UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-25820
PROMAX COMMUNICATIONS INC.
(Exact name of Registrant as specified in its charter)
British Columbia, Canada N/A
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
25 Central Park West, # 16E
New York, NY 10023
- ------------------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 265-0842
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, No Par Value
Class B Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) have been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the Class A and Class B common shares
held by other than affiliates of the Registrant, computed by reference to the
last sales price of such stock as of the close of trading on September 25, 1997,
was $15,680,827.
The number of shares outstanding of the Registrant's common stock, as
of September 15, 1997, was:
Class A common stock - 7,734,173 shares; and
Class B common stock - 1,795,200 shares.
Documents Incorporated by Reference
None
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PART I
Certain statements set forth in the Company's Annual Report on Form
10-K for the year ended June 30, 1997 constitute forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
are subject to the safe harbor created by such section. When appropriate,
certain factors that could cause results to differ materially from those
described in the forward looking statements are enumerated. As a result, this
Annual Report on Form 10-K, including the Consolidated Financial Statements and
the notes thereto, should be read in its entirety for a complete understanding
of such factors.
ITEM 1. BUSINESS
COMPANY HISTORY
The Company was incorporated as First Canadian Financial Corporation on
July 23, 1993 under the Company Act of British Columbia, Canada, as a Mortgage
Investment Corporation engaged in the issuance of residential property
mortgages. On January 22, 1997, an agreement among certain current and former
shareholders was concluded which permitted the Company to initiate a business
strategy of purchasing and developing paging licenses and properties in Latin
America.
Subsequent to January 1997, the Company consolidated authorized and
outstanding classes of shares on a 1 for 5 basis, leaving 10,000,000 shares of
Class A Common Stock and 10,000,000 shares of Class B Common Stock authorized
and changed its name to Promax Communications Inc.
THE BUSINESS OF THE COMPANY
The Company's focus is to acquire and develop paging operations in
South America. Paging is a personal message delivery system utilizing
terrestrial and satellite radio frequencies as the method of message
transmission. Pagers alert their owners, with specific information, when someone
wishes to contact them.
o BRAZIL
Acquisitions and Investments
Sao Paulo - Auto Link (Unbuilt Frequency). In April 1997, Promax
acquired 77.76% of the equity of Auto Link, Telecom, S.A. ("Auto Link"), a
Brazilian company which holds permits from the Brazilian Ministry of
Communications to operate services in Sao Paulo and 32 surrounding
municipalities. Such 77.76% consists of 11.10% in outstanding voting stock (all
of which voting stock constitutes 33.34% of Auto Link's outstanding capital
stock) and 100% of the outstanding non-voting stock, (which voting stock
constitutes 66.66% of Auto Link's outstanding capital stock.) Consideration for
100% of the equity of Auto Link consisted of $2,000,000 in cash and 750,000
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shares of Class A Common Stock, 250,000 shares of which were paid as a
commission to Arlette Siaretta, who was subsequently made a Director of the
Company. The remaining 500,000 shares due to the sellers of Auto Link (including
175,000 shares to Arlette Siaretta, a former shareholder of Auto Link) will be
paid in the near future. Finally, an additional finder's fee of 150,000 shares
of Class A Common Stock was paid to an unaffiliated third party in connection
with this transaction.
Amparo - Operating Company. In April 1997, Auto Link acquired 77.76% of
the equity (utilizing the same structure as set forth above with respect to the
Auto Link transaction) of Amparo Central de Telecommunicacoes Ltda. ("Amparo"),
a paging company operating in Amparo (population one million) on the same
frequency as AutoLink. The purchase price for 100% of the equity was $150,000 in
cash.
Sao Paulo - SkyLink Acquisition - Operating Company. Promax (through
Auto Link) has acquired (i) 77.76% of the equity (utilizing the same structure
as set forth above with respect to the Auto Link transaction) of Andrade Gomez
Communicacoes S.A., operating under the name SkyLink "(SkyLink"), and (ii) an
irrevocable option to purchase the remaining 22.24% of SkyLink. This existing
paging operation serves greater Sao Paulo and a nearby beach area (aggregate
population of 24 million). SkyLink provides service to approximately 10,000
subscribers.
The total consideration for SkyLink consisted of approximately
$6,854,000 in cash (which represents a price of $761.60 per subscriber and
assumes a "valid" subscriber base of 9,000 subscribers) plus 300,000 shares of
Class A Common Stock. Adjustments to the purchase price will occur as a result
of an ongoing KPMG due diligence review on the basis of $761.60 of additional
cash consideration for each "valid" subscriber over 9,000 and $761.60 reduction
in cash consideration for each subscriber under 9,000. The Company also paid a
finder's fee of 300,000 shares of Class A Common Stock to Arlette Siaretta, a
Director of the Company.
Pursuant to Brazilian law, the remaining 22.24% of the equity of Auto
Link, Amparo and SkyLink cannot be transferred until a 3-year operations period
has passed (which has run with respect to SkyLink and which will have run in
September 1997 with respect to Amparo and in September 1998 with respect to Auto
Link) and until the Ministry of Communications approves the transfer of the
licenses. No assurances can be given that such approval will be obtained.
o ARGENTINA
On January 10, 1997, Promax loaned to ArgenTel, a paging company
located in Argentina, the sum of $200,000, which is convertible, at Promax's
option, into 20% of the equity of ArgenTel. The ArgenTel stockholders are not
selling any of their holdings; rather, they will cause ArgenTel to issue shares
from its authorized but unissued common stock such that Promax's ownership will
equal 20% of ArgenTel's outstanding common stock.
