters propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus.
6. Covenants of the Company. The Company covenants and agrees with
each of the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required,
the Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. During any time when a prospectus relating to the Securities is required
to be delivered under the Act, the Company (i) will comply with all
requirements imposed upon it by the Act and the rules and regulations of the
Commission thereunder to the extent necessary to permit the continuance of
sales of or dealings in the Securities in accordance with the provisions hereof
and of the Prospectus, as then amended or supplemented, and (ii) will not file
with the Commission the prospectus, Term Sheet or the amendment referred to in
the second
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<PAGE> 17
sentence of Section 2(a) hereof, any amendment or supplement to such
Prospectus, Term Sheet or any amendment to the Registration Statement or any
Rule 462(b) Registration Statement of which the Representatives previously have
been advised and furnished with a copy for a reasonable period of time prior to
the proposed filing and as to which filing the Representatives shall not have
given their consent. The Company will prepare and file with the Commission, in
accordance with the rules and regulations of the Commission, promptly upon
request by the Representatives or counsel for the Underwriters, any amendments
to the Registration Statement or amendments or supplements to the Prospectus
that may be necessary or advisable in connection with the distribution of the
Securities by the several Underwriters, and will use its best efforts to cause
any such amendment to the Registration Statement to be declared effective by
the Commission as promptly as possible. The Company will advise the
Representatives, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Representatives of each
such filing or effectiveness.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Original
Registration Statement or any Rule 462(b) Registration Statement or any
amendment thereto or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (ii) the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, (iii) the institution, threatening or
contemplation of any proceeding for any such purpose or (iv) any request made
by the Commission for amending the Original Registration Statement or any Rule
462(b) Registration Statement, for amending or supplementing the Prospectus or
for additional information. The Company will use its best efforts to prevent
the issuance of any such stop order and, if any such stop order is issued, to
obtain the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the qualification of the Securities
for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representatives may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities; provided, however, that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the Act
or (ii) the Option Closing Date, any event occurs as a result of which the
Prospectus, as then amended
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<PAGE> 18
or supplemented, would include any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or
if for any other reason it is necessary at any time to amend or supplement the
Prospectus to comply with the Act or the rules or regulations of the Commission
thereunder, the Company will promptly notify the Representatives thereof and,
subject to Section 6(a) hereof, will prepare and file with the Commission, at
the Company's expense, an amendment to the Registration Statement or an
amendment or supplement to the Prospectus that corrects such statement or
omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a conformed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) or any Rule 462(b)
Registration Statement, certified by the Secretary or an Assistant Secretary of
the Company to be true and complete copies thereof as filed with the Commission
by electronic transmission, (ii) to each other Underwriter, a conformed copy of
such registration statement or any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as
a prospectus relating to the Securities is required to be delivered under the
Act, as many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Representatives may reasonably request;
without limiting the application of clause (iii) of this sentence, the Company,
not later than (A) 6:00 PM, New York City time, on the date of determination of
the public offering price, if such determination occurred at or prior to 10:00
A.M., New York City time, on such date or (B) 2:00 PM, New York City time, on
the business day following the date of determination of the public offering
price, if such determination occurred after 10:00 A.M., New York City time, on
such date, will deliver to the Underwriters, without charge, as many copies of
the Prospectus and any amendment or supplement thereto as the Representatives
may reasonably request for purposes of confirming orders that are expected to
settle on the Firm Closing Date.
(f) The Company, as soon as practicable, will make generally
available to its securityholders and to the Representative a consolidated
earnings statement of the Company and its subsidiaries that satisfies the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of the
Company Securities as set forth under "Use of Proceeds" in the Prospectus.
(h) The Company will not, directly or indirectly, without the prior
written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of
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<PAGE> 19
any option to purchase or other sale or disposition) of any shares of Common
Stock or any securities convertible into, or exchangeable or exercisable for,
shares of Common Stock for a period of 180 days after the date hereof, except
pursuant to this Agreement and except for issuances pursuant to the exercise of
employee stock options outstanding on the date hereof.
(i) The Company will not, directly or indirectly, (i) take any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company (except for the sale of Securities by the Selling
Securityholders under this Agreement).
(j) The Company will obtain the agreements described in Section 9(h)
hereof prior to the Firm Closing Date.
(k) If at any time during the 25-day period after the Registration
Statement becomes effective or the period prior to the Option Closing Date, any
rumor, publication or event relating to or affecting the Company shall occur as
a result of which in your opinion the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after notice from you advising the Company to
the effect set forth above, forthwith prepare, consult with you concerning the
substance of, and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(l) If the Company elects to rely on Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with Rule
111 promulgated under the Act by the earlier of (i) 10:00 P.M. Eastern time on
the date of this Agreement and (ii) the time confirmations are sent or given,
as specified by Rule 462(b)(2).
(m) The Company will cause the Securities to be duly included for
quotation on the Nasdaq Stock Market's National Market (the "Nasdaq National
Market") prior to the Firm Closing Date. The Company will ensure that the
Securities remain included for quotation on the Nasdaq National Market
following the Firm Closing Date.