ArgenTel holds a 99% interest in Ledesma Communications S.A., which is
licensed to provide one way paging throughout Argentina (population 34.5
million). Ledesma has applied to the
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government for the assignment of a two-way paging license. Additionally, Ledesma
may acquire 100% ownership of an SMR carrier located on Cordoba, Argentina.
o BOLIVIA
Promax acquired 100% of the stock of Servicios de Telecomunicaciones
S.A. ("Servicios") in June 1997. Servicios is licensed to provide one-way
paging, on two frequencies, for the entire country of Bolivia (population 7.4
million).
The purchase price was $600,000, consisting of $150,000 in cash and
390,000 shares of Class A Common Stock.
STRATEGY
Management's near-term strategy is to focus on the rapid build out of
the Brazilian system, which it believes has greater potential than all other
South American markets. The Company's goal is to gain subscribers through a
marketing and advertising campaign. By focusing on both business and consumer
paging customers, the Company plans to:
o Target business customers through a commissioned direct sales force,
telemarketing, advertising and retail distribution channels including
the use of retail showrooms located strategically throughout the
Company's markets. To that end, the Company has entered into exclusive
agreements with various retailers and educational institutions with an
aggregate of approximately 1,000 locations in greater Sao Paulo to sell
pagers utilizing the Company's services.
o Focus on key elements of customer satisfaction during the sales process
and over the life of the subscriber by providing the highest levels of
customer service.
o Target key shopping malls for establishment of Company-owned retail
stores.
o Target several retail chains to provide space for low cost sales
kiosks on premises.
o Continue the process of hiring experienced sales people.
o Educate the consumer.
The Company will seek to capitalize on this demand for services by
concentrating its resources primarily on building its Brazilian operations and
to a lesser extent on its other Latin American interests, which may require
additional financing.
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OPERATING ENVIRONMENT
Political Uncertainty.
Historically, the Brazilian Government has often changed monetary,
credit, tariff and other policies to influence the course of Brazil's economy.
Such government actions have included wage and price controls as well as other
measures, such as freezing bank accounts, imposing capital controls and
inhibiting imports and exports. Changes in policy involving, among other things,
tariffs, exchange controls, regulatory policy and taxation, as well as events
such as inflation, devaluation, social instability or other political, economic
or diplomatic developments, could adversely affect the Brazilian economy and
have a materially adverse effect on the Company's results of operations and
financial condition.
Furthermore, the Brazilian political environment has been marked by
high levels of uncertainty since Brazil returned to civilian rule in 1985 after
20 years of military government. The death of a President-elect in 1985 and the
resignation of another President in 1992 in the midst of his impeachment trial,
as well as frequent turnover at and immediately below the cabinet level, have
contributed to delays in the adoption of coherent and sustained policies to
confront the country's economic issues. No assurances can be given that such
political turmoil will not adversely affect the Company's operations.
Economic Uncertainty
Brazil has experienced extremely high rates of inflation for many
years. Furthermore, inflation, government actions to combat inflation and public
speculation about future actions have had significant negative effects on the
Brazilian economy in general and have also contributed materially to economic
uncertainty in Brazil. In periods of inflation, many of the Company's expenses
will tend to increase. Generally, in periods of inflation, a company is able to
raise its prices to offset the rise in its expenses and may set its prices
without government regulation. However, under Brazilian law designed to reduce
inflation, the rates which the Company may charge to a particular subscriber may
not be increased until the next anniversary of the subscriber's initial
subscription. Thus, the Company is less able to offset expense increases with
revenue increases. Accordingly, inflation may have a materially adverse effect
on the Company's results of operations and financial condition.
o SkyLink Operations
Since 1994, SkyLink has been operating in greater Sao Paulo and the
beach community areas to the south. It has been managed from inception with
minimal resources for the development of the marketing and sales functions. As a
result, SkyLink serves only approximately 10,000 subscribers after nearly 3
years of operations.
SkyLink's network consists of 22 transmitters operating on a POCSAG
paging format. The transmitters are controlled by radio link using the 454 MHZ
frequency band. Assuming that 100%
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of the pagers over the network are alphanumeric, the capacity of this network,
as currently configured, is approximately 50,000 pagers. Promax believes that an
incremental capital investment of $1,000,000, to be completed over a 12 month
period, will allow for the conversion of POCSAG format to FLEX (R) and result in
an increase of active capacity from 50,000 alphanumeric pagers to 120,000.
The software which provides all billing, inventory, customer service,
management of operator positions and paging terminal management functions has
been developed in-house and represents state-of-the-art quality. A total of
nearly 60 telephone operators are in place serving customers in shifts over each
24-hour day, 7 days a week. Once the acquisition is complete, SkyLink's
operations will be merged into the Auto Link entity, thereby absorbing SkyLink's
employee base and providing an immediate operating platform for Auto Link.