7. Covenants of the Selling Securityholders. Each Selling
Securityholder covenants and agrees with each of the Underwriters and the
Company that:
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<PAGE> 20
(a) Such Selling Securityholder will not, directly or indirectly,
without the prior written consent of Prudential Securities Incorporated, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other sale or disposition)
of any Securities legally or beneficially owned by such Selling Securityholder
or any securities convertible into, or exchangeable or exercisable for,
Securities for a period of 180 days after the date hereof.
(b) Such Selling Securityholder will not, directly or indirectly, (i)
take any action designed to cause or result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or reseal of the Securities or (ii) (A) sell, bid for, purchase, or pay anyone
any compensation for soliciting purchases of, the Securities or (B) pay or
agree to pay to any person any compensation for soliciting another to purchase
any other securities of the Company (except for the sale of Securities by the
Selling Securityholders under this Agreement).
(c) Such Selling Securityholder will deliver to the Underwriters
prior to the Firm Closing Date a duly executed Form W-9.
8. Expenses. The Company will pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing or other production of documents with respect to
the transactions, including any costs of printing the registration statement
originally filed with respect to the Securities and any amendment thereto, any
Rule 462(b) Registration Statement, any Preliminary Prospectus and the
Prospectus and any amendment or supplement thereto, this Agreement and any blue
sky memoranda, (ii) all arrangements relating to the delivery to the
Underwriters of copies of the foregoing documents, (iii) the fees and
disbursements of counsel, the accountants and any other experts or advisors
retained by the Company, (iv) preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Securities, including transfer
agent's and registrar's fees, (v) the qualification of the Securities under
state securities and blue sky laws, including filing fees and fees and
disbursements of counsel for the Underwriters relating thereto, (vi) the filing
fees of the Commission and the National Association of Securities Dealers, Inc.
relating to the Securities, (vii) any quotation of the Securities on the Nasdaq
National Market and, (viii) any meetings with prospective investors in the
Securities (other than as shall have been specifically approved by the
Representatives to be paid for by the Underwriters) and (ix) advertising
relating to the offering of the Securities (other than as shall have been
specifically approved by the Representatives to be paid for by the
Underwriters). If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth
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in Section 9 hereof is not satisfied, because this Agreement is terminated
pursuant to Section 13 hereof or because of any failure, refusal or inability
on the part of the Company to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder other than by
reason of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
counsel fees and disbursements) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities. The Company
shall not in any event be liable to any of the Underwriters for the loss of
anticipated profits from the transactions covered by this Agreement.
9. Conditions of the Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representative's sole discretion, to the accuracy of the
representations and warranties of the Company and the Selling Securityholders
contained herein as of the date hereof and as of the Firm Closing Date, as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's officers made pursuant to the provisions hereof, to the
performance by the Company and the Selling Securityholders of their respective
covenants and agreements hereunder and to the following additional conditions:
(a) If the Original Registration Statement or any amendment thereto
filed prior to the Firm Closing Date has not been declared effective as of the
time of execution hereof, the Original Registration Statement or such amendment
and, if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have been declared effective not later than the
earlier of (i) 11:00 A.M., New York time, on the date on which the amendment to
the registration statement originally filed with respect to the Securities or
to the Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Securities has been filed
with the Commission and (ii) the time confirmations are sent or given as
specified by Rule 462(b)(2), or with respect to the Original Registration
Statement, or such later time and date as shall have been consented to by the
Representative; if required, the Prospectus or any Term Sheet that constitutes
a part thereof and any amendment or supplement thereto shall have been filed
with the Commission in the manner and within the time period required by Rules
434 and 424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or, to
the knowledge of the Company or the Representative, shall be contemplated by
the Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
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(b) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Hughes & Luce, L.L.P., counsel for the Company and the
Selling Securityholders, to the effect that:
(i) the Company and each of its subsidiaries listed in Exhibit
21.1 to the Registration Statement, including the Argentine Joint
Venture Companies and Argentine Cable Companies (as defined in the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) (the "Subsidiaries") have been duly organized
and are validly existing as corporations in good standing under the laws
of their respective jurisdictions of incorporation and are duly
qualified to transact business as foreign corporations and are in good
standing under the laws of all other jurisdictions where the ownership
or leasing of their respective properties or the conduct of their
respective businesses requires such qualification, except where the
failure to be so qualified does not amount to a material liability or
disability to the Company and the Subsidiaries, taken as a whole;
(ii) the Company and each of the Subsidiaries have corporate
power to own or lease their respective properties and conduct their
respective businesses as described in the Registration Statement and the
Prospectus, and the Company has corporate power to enter into this
Agreement and to carry out all the terms and provisions hereof to be
carried out by it;
(iii) the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are owned beneficially by the Company free
and clear of any perfected security interests or, to the best knowledge
of such counsel, any other security interests, liens, encumbrances,
equities or claims;
(iv) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus; all of the issued shares
of capital stock of the Company (including the Selling Securityholder
Securities) have been duly authorized and validly issued and are fully
paid and nonassessable, have been issued in compliance with all
applicable federal and state securities laws and were not issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities; the Company Securities have been
duly authorized by all necessary corporate action of the Company and,
when issued and delivered to and paid for by the Underwriters pursuant
to this Agreement, will be validly issued, fully paid and nonassessable;
the Securities have been duly included for trading on the Nasdaq
National Market; no holders of outstanding shares of capital stock of
the Company are entitled as such to any preemptive or other rights to
subscribe for any of the Securities; and except as set forth in the
Registration Statement, no holders of securities of the
22
<PAGE> 23
Company has any right which has not been fully exercised or waived to
have such securities registered under the Registration Statement;
(v) the statements set forth under the heading "Description of
Capital Stock" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the capital stock of the Company,
provide a fair summary of such provisions;
(vi) the execution and delivery of this Agreement have been
duly authorized by all necessary corporate action of the Company and
this Agreement has been duly executed and delivered by the Company and,
assuming due authorization, execution and delivery by the Underwriters,
is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except insofar as indemnification provisions
may be limited by applicable law and to which counsel need not express
any opinion and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
affecting creditors rights generally or by general equitable principles;
(vii) (A) no legal or governmental proceedings are pending to
which the Company or any of the Subsidiaries is a party or to which the
property of the Company or any of the Subsidiaries is subject that are
required to be described in the Registration Statement or the Prospectus
and are not described therein, and, to the best knowledge of such
counsel, no such proceedings have been threatened against the Company or
any of the Subsidiaries or with respect to any of their respective
properties and (B) no contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement that is not described
therein or filed as required;
(viii) the issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance
by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained and such as may be required under state securities or blue
sky laws, or (B) conflict with or result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease or other agreement or
instrument, known to such counsel, to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or the
charter documents or by-laws of the Company or any of the Subsidiaries,
or any statute or any judgment, decree,
23
<PAGE> 24
order, rule or regulation of any court or other governmental authority
or any arbitrator known to such counsel and applicable to the Company or
Subsidiaries;
(iii) The issued shares of capital stock of each of the
Argentine Cable Companies and Argentine Joint Venture Companies have
been duly authorized and validly issued, are fully paid and
nonassessable and ___% are owned beneficially by the Company free and
clear of any perfected security interests, liens, encumbrances, equities
or claims;
(iv) No consent, approval, authorization or order of, or filing
with, any Argentinean government agency or body (including but not
limited to COMFER) or any Argentinean court is required: (i) for the
Company to enter into and perform the Underwriting Agreement or (ii) for
the issuance or sale of the Securities by the Company;
(v) The execution, delivery and performance of the
Underwriting Agreement by the Company and the issuance and sale of the
Securities will not result in a breach or violation of any of the terms
and provisions of, or constitute a default under any Argentinean
statute, rule, regulation or order of any Argentinean government agency
or body or any Argentinean court having jurisdiction over the Company,
the Argentine Joint Venture Companies, the Argentine Cable Companies or
any of their respective properties or the Agreements ("Agreements"
includes all agreements evidencing the Company's joint venture
relationship with Carlos Saba and Osvaldo Rossi, the agreements
evidencing the Company's purchase of the cable systems in Argentina,
including the loan agreements, pledge agreements, purchase agreements,
option agreements, guaranty and security agreements, management
agreements and any other material agreement governed by Argentinean
law);
(vi) The statements set forth under the heading "Business --
Regulation," "The Company," "Risk Factors -- Risks Related to Doing
Business in Argentina -- Argentine Governmental Risks," "--Argentine
Economic Risks," "-- Regional Economic Volatility," "Risk Factors --
Issuances of Licenses," "Risk Factors -- Immunity of Certain Assets from
Attachment," "Business -- Argentine Market" in the Prospectus, insofar
as such statements constitute a summary of the legal matters, documents
or proceedings referred to therein, provide a fair summary of such legal
matters, documents and proceedings;
(vii) The Company, the Argentine Cable Companies and the
Argentine Joint Venture Companies have all necessary licenses from
COMFER and all other governmental agencies or authorities in Argentina
in order to operate the business of the Company, including but not
limited to the operation of cable television systems, except where the
failure to have such licenses does not
24
<PAGE> 25
amount to a material liability or disability to the Company and its
Subsidiaries, taken as a whole;
(ix) Such counsel does not know of any COMFER or other
Argentine statutes or rules that are principally directed to the
regulation of cable properties that are applicable to the Company and
that are not described in the Prospectus but would be material and
relevant to the business of the Company;
(x) Such counsel does not know of any proceeding before COMFER
against or involving the cable television properties, systems, licenses
or authorizations of the Company or its Subsidiaries required to be
described in the Registration Statement or the Prospectus which is not
described as required;
(xi) Neither the Company nor any of its Subsidiaries nor any of
their respective properties or assets has any immunity from the
jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) under the laws of Argentina, except
in the case of enforcement proceedings in Argentina relating to assets
and properties of the Company which, under applicable Argentine law, are
deemed to provide an essential public service;
(xii) the Registration Statement is effective under the Act; any
required filing of the Prospectus, or any Term Sheet that constitutes a
part thereof, pursuant to Rules 434 and 424(b) has been made in the
manner and within the time period required by Rules 434 and 424(b); and
no stop order suspending the effectiveness of the Registration Statement
or any amendment thereto has been issued, and no proceedings for that
purpose have been instituted or threatened or, to the best knowledge of
such counsel, are contemplated by the Commission;
(xiii) the Registration Statement originally filed with respect
to the Securities and each amendment thereto, any Rule 462(b)
Registration Statement and the Prospectus (in each case, other than the
financial statements and other financial information contained therein,
as to which such counsel need express no opinion) comply as to form in