The Company also intends to take advantage of the fiber optic cable
which has been installed in portions of Sao Paulo. The fiber optic cable will be
used to transport paging messages from the paging terminal to the satellite
uplink for distribution to the network of paging transmitters. The Company also
intends to utilize a satellite uplink facility and satellite transponder
capacity. The fiber optic cable and access to the uplink and the satellite
transponder time are owned by Casablanca On- Line Group ("Casablanca"), a group
controlled by the family of Arlette Siaretta, an officer and Director of the
Company. The Company intends to pay for all services provided by Casablanca
pursuant to a schedule to be negotiated.
o Amparo Operations
The Amparo system has been in operation for over two years and
presently serves approximately 300 subscribers. The Company does not intend to
expand the Amparo system at the present time.
o Sales and Marketing
The Company intends to target both the consumer and the business
markets with its service package. Initially, the Company expects that
approximately 70% of new business will come from the consumer market as a result
of advertising campaigns, Company-owned retail outlets and a network of retail
resellers; 30% of the new subscribers are expected to come from the business
community as a result of direct sales and through the network of business
contacts associated with Casablanca. Eventually the Company expects consumer and
business users to reach a more balanced mix.
o Regulation
Regulation of paging in Brazil falls under the supervision of the
Ministry of Communications. Paging licenses are granted for 15 years and are
renewable for successive 15-year periods. The Ministry has indicated that new
paging licenses are to be granted only pursuant to a public auction. No time
frames have been established for these auctions. While the Company intends to
participate
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in the auction process, no assurances can be given that the Company will have
sufficient resources to bid successfully to acquire additional licenses.
To date, the Ministry of Communications has issued approximately 681
paging permits; the Company has interests in 33 of such permits.
COMPETITION
The Company will have competition in all Brazilian markets in which it
intends to operate. Today, competition is based predominantly upon the price of
the pager. Over time, the Company believes that competition will center on
quality of service, variety of service offerings, coverage area and price of
service, in addition to the price of the pager itself. Most of the marketing
focus in Sao Paulo today is directed at the consumer segment, with the larger
competitors investing in advertising campaigns and the development of the retail
sales channel.
In Sao Paulo, the larger competitors include Mobitel, Teletrim,
PowerNet and Conectel. Recently PageNet, the largest paging company in the
world, entered into the Brazilian paging market. In all major paging markets
throughout the world, a certain level of competition is necessary to create
market awareness and drive paging penetration levels upwards.
Given the limited amount of paging frequencies made available by the
Ministry of Communications, management believes that business and consumer
demand for service will continue to outpace supply. The Sao Paulo and Rio de
Janeiro metropolitan areas together account for approximately 67% of the
existing paging market in Brazil, but paging penetration rates are only about
2.20% and 1.85%, respectively. U.S. penetration is approximately 15% but is
typically higher in urban areas. Management expects by the year 2000 that the
Brazilian national penetration should be approximately 3%, or 6 times its
current penetration rate of .5%. No assurances can be given that such growth
will take place.
Management estimates that there are currently 26 paging licenses issued
in the greater Sao Paulo area with an aggregate capacity of 2.51 million pagers.
While some of its competitors have as many as 150,000 pagers in service, the
Company currently has only approximately 10,000 subscribers in SkyLink. The
Company is therefore not currently a significant factor in the Brazilian paging
industry.
o Employees
At September 25, 1997, the Company employs a total of 124 persons including 4
executive officers and 120 persons involved in the Company's paging operations
in Brazil. The Company believes that its relationship with its employees is
good.
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ITEM 2. PROPERTIES
The Company rents office space for its administrative offices in
Vancouver, British Columbia, Canada on a month to month basis and has entered
into a 3 year lease for its local operating offices in Sao Paulo, Brazil. The
Company's executive offices in New York are provided without charge (other than
reimbursement for out-of-pocket expenses) by Jane Street Communications, Inc., a
company beneficially owned by Steven L. Sinn, the Company's Chairman and Chief
Executive Officer.
The Company believes that such space is adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is
a party to or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Price Range of Class A Common Stock
The following high and low sale prices are as reported by the Nasdaq
Bulletin Board:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1997 1996
High Low High Low
First Quarter ......................................................n/a n/a n/a n/a
Second Quarter ................................................... n/a n/a n/a n/a
Third Quarter .....................................................$3.75 $0.60 n/a n/a
Fourth Quarter ....................................................$5.03 $3.25 n/a n/a
</TABLE>
No trades were reported for the period commencing July 1, 1995 and
ending February 3, 1997 as trading in the Company's Class A Common Stock was
halted at the Company's request.
. On September 25, 1997, there were approximately 506 shareholders of
record.
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Common Stock
The Company is authorized to issue 10,000,000 shares (without par
value) of Class A Common Stock and 10,000,000 shares of Class B Common Stock
(without par value). As of September 15, 1997, there were shares of Class A
Common Stock and 1,795,200 shares of Class B Common Stock issued and
outstanding.
Shares of Class A Common Stock have the following special rights and
restrictions:
The Directors of the Company shall at all times, in their complete
discretion, have the right to declare dividends on the Class A Common Stock in
conjunction with or to the exclusion of Class B Common Stock and at rates and
terms the same as or different from that which may be declared on the Class B
Common Stock.