all material respects with the applicable requirements of the Act and
the rules and regulations of the Commission thereunder;
(xiv) if the Company elects to rely on Rule 434, the Prospectus
is not "materially different", as such term is used in Rule 434, from
the prospectus included in the Registration Statement at the time of its
effectiveness or an effective post-effective amendment thereto
(including such information that is permitted to be omitted pursuant to
Rule 430A);
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<PAGE> 26
(xv) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended;
(xii) each Selling Securityholder which is not a natural person
has full corporate power to enter into this Agreement, the Custody
Agreement and the Power-of-Attorney and to sell, transfer and deliver
the Securities being sold by such Selling Securityholder hereunder in
the manner provided in this Agreement and to perform its obligations
under the Custody Agreement; the execution and delivery of this
Agreement, the Custody Agreement and the Power-of-Attorney have been
duly authorized by all necessary corporate action of such Selling
Securityholder; this Agreement, the Custody Agreement and the Power-of-
Attorney are the legal, valid, binding and enforceable instruments of
such Selling Securityholder, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and
subject, as to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity
or at law);
(xiii) each Selling Securityholder is, and immediately prior to
the Firm Closing Date will be, the sole registered owner of the
Securities to be sold by the Selling Securityholder; the delivery by
each Selling Securityholder to the several Underwriters of certificates
for the Securities being sold hereunder by such Selling Securityholder
against payment therefor as provided herein, will convey good and
marketable title to such Securities to the several Underwriters, free
and clear of all security interests, liens, encumbrances, equities,
claims or other defects; and
(xiv) the sale of the Securities to the Underwriters by such
Selling Securityholder pursuant to this Agreement, the compliance by
such Selling Securityholder with the other provisions of this Agreement,
the Custody Agreement and the consummation of the other transactions
herein contemplated do not (i) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained and such as may be required
under state securities or blue sky laws, or (ii) conflict with or result
in a breach or violation of any of the terms and provisions of, or
constitute a default under any indenture, mortgage, deed of trust, lease
or other agreement or instrument to which such Selling Securityholder or
any of its subsidiaries is a party or by which such Selling
Securityholder or any of its subsidiaries or any of such Selling
Securityholder's their respective properties are bound, or the charter
documents or by-laws of such Selling Securityholder or any of its
subsidiaries or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Securityholder or any of its
subsidiaries.
26
<PAGE> 27
Such counsel shall also state that they have no reason to believe that
the Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or the date of such opinion, included or
includes any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the State of Texas or the
United States, to the extent satisfactory in form and scope to counsel for the
Underwriters, upon the opinion of [local counsel in Argentina]. The foregoing
opinion shall also state that the Underwriters are justified in relying upon
such opinion of [local counsel in Argentina], and copies of such opinion shall
be delivered to the Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Troop Meisinger Steuber & Pasich, LLP, 10940 Wilshire
Boulevard, 8th Floor, Los Angeles, California 90024, counsel for the
Underwriters, with respect to the issuance and sale of the Firm Securities, the
Registration Statement and the Prospectus, and such other related matters as
the Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they may reasonably request for the
purpose of enabling them to pass upon such matters.
(d) The Representatives shall have received from KPMG Peat Marwick
LLP a letter or letters dated, respectively, the date hereof and the Firm
Closing Date, in form and substance satisfactory to the Representatives, to the
effect that:
(i) they are independent accountants with respect to the
Company and its consolidated subsidiaries within the meaning of the Act
and the applicable rules and regulations thereunder;
(ii) in their opinion, the audited consolidated financial
statements and schedules examined by them and included in the
Registration Statement and the Prospectus comply in form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations;
27
<PAGE> 28
(iii) on the basis of a reading of the latest available interim
unaudited consolidated condensed financial statements of the Company and
its consolidated subsidiaries, carrying out certain specified procedures
(which do not constitute an examination made in accordance with
generally accepted auditing standards) that would not necessarily reveal
matters of significance with respect to the comments set forth in this
paragraph (iii), a reading of the minute books of the shareholders, the
board of directors and any committees thereof of the Company and each of
its consolidated subsidiaries, and inquiries of certain officials of the
Company and its consolidated subsidiaries who have responsibility for
financial and accounting matters, nothing came to their attention that
caused them to believe that:
(A) the unaudited consolidated condensed financial statements
of the Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus do not comply in form
in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations thereunder or are not in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial
statements included in the Registration Statement and the
Prospectus;
(B) at a specific date not more than five business days prior
to the date of such letter, there were any changes in the capital
stock or long-term debt of the Company and its consolidated
subsidiaries or any decreases in net current assets or
stockholders' equity of the Company and its consolidated
subsidiaries, in each case compared with amounts shown on the
June 30, 1997 consolidated balance sheet included in the
Registration Statement and the Prospectus, or for the period from
April 1, to such specified date there were any decreases, as
compared with the two year period ended March 31, 1997 in
revenues, net income from continuing operations before income
taxes or total or per share amounts of net income of the Company
and its consolidated subsidiaries, except in all instances for
changes, decreases or increases set forth in such letter;
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting
records of the Company and its consolidated subsidiaries and are
included in the Registration Statement and the Prospectus and in Exhibit
11 to the Registration Statement, and have compared such amounts,
percentages and financial information with such records of the Company
and its consolidated subsidiaries and with information derived from such
records and have found them to be in agreement, excluding any questions
of legal interpretation.