In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, or other distribution of the assets of the
Company among its stockholders for the purpose of winding up its affairs or upon
a reduction or return of capital, the holders of Class A Common Stock are
entitled to receive, before any distribution of any part of the assets or
property of the Company among the holders of the Class B Common Stock, the
amount paid up on Class A Common Stock together with an amount equal to all
accrued and unpaid dividends thereon. Thereafter, and following distribution of
any part of the assets or property of the Company among the holders of the Class
B Common Stock, as provided for below, the remaining property and assets of the
Company shall be distributed to the holders of Class A Common Stock pro rata
according to the amount of paid up capital on each share of such Class A Common
Stock bears to the total paid-up capital on all of the then issued and
outstanding shares of Class A Common Stock.
At all meetings of the shareholders of the Company, the holders of the
Class A Common Stock are entitled to one vote for each share of Class A Common
Stock held. If and whenever at any time the outstanding Class B Common Stock of
the Company shall be subdivided, redivided or changed into a greater or
consolidated into a lesser number of shares, the then outstanding Class A Common
Stock of the Company shall also be subdivided, redivided or changed into a
greater or consolidated into a lesser number of shares on the same basis.
Shares of Class B Common Stock have the following special rights and
restrictions:
The directors of the Company shall, at all times, in their complete
discretion, have the right to declare dividends on the Class B Common Stock in
conjunction with or to the exclusion of the Class A Common Stock and at rates
and on the terms the same as or different from that which may be declared on
Class A Common Stock.
In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, or other distribution of assets of the Company
among its stockholders for the purpose of winding up its affairs or upon
reduction or return of capital, the holders of Class B Common Stock
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are entitled to receive, after the distributions to the holders of Class A
Common Stock of the amount paid-up on the Class A Common Stock together with all
accrued and unpaid dividends thereon, only the amount paid up on the Class B
Common Stock together with all accrued and unpaid dividends thereon and no more.
At all meetings of the shareholders of the Company, the holders of the
Class B Common Stock are entitled to one vote for each Class B Share held.
The holders of Class B Common Stock have the right, at any time, to
convert Class B Common Stock into Class A Common Stock on the basis of one share
of Class A Common Stock for each share of Class B Common Stock so converted upon
payment to the Company of a sum equal to the average paid-up capital per share
of Class A Common Stock on the date of such conversion.
Dividends
The Company has no present plan to pay cash dividends on either Class
of its Common Stock in the foreseeable future and has covenanted that it will
not declare or pay any dividends (either in cash, stock or property) on the
Class B Common Stock during the period commencing August 1, 1997 and ending
January 1, 2002.
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ITEM 6. SELECTED FINANCIAL DATA
The following tables present selected information relating to the
financial condition and results of operations the Company for the past five
years and should be read in conjunction with consolidated financial statements.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
June 30
1997 1996 1995 1994*
---- ---- ---- -----
Summary Balance Sheet Data:
Working capital 645,975 354,011 50,565 28,810
Property and equipment, net 201,773 269 385 552
Total assets 4,464,223 613,326 628,351 356,557
Total debt 1,032,109 41,549 10,671 3,655
Total shareholders' equity 3,208,403 571,777 617,686 352,902
June 30
1997 1996 1995 1994*
---- ---- ---- -----
Summary Statement of
Operations Data
Revenue 48,388 100,170 102,898 28,510
Operating income (loss) (796,358) (45,505) 88,040 27,370
Interest expense - - - -
Net earnings (loss) attributable (778,341) (45,505) 880,400 273,700
to common stockholder(s)
Earnings per Common Share (0.43) (0.04) 0.04 0.01
Dividends paid to common - 38,570 67,245 8,089
stockholders
Weighted average number of 4,105,774 3,506,683 16,152,364 12,095,927
common shares outstanding at
year end
* Company incorporated July 23, 1993
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Promax Communications Inc. (formerly First Canadian Financial
Corporation) was created as a mortgage investment corporation involved in the
issue and management of residential property mortgages in Canada. In January
1997, an agreement was reached with investors to change the business strategy of
the Company in recognition of new communications opportunities identified in
South America and to invest in the development of a paging business.
The results contained in this report consolidate the Company's
investments in all subsidiaries following this change of strategy, all of which
were acquired in the last quarter of the 1997 fiscal year. The Company's
ownership interests are described in Note 1 to the financial statements appended
to this filing and the Company's accounting policies are fully described in Note
2.
ACQUISITIONS
In April 1997, Promax completed the acquisition of 77.76% of the equity
of Auto Link Telecom S.A. ("Auto Link") located in Sao Paulo, Brazil, and has an
option to acquire the remaining 22.24% when approval for the transfer is granted
by the Brazilian Ministry of Communications. Auto Link holds permits to operate
paging services in Sao Paulo and 32 surrounding municipalities, but has not
initiated any service to date.
The 77.76% interest consists of 11.10% of the voting stock (all of
which voting stock constitutes 33.34% of Auto Link's outstanding capital stock)
and 100% of the outstanding non-voting stock, (which non-voting stock
constitutes 66.66% of Auto Link's outstanding capital stock.) Consideration paid
for this interest consisted of $2 million in cash and finder fees of 400,000
Promax Class A common shares which were issued from treasury.
When the additional 22.24% of the Auto Link shares are permitted to be
transferred, under the option arrangement, a further 500,000 Class A common
shares will be issued to the venders after which Promax will own 100% of Auto
Link.
Also in April 1997, Promax acquired a 77.76% interest in Amparo Central
De Telecommunicacoes Ltda., ("Amparo") a paging company operating in Amparo,
Brazil (population approximately 1 million). The system has been in operation
for more than two years and presently serves over 300 subscribers. The purchase
price for 100% of the equity was $150,000 in cash paid in full, although
transfer of the remaining 22.24% of the equity is subject to the approval of the
Ministry of Communications as was the case with Auto Link.
In June 1997, the Company acquired 100% of Servicios de
Telecommunicaciones S.A., ("Servicios") a company licensed to provide one way
paging on two frequencies for the entire country
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of Bolivia (population 7.4 million). At year end, no operations had yet
commenced in this company. The consideration paid for this company consisted of
cash in the amount of $150,000 and 390,000 Class A common shares.
Finally, also in June, the Company signed a letter of intent to acquire
77.76% of a fourth company, Andrade Gomez Communicacoes S.A.("Andrade") with an
irrevocable option to purchase the remaining 22.24%. This paging operation
serves greater Sao Paulo and a nearby beach area (population 24 million). The
company provides service to approximately 9,500 subscribers presently.
The total consideration, based on 9,000 subscribers, will consist of
approximately $6,900,000 payable in cash plus 300,000 Class A common shares of
the Company. More details of this proposed transaction are included in ITEM 1 -
BUSINESS of this filing.
RESULTS OF OPERATIONS - Fiscal year ended June 30, 1997 compared to fiscal years
ended June 30, 1996 and June 30, 1995.
Revenues:
As a result of these acquisitions, the Company is able to report
subscriber revenues from May 1, 1997, the effective date of acquisition of
Amparo, amounting to $16,000. No comparable revenues were earned in either 1996
or 1995.
Other revenues in the current year totalling $31,000 were comprised of
approximately $11,000 of interest income arising from investment of funds on
hand and approximately $20,000 of interest income from the mortgage portfolio
held earlier in the year. In 1996 and 1995, all revenues amounting to $100,000
and $103,000 respectively were interest income from the mortgage portfolio.
Expenses:
Total operating costs for 1997 of $845,000 were far greater than in the
prior years, reflecting both the costs of the modest existing operations and the
planning and preparation for expanded operations of the other companies
acquired. Operating costs for the current year included Technical Operations
amounting to $28,000, Sales and Marketing of $149,000, Administration of
$611,000 and Amortization of $57,000.
Due to the change of business, comparable operating costs for 1996 of
$52,000 and 1995 of $15,000 were solely administrative in nature incurred to
manage the mortgage investments.
Technical Operations costs were $28,000 for the year, of which $6,000
related solely to the Amparo operations. The additional costs of $22,000 were
incurred in the form of salaries and other costs for the re-engineering of both
Auto Link and Amparo facilities to increase the overall system capacity. As
previously noted, no comparable costs were incurred in either 1996 or 1995.
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Sales and Marketing costs of $149,000 represent the costs of staff and
consulting services for market surveys and assessment and for the development of
a marketing campaign. As was the case for Technical Operations, no comparable
costs for 1996 or 1995 were incurred.
Administration costs aggregating $611,000 were the most significant
cost component by far due to both the acquisition activity in the year and the
general administrative costs in support of the re-engineering and new marketing
thrust development undertaken by management. Promax's corporate costs amounted
to $370,000 attributed to professional fees primarily ($61,000), travel
($93,000) consulting fees ($56,000) management salaries ($48,000) and other
office, corporate and regulatory costs ($57,000). The remainder of the
Administration costs of $296,000 included approximately $6,000 attributable to
Amparo's administration with the other $290,000 incurred by Auto Link as
professional fees ($65,000), consulting fees ($73,000) and salaries and other
in-country corporate and operational costs ($152,000).
In 1996, Administration costs of $52,000 included professional fees
($39,000) and general administration costs ($13,000). In 1995, these costs were
lower at $15,000, essentially all professional fees.
Amortization, included with operating costs, amounted to $57,000
comprised of approximately $3,000 for equipment depreciation and the remaining
$54,000 for amortization of the deferred acquisition costs of the various paging
licenses arising from the three acquisitions in the year. Amortization amounts
for 1996 and 1995 were insignificant by comparison, under $200 each year.
Other Income and Expenses in 1997 included a revenue amount of $16,000,
reflecting the recovery of monies from a mortgage receivable previously written
off. In 1996, an expense of $94,000 was reported arising from the write down in
carrying value of the Company's mortgage portfolio. In 1995, there were no such
revenue or expense items.
Net Operating Income:
The Company experienced an operating loss in 1997 of $778,000 before
taxes and non-controlling interest (related to the 22.24% of the subsidiary
equity held by others) reflecting the flow through of the high cost levels for
the acquisition and re-engineering of the operations of the Brazilian companies.
In 1996, a loss was also suffered of $46,000 as a result of the substantial
write-down of the mortgage portfolio in that year. In 1995, a profit of $88,000
resulted from the mortgage investment operation.