28
<PAGE> 29
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives,
make it impractical or inadvisable to proceed with the purchase and delivery of
the Securities as contemplated by the Registration Statement, as amended as of
the date hereof.
References to the Registration Statement and the Prospectus in this
paragraph (e) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(e) The Representatives shall have received a certificate, dated the
Firm Closing Date, of the President and the Chief Financial Officer of the
Company to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing
Date, does not include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading, and the Prospectus, as amended or supplemented as of the
Firm Closing Date, does not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and the Company has performed all covenants
and agreements and satisfied all conditions on its part to be performed
or satisfied at or prior to the Firm Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to
the best of the Company's knowledge, are contemplated by the Commission;
and
(iii) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, neither the
Company nor any of its subsidiaries has sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition (financial or otherwise), management, business prospects, net
worth or results of operations of the Company or any of its
subsidiaries, except
29
<PAGE> 30
in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto).
(f) The Representatives shall have received a certificate from each
Selling Securityholder, signed by the Selling Securityholder, or to the extent
the Selling Securityholder is not a natural person, by the principal executive
officer and the principal financial officer of such Selling Securityholder,
dated the Closing Date, to the effect that:
(i) the representations and warranties of such Selling
Securityholder in this Agreement are true and correct as if made on and
as of the Closing Date;
(ii) to the extent that any statements or omissions are made in
the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by such
Selling Securityholder specifically for use therein, the Registration
Statement, as amended as of the Closing Date, does not include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Closing Date, does not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
and
(iii) such Selling Securityholder has performed all covenants and
agreements on its part to be performed or satisfied at or prior to the
Closing Date.
(g) The Representatives shall have received from each person who is a
director or officer of the Company or who owns Common Stock an agreement to the
effect that such person will not, directly or indirectly, without the prior
written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of an option to purchase or
other sale or disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock
for a period of 180 days after the date of this Agreement.
(h) On or before the Firm Closing Date, the Representative and
counsel for the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested from the
Company.
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<PAGE> 31
(i) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq National Market.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representative and
counsel for the Underwriters. The Company shall furnish to the Representative
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representative and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
10. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Securities Exchange Act of 1934 (the "Exchange Act"), against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by
the Company in Section 2 of this Agreement,
(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or (B) any application or other
document, or any amendment or supplement thereto, executed by the
Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction in order to qualify the Securities
under the securities or blue sky laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"),
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or
any Application a material fact required to be stated therein or
necessary to make the statements therein not misleading or
31
<PAGE> 32
(iv) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials used in
connection with the marketing of the Securities, including without
limitation, slides, videos, films, tape recordings,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement
or any amendment thereto, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto or any Application in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein; and
provided, further, that the Company will not be liable to any Underwriter or
any person controlling such Underwriter with respect to any such untrue
statement or omission made in any Preliminary Prospectus that is corrected in
the Prospectus (or any amendment or supplement thereto) if the person asserting
any such loss, claim, damage or liability purchased Securities from such
Underwriter but was not sent or given a copy of the Prospectus (as amended or
supplemented) at or prior to the written confirmation of the sale of such
Securities to such person in any case where such delivery of the Prospectus (as
amended or supplemented) is required by the Act, unless such failure to deliver
the Prospectus (as amended or supplemented) was a result of noncompliance by
the Company with Sections 6(d) and (e) of this Agreement. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have. The Company will not, without the prior written consent of the
Underwriter or Underwriters purchasing, in the aggregate, more than fifty
percent (50%) of the Securities, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or not any
such Underwriter or any person who controls any such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party
to such claim, action, suit or proceeding), unless such settlement, compromise
or consent includes an unconditional release of all of the Underwriters and
such controlling persons from all liability arising out of such claim, action,
suit or proceeding.