LIQUIDITY AND CAPITAL RESOURCES
Corporate Funding Activities:
At the beginning of the year, approximately 5,741,000 Class A common
shares were outstanding. In settlement of an action brought against the Company
and its former management by
14
<PAGE>
certain shareholders seeking an appraisal and purchase of their shares,
approximately 4,397,000 shares of Class A Common Stock were redeemed. The
aggregate cost of such redemptions was $478,000. Following this, the Board of
Directors authorized a rollback of the Class A and Class B Common Stock to
reduce the share capitalization of the Company on the basis of 1 new share for
each 5 of the existing shares held. As a result, only 268,671 Class A common
shares remained issued and outstanding at the time of the business change.
Subsequent to the change in January, the Company completed certain
private placements to fund the cash requirements of the acquisitions. Monies
were also used to direct the operations from both technical and organizational
perspectives, to create a marketing program for subscriber growth, and to cover
all of the Company's corporate professional fees, management and administrative
costs related to the activities in the period. A total of 3,881,502 Class A
Common shares plus a further 100,000 Class A common shares paid as broker fees
were issued in these private placements raising $2,743,000.
In addition, 605,000 Class B common shares of the Company were
converted into Class A common shares in the year providing a further $343,000 of
working capital to the Company. The conversion privileges require additional
cash payments to equalize the per share cost of the Class B shares to the
average capitalized value of all of the outstanding Class A shares at the time
of conversion.
While most of the purchase price of the three acquisitions was paid in
cash, 790,000 shares of Class A common shares were issued also valued at $1.00
per share (the prevailing market rate at the time of acquisition) thereby adding
$790,000 to the Company's equity.
By contrast, in 1996, only 363,439 Class A common shares were issued to
raise $29,000 with a further 117,232 Class A shares issued as broker's fees. No
funding took place in 1995.
With respect to the Company's Class B common shares, there were
12,001,000 shares outstanding throughout both 1995 and 1996 recorded in the
accounts with a capitalized value of $877. In 1997, concurrent with the rollback
of the Class A shares, the Class B shares were rolled back also on the
equivalent basis of 1 new share for each 5 outstanding shares which reduced the
issued total to 2,400,200 shares, with no change to the capitalized value.
Following the change in business strategy, 605,000 of these Class B shares were
converted to Class A shares further reducing the outstanding share count to
1,795,200 and the capitalized value to $650.
Liquidity:
The Company's liquidity throughout the year has been maintained by
means of three private placements which raised a total of $2,743,000. As stated
previously, all of these monies have been used to meet the cash requirements of
the three acquisitions and the associated developmental and support costs. At
year end, the Company is believed to be adequately funded with a cash position
of
15
<PAGE>
approximately $700,000, a level more than sufficient to meet its immediate
obligations and short-term operating needs.
In September 1997, the Company completed the Andrade acquisition for
consideration of approximately $6,900,000 cash and 300,000 shares of Class A
Common Stock. In order to finance this new system's purchase and operational
needs, the Company commenced a private placement of Class A Common Stock (at a
purchase price of $2.00 per share) in the first quarter of the new fiscal year.
To date, the Company has sold 2,000,000 shares in this offering.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Promax Communications Inc.
are set forth under Item 14 of this filing.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the year, the Company's accountants resigned although there were
no matters of disagreement at any time prior to their resignation. KPMG were
appointed by the Board of Directors in June, 1997 and their audit report for the
year ended June 30, 1997 is attached to this filing.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name Age Position
o Steven L. Sinn 51 Chairman, Chief Executive Officer and Director
o Minaz Devji 44 Corporate Secretary and Director
o Ross Wilmot, C.A. 53 Vice President, Finance and Director
o Arlette Siaretta 54 Vice President, Marketing
</TABLE>
o Steven L. Sinn has been Chairman, CEO and Director of the Company since
February 2, 1997. For the past two years, Mr. Sinn has been an investor and
management consultant in the telecommunications industry through his privately
held company, Jane Street Communications, Inc. From 1983 to 1995, Mr. Sinn was
Chairman and CEO of PageAmerica Group, Inc., one of the largest publicly held
paging companies in the United States. From 1972 to 1983, he was Senior Vice
President and Director of UA Columbia Cablevision, Inc., one of the 10 largest
cable television companies in the United States, until it was sold in 1983. Mr.
Sinn currently serves as a director of two private communications companies, a
broadcast radio operation and a national long distance reseller. He has
previously served as director of USA Network, a cable television network, and
MecklerMedia Inc., an Internet media company and publisher of Internet World
magazine.
o Minaz Devji has been Corporate Secretary and Director of the Company since
January 10, 1997. Mr. Devji is a self-employed businessman and financier. Mr.
Devji was involved in St. Philips Resources Ltd., which owns 40% of the South
Kemess Gold Deposit in British Columbia, Canada, which Royal Oak Mines purchased
in January 1996 for $200 million (Canadian dollars) in cash. He is a Director of
various companies including Paloma Ventures Ltd. and IAS Technologies Inc.
o Ross Wilmot, C.A. is a self-employed chartered accountant and has been Vice
President, Finance and Director of the Company since May 23, 1997. Mr. Wilmot is
also a Director and Vice President, Finance of Multivision Communications Corp.
and Vice President, Finance for Athabaska Gold Resources Ltd., Breckenridge
Resources Ltd., and Even Resources Ltd. Mr. Wilmot was Treasurer of Canbras
Communications Corp. during its start-up period. He is a Director of IAS
Technologies Inc., Harambee Mining Corp., Paloma Ventures Ltd. and Teledata
Ventures Ltd.
o Arlette Siaretta has been Vice President, Marketing since March 1, 1997. Ms.
Siaretta is also one of the controlling holders and an officer of Casablanca in
Sao Paulo, Brazil. The Board intends to nominate Ms. Siaretta for a Directorship
in the near future.
17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to the
compensation awarded or paid to or earned by the chief executive officer for
services rendered in all capacities to the Company (including its subsidiaries)
for 1997. No other officer earns in excess of $100,000 per annum and no
executive compensation was paid during the fiscal years ended June 30, 1996 and
June 30, 1995.
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensa
tion
Steven Sinn................................... 1997 $40,000 Nil $2,660 (2) Nil
Chairman, President and (1)
Chief Executive Officer
</TABLE>
(1) Mr. Sinn became the Company's Chief Executive Officer in March 1997, and is
compensated at the rate of $120,000 per annum.
(2) Represents the amount reimbursed during the fiscal year for payment of
insurance premiums.
Proposed Employment Agreements.
Steven L. Sinn, the Company's Chairman and CEO, is currently being
compensated at the rate of $120,000 per annum (plus expenses and health
benefits) pursuant to an informal agreement to be superseded by a definitive
employment agreement with Mr. Sinn to be entered into in the near future.
The Company also intends to enter into a three-year employment
agreement with Arlette Siaretta which will provide for an annual salary of
$150,000, $75,000 of which will be paid as an advance. As additional
consideration, it is currently contemplated that Ms. Sarietta will also be
granted 75,000 shares of Class A Common Stock in the first year of service and
225,000 shares in each of her second and third years of service.
It is also contemplated that Ms. Sarietta's contract will provide that
upon any new issuance of the Company's Common Stock, Promax shall grant her a
one-year pre-emptive option to purchase the number of shares required to
maintain her 12.5% ownership in the Company prior to the issuance of such shares
at an exercise price equal to the consideration paid for such newly issued
shares. The foregoing terms have been agreed to in principle, but no agreement
has been executed to date.
While the Company intends to enter into employment agreements with Mr.
Sinn and Ms. Siaretta, no assurances can be given that such agreements will be
executed.
18
<PAGE>
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table shows as of August 31, 1997, the number and
percentage of shares of the Company's Class A and Class B Common Stock (in the
aggregate), and held by the directors and all officers individually and as a
group:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Number of Shares
Name and Address Beneficially Owned (1) Percentage
- ---------------- ---------------------- ----------
Steven L. Sinn 567,188 (2) 7.19%
25 Central Park West
New York, NY 10023
Minaz Devji 700,000 (3) 8.88%
1185 West Georgia Street
Vancouver, B.C. V6E 4E6
Arlette Siaretta 800,000 (4) 10.15%
Avenida Republica do Libano 379
Sao Paulo, Brazil
Ross Wilmot -0- *
1185 West Georgia Street
Vancouver, B.C. V6E 4E6
Ashif Motan 1,005,000 (5) 12.75%
965 Old Lillooet Road
North Vancouver, B.C. V7J 3H6
All officers and 2,067,188 26.22%
directors
as a group (4 Persons)
</TABLE>
- --------------------------
Less than 1%
(1) Beneficial ownership is determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended and generally includes
voting or investment power with respect to securities. Shares of Common Stock
issuable upon the exercise of options, warrants and convertible notes currently
exercisable or convertible within sixty days are deemed outstanding for
computing the percentage ownership of the person holding such options or
warrants, but are not deemed outstanding for computing the percentage of
ownership of any other person.
Unless otherwise indicated, the Company believes that all persons named
in the table have sole investment and voting power with respect to the shares of
Common Stock beneficially owned by them.
19
<PAGE>
(2) Includes 200,000 shares of Class A Common Stock, 235,000 shares of
Class B Common Stock and immediately exercisable options to purchase 132,18
shares of Class A Common Stock (71,250 of which are exercisable at $0.50 per
share and 60,938 of which are exercisable at $2.00 per share). Does not include
unvested options held by Mr. Sinn to purchase 396,563 shares of Class A Common
Stock (213,750 of which are exercisable at $00.50 per share and 182,813 of which
are exercisable at $2.00 per share). Such options vest at the rate of 25% every
six (6) months. The options exercisable at $2.00 per share were originally
exercisable at $3.25. The exercise price of such options was reduced pursuant to
an oral agreement between the Company and Mr. Sinn.
(3) Includes 700,000 shares of Class A Common Stock.
(4) Includes 250,000 shares of Class A Common Stock, 175,000 shares of
Class A Common Stock to be issued in connection with the Autolink acquisition,
75,000 shares of Class A Common Stock to be issued pursuant to Ms. Siaretta's
proposed employment agreement and 300,000 shares of Class A Common Stock
issuable to Ms. Siaretta upon the closing of the SkyLink acquisition. Does not
include 225,000 shares of Class A Common Stock which may be issued in each of
years two and three of Ms. Siaretta's proposed employment agreement or warrants
to purchase shares of Class A Common Stock issuable pursuant to an anti-dilution
clause of such agreement.