(b) Each Selling Securityholder severally agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who
signs the Registration Statement, each Underwriter and each person who controls
the Company or any Underwriter within the meaning of the Act or the Exchange
Act and each other Selling Securityholder against any losses, claims, damages
or liabilities to which the
32
<PAGE> 33
Company, or any director, officer, such Underwriter or any such controlling
person may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or based upon (i) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or any Application or (ii) the omission or the alleged
omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Selling
Securityholder for use therein; or (iii) any untrue statement or alleged untrue
statement made by such Selling Securityholder in Section 3 of this Agreement;
provided, however, that such Selling Securityholder will not be liable to any
Underwriter or any person controlling such Underwriter with respect to any such
untrue statement or omission made in any Preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased Securities
from such Underwriter but was not sent or given a copy of the Prospectus (as
amended or supplemented) at or prior to the written confirmation of the sale of
such Securities to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless such
failure to deliver the Prospectus (as amended or supplemented) is required by
the Act, unless such failure to deliver the Prospectus (as amended or
supplemented) was a result of noncompliance by the Company with Sections 6(d)
and (e) of this Agreement; and, subject to the limitation set forth immediately
preceding this clause, will reimburse, as incurred, an legal or other expenses
reasonably incurred by the Company, any such director, officer, such
Underwriter or any such controlling person in connection with investigating or
defending any such loss, claim damage, liability or any action in respect
thereof. This indemnity agreement will be in addition to any liability which
any Selling Securityholder may otherwise have. Each Selling Securityholder will
not, without the prior written consent of the Underwriter or Underwriters
purchasing, in the aggregate, more than fifty percent (50%) of the Securities,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls any such Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act is a party to such claim, action,
suit or proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and such controlling persons
from all liability arising out of such claim, action, suit or proceeding.
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<PAGE> 34
(c) Each Underwriter will, severally and not jointly, indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, each Selling Securityholder and each person,
if any, who controls the Company or such Selling Securityholder within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act against
losses, claims, damages or liabilities to which the Company, any such director
or officer of the Company, such Selling Securityholder or any such controlling
person of the Company or such Selling Securityholder may become subject under
the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged was made in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company, any such director, officer
or controlling person or such Selling Securityholder in connection with
investigating or defending any such loss, claim, damage, liability or any
action in respect thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
10 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 10, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 10. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be one or more legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying party
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such
34
<PAGE> 35
indemnified party or parties shall have the right to select separate counsel to
defend such action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by such indemnified party of counsel
appointed to defend such action, the indemnifying party will not be liable to
such indemnified party under this Section 10 for any legal or other expenses,
other than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in
any one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Representative in the case of paragraph (a) of this Section
10, representing the indemnified parties under such paragraph (a) who are
parties to such action or actions) or (ii) the indemnifying party does not
promptly retain counsel satisfactory to the indemnified party or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not
be liable for the costs and expenses of any settlement of such action effected
by such indemnified party without the consent of the indemnifying party.
(e) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 10 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other form the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand the indemnified party on the
other in connection with the statements or omissions or alleged statements of
omission that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Securityholders on the one and the Underwriters on the other shall be deemed to
be in the same proportion as the total proceeds from the offering (before
deducting expenses) received by the Company and the Selling Securityholders
bear to the total underwriting discounts and commissions received by the
Underwriters. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission or alleged
35
<PAGE> 36
omission to state a material fact relates to information supplied by the
Company, the Selling Securityholders or the underwriters, the parties' relative
intents, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and other equitable considerations appropriate in
the circumstances. The Company, the Selling Securityholders and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capital allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the equitable
considerations referred to above in this paragraph (d). Notwithstanding any
other provision of this paragraph (d), no Underwriter shall be obligated to
make contributions hereunder that in the aggregate exceed the total public
offering price of the Securities purchased by such Underwriter under this
Agreement, less the aggregate amount of any damages that such Underwriter has
otherwise been required to pay in respect of the same or any substantially
similar claim, and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute hereunder are several in proportion to
their respective underwriting obligations and not joint, and contributions
among Underwriters shall be governed by the provisions of the Prudential
Securities Incorporated Master Agreement Among Underwriters. For purposes of
this paragraph (d), each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement and
each person, if any, who controls the Company or any Selling Securityholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
shall have the same rights to contribution as the Company or such Selling
Securityholder, as the case may be.
11. Default of Underwriters. If one or more Underwriters default in
their obligations to purchase Firm Securities or Option Securities hereunder
and the aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representative for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representative), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or
Option Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase. If one or more Underwriters so default with respect to an
aggregate number of Securities that is more than ten percent of the aggregate
number of Firm Securities or Option Securities, as the case may be, to be
purchased by all of the
36
<PAGE> 37
Underwriters at such time hereunder, and if arrangements satisfactory to the
Representative are not made within 36 hours after such default for the purchase
by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representative) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company other than as
provided in Section 10 hereof. In the event of any default by one or more
Underwriters as described in this Section 10, the Representative shall have the
right to postpone the Firm Closing Date or the Option Closing Date, as the case
may be, established as provided in Section 3 hereof for not more than seven
business days in order that any necessary changes may be made in the
arrangements or documents for the purchase and delivery of the Firm Securities
or Option Securities, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
12. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers, the
Selling Securityholders and the several Underwriters set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, the Selling Securityholders any Underwriter or any controlling
person referred to in Section 10 hereof and (ii) delivery of and payment for
the Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 8 and 10 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
13. Termination. (a) This Agreement may be terminated with respect
to the Firm Securities or any Option Securities in the sole discretion of the
Representative by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and
satisfy all conditions on its part to be performed or satisfied hereunder at or
prior thereto or, if at or prior to the Firm Closing Date or such Option
Closing Date, respectively,
(i) the Company or any of its subsidiaries shall have, in the
sole judgment of the Representative, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Company), in
the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, except in
37
<PAGE> 38
each case as described in or contemplated by the Prospectus (exclusive
of any amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by
the Commission or the Nasdaq National Market or trading in securities
generally on the New York Stock Exchange or Nasdaq National Market shall
have been suspended or minimum or maximum prices shall have been
established on either such exchange or market system;
(iii) a banking moratorium shall have been declared by New York
or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the U.S. financial markets that, in the
sole judgment of the Representative, makes it impractical or inadvisable
to proceed with the public offering or the delivery of the Securities as
contemplated by the Registration Statement, as amended as of the date
hereof.
(b) Termination of this Agreement pursuant to this Section 13 shall
be without liability of any party to any other party except as provided in
Section 12 hereof.
14. Information Supplied by Underwriters. The statements set forth in
the last paragraph on the front cover page and under the heading "Underwriting"
in any Preliminary Prospectus or the Prospectus (to the extent such statements
relate to the Underwriters) constitute the only information furnished by any
Underwriter through the Representatives to the Company for the purposes of
Sections 2(b) and 10 hereof. The Underwriters confirm that such statements (to
such extent) are correct.
15. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity
Transactions Group; if sent to the Company, shall be delivered or sent by mail,
telex or facsimile transmission and confirmed in writing to the Company at 327
Congress Avenue, Suite 200, Austin, Texas 78701, Attention: Jack S. Gray, Jr.;
and if sent to one or more of the Selling Securityholders, shall be delivered
or sent by mail, telex or facsimile transmission and confirmed in writing to
such Selling Securityholders to the Company at 327 Congress Avenue, Suite 200,
Austin, Texas 78701, Attention: Jack S. Gray, Jr.
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<PAGE> 39
16. Successors. This Agreement shall inure to the benefit of and
shall be binding upon the several Underwriters, the Company, the Selling
Securityholders and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (i) the indemnities of the
Company contained in Section 10 of this Agreement shall also be for the benefit
of any person or persons who control any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriters contained in Section 10 of this Agreement shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement and any person or persons
who control the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act. No purchaser of Securities from any Underwriter shall
be deemed a successor because of such purchase.
17. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
18. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York, and
by execution and delivery of this Agreement, the Selling Securityholder accepts
for itself and in connection with its properties, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts and
waives any defense of forum non conveniens and irrevocably agrees to be bound
by any judgment rendered thereby in connection with this Agreement. Each
Selling Securityholder designates and appoints Jack R. Crosby and Jack S. Gray,
Jr., and such other persons as may hereafter be selected by such Selling
Securityholder irrevocably agreeing in writing to so serve, as its agent to
receive on its behalf service of all process in any such proceedings in any
such court, such service being hereby acknowledged by the Selling
Securityholder to be effective and binding service in every respect. A copy of
any such process so served shall be mailed by registered mail to the Selling
Securityholder at its address provided in Section 15 hereof; provided, however,
that, unless otherwise provided by applicable law, any failure to mail such
copy shall not affect the validity of service of such process. If any agent
appointed by a Selling Securityholder refuses to accept service, the Selling
Securityholder hereby agrees that service of process sufficient for personal
jurisdiction in any action against the Selling Securityholder in the State of
New York may be made by registered or certified mail, return receipt requested,
to the Selling Securityholder at its address
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<PAGE> 40
provided in Section 15 hereof, and the Selling Securityholder hereby
acknowledges that such service shall be effective and binding in every respect.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of any Underwriter to bring
proceedings against the Selling Securityholder in the courts of any other
jurisdiction.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 41
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and each of the
several Underwriters.
Very truly yours,
TESCORP, INC.
By
----------------------------------
Jack S. Gray, Jr.
President
SELLING SECURITYHOLDERS
By
----------------------------------
Jack S. Gray, Jr.
Attorney-in-Fact
for the Selling Securityholders
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
By
------------------------------
Jean-Claude Canfin
Managing Director
41
<PAGE> 42
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm
Securities to
Underwriter be Purchased
- ----------- ------------
<S> <C>
Prudential Securities Incorporated.......
_______________
Total ..............
</TABLE>
42
<PAGE> 43
SCHEDULE 2
SELLING SECURITYHOLDERS
43
<PAGE> 1
EXHIBIT 10.17
PROMISSORY NOTE
$500,000.00 August 6, 1997
FOR VALUE RECEIVED, the undersigned, Tescorp, Inc., a Texas corporation
("Borrower"), hereby promises to pay to the order of The Jack R. Crosby Inter
Vivos Trust ("Lender") the principal sum of FIVE HUNDRED THOUSAND DOLLARS
($500,000.00), together with interest on the unpaid principal balance hereof
from time to time from the date hereof until maturity.
Lender shall, on the request of Borrower, make advances to Borrower
hereunder in such amounts as Borrower may specify, provided that the
outstanding principal balance hereunder shall at no time exceed $500,000.
Lender shall keep a record of all advances and repayments hereunder, and in the
absence of manifest error such record shall be conclusive proof of the timing
and amount of all advances and repayments and of the outstanding principal
balance.
Interest shall accrue on the outstanding principal balance of this Note
and any accrued but unpaid interest hereon at the lesser of eleven percent
(11%) per annum or the maximum rate of interest then permissible under
applicable law. Accrued interest shall be paid quarterly on each March 31,
June 30, September 30 and December 31 during any period that any amount of
principal or unpaid accrued interest is outstanding.
The principal amount of this Note, together with interest accrued
hereon, shall be due and payable in full on demand, or if no demand is made, on
the fifth anniversary of the date of this Note.
In the event that Borrower shall fail to make any payment of principal
or interest hereon when due, Lender may in its sole discretion accelerate all
amounts owing hereunder, both principal and interest, and all such amounts
shall become immediately due and payable.
If any payment of principal or interest on this Note shall become due
on a Saturday, Sunday, or public holiday under the laws of the State of Texas,
such payment shall be made on the next succeeding business day and such
extension of time shall in such case be included in computing interest in
connection with such payment. Interest shall be calculated for the actual
number of days elapsed on the basis of a 360 day year.
Payments of both principal and interest are to be made in immediately
available funds at the principal office of Borrower at 327 Congress Avenue,
Suite 200, Austin, Texas 78701, or such other place as Lender shall designate
in writing to Borrower.
<PAGE> 2
All agreements and transactions between Borrower and Lender, whether
now existing or hereafter arising, whether contained herein or in any other
instrument, and whether written or oral are hereby expressly limited so that in
no contingency or event whatsoever, whether by reason of acceleration of the
maturity hereof, prepayment, demand for prepayment or otherwise, shall the
amount contracted for, charged or received by Lender from Borrower for the use,
forbearance or detention of the principal indebtedness or interest hereof,
which remains unpaid from time to time, exceed the maximum amount permissible
under applicable law, it particularly being the intention of the parties hereto
to conform strictly to the applicable law of usury. Any interest payable
hereunder or under any other instrument relating to the indebtedness evidenced
hereby that is in excess of the legal maximum, shall, in the event of
acceleration of maturity, prepayment, demand for prepayment or otherwise, be
automatically, as of the date of such acceleration, prepayment, demand or
otherwise, applied to a reduction of the principal indebtedness hereof and not
to the payment of interest, or if such excessive interest exceeds the unpaid
balance of such principal, such excess shall be refunded to Borrower. To the
extent not prohibited by law, determination of the legal maximum rate of
interest shall at all times be made by amortizing, prorating, allocating and
spreading in equal parts during the period of the full stated term of the
indebtedness, all interest at any time contracted for, charged or received from
Borrower in connection with the indebtedness, so that the actual rate of
interest on account of such indebtedness is uniform throughout the term hereof.
If default is made in the payment of this Note and it is placed in the
hands of an attorney for collection, or collected through probate or bankruptcy
proceedings, or if suit is brought on this Note, Borrower agrees to pay
reasonable attorneys' fees in addition to all other amounts owing hereunder.
Borrower and any and all endorsers, guarantors and sureties severally
waive grace, demand, presentment for payment, notice of intent to accelerate,
notice of dishonor or default, protest and notice of protest and diligence in
collecting and bringing of suit against any party hereto, and agree to all
renewals, extensions or partial payments hereon and to any release or
substitution of security herefor, in whole or in part, with or without notice,
before or after maturity.
This Note shall be governed by the internal laws, and not the laws of
conflict of laws, of the State of Texas.
BORROWER:
TESCORP, INC.
By: /s/ Jack S. Gray, Jr.
Its: President
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<S> <C>
Direct Subsidiaries/Jurisdiction of Organization Indirect Subsidiaries/Jurisdiction of Organization
- ------------------------------------------------ --------------------------------------------------
Austral Communications Corp./Delaware Comunicaciones Austral, S.A./Argentina
Cabledifusion, S.A./Argentina
SMR, S.A./Argentina
Televisora Austral S.A./Argentina
TV Nieve S.A./Argentina
Cablemax S.A./Argentina
ARTV S.A./Argentina
BTC S.A./Argentina
Vision Codificada S.A./Argentina
SIR TV S.R.L./Argentina
Transcable S.A./Argentina
Cable Viedma S.R.L./Argentina
Televiedma S.R.L./Argentina
</TABLE>
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Tescorp, Inc.:
We consent to the use of our report included herein and incorporated herein by
reference and to the reference to our firm under the heading "Experts" in the
prospectus and in the registration statement.
Austin, Texas
August 11, 1997