(5) Includes 820,000 shares of Class A Common Stock and 185,000 shares
of Class B Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1997, the Company sold 2,000,000 shares of Class A Common
Stock at a price of $0.12 per share to certain Directors (Steven L. Sinn,
200,000 shares; former Director Ashif Motan, 800,000 shares; Minaz Devji,
700,000 shares and former Director Robert H. Miller, (via Candide Investments,
Ltd.), 300,000 shares for gross proceeds of $240,000. All of such 2,000,000
shares (except for 130,000 of the shares held by Candide Investments Ltd.) are
subject to a written pooling agreement dated April 23, 1997 whereby the holders
thereof may not sell, transfer or hypothecate them in any manner whatsoever;
provided, however, that 25% of such shares shall be released on April 23, 1999
and the balance on April 23, 2000.
In March 1997, the Company completed a private placement of 1,300,000
shares of Class A Common Stock at a price of $0.50 per share for gross proceeds
of $650,000. Ashif Motan purchased 20,000 shares in this Offering and a fund
("Fund") whose investment power is held by Patrick Siaretta, the adult son of
Arlette Siaretta, a Director of the Company, purchased 200,000 shares in this
Offering.
In May 1997, the Company completed a private placement of 596,500
shares of Class A Common Stock at a price of $3.25 for gross proceeds of
$1,938,625. Pursuant to an oral agreement between the Company and the investors
in such offering, the per share purchase price of such offering will be
retroactively reduced to $2.00 per share, however. As a result, an aggregate of
372,183 additional shares of Class A Common Stock will be issued to investors in
such offering. The Fund purchased 250,000 shares in this Offering.
20
<PAGE>
In July 1997, the Company completed a private placement of 3,800 Units,
each Unit consisting of one (1) 12% Secured Promissory Note and warrants to
purchase 250 shares of Class A Common Stock at $3.25 per share. Pursuant to an
oral agreement between the Company and the investors in such offering, the
exercise price of such warrants will be retroactively readjusted to $2.00 per
share and the aggregate number of warrants will be increased to 1,852,500,
including 308,750 issued to the placement agent as part of its compensation in
connection with such offering. The Fund purchased 800 Units in this offering.
The oral agreements in the May and July 1997 offerings contemplated
that the $3.25 purchase price of (or the $3.25 exercise price of any warrant to
purchase) one share of Class A Common Stock in such offerings would be reduced
to an amount equal to the offering price per share of Class A Common Stock in
any subsequent offering of Class A Common Stock. Given that management believes
that market conditions required that this Offering be priced at $2.00 per share
of Class A Common Stock, the offering prices and number of shares (or warrants,
as the case may be) have been adjusted in such financings pursuant to such oral
agreements.
The Company has issued 250,000 shares of Class A Common Stock as a
commission to Arlette Siaretta regarding the Auto Link acquisition, 300,000
shares of Class A Common Stock as a finder's fee regarding the SkyLink
acquisition and is obligated to issue her 175,000 shares of Class A Common Stock
(as part of the purchase price) for her interest in the Auto Link transaction
The Company may purchase certain services, such as the use of fiber
optic cables and the use of a satellite uplink facility, from Casablanca, a
company controlled by Ms. Siaretta pursuant to a fee schedule to be negotiated.
The Company obtains the use of certain office space in Vancouver,
Canada (including the use of telephone and facsimile), as well as secretarial,
accounting and administrative services from International Portfolio Management
Inc. ("IPM"). Ross Wilmot, an officer and Director of the Company, is an officer
of IPM. Minaz Devji, a director of the Company, is an affiliate of IPM, but
received no compensation from and has no ownership in IPM. The Company pays IPM
at the rate of approximately $50,000 per annum for such services. The Company's
executive offices in New York are made available without charge by Jane Street
Communications, Inc., a company beneficially owned by Steven L. Sinn, the
Chairman and CEO of the Company.
All transactions between the Company and a Director, executive officer,
or a 5% shareholder of the Company must be on terms and conditions no less
favorable to the Company than those available from unaffiliated third parties.
21
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
REFERENCE FORM 10-K ANNUAL REPORT PAGE
(a)(1)
Report of Independent Accountants F-1
Consolidated Balance Sheets at June 30, F-2
1997 and 1996
Consolidated Statements of Operations F-3
and Retained Earnings for the years
ended June 30, 1997, 1996 and 1995
Consolidated Statements of Changes in F-4
Financial Position for the years ended
June 30, 1997, 1996 and 1995
Notes to Consolidated Financial F-5
Statements
(a)(2) The following exhibits are filed herewith:
Exhibit
Number Exhibit
3.1 Certificate of Incorporation *
4.1 Specimen Certificate of Class A Common Stock *
4.2 Specimen Certificate of Class B Common Stock *
10.1 AutoLink Purchase Agreement*
10.2 Amparo Purchase Agreement *
10.3 Servicios Purchase Agreement
10.4 SkyLink Purchase Agreement *
21 Subsidiaries of the Registrant
</TABLE>
* To be filed by amendment
22
<PAGE>
Consolidated Financial Statements of
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Years ended June 30, 1997, 1996 and 1995
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheet of Promax Communications Inc.
(formerly First Canadian Financial Corporation) as at June 30, 1997 and the
consolidated statements of operations and retained earnings (deficit) and
changes in financial position for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 1997 and
the results of its operations and the changes in its financial position for the
year then ended in accordance with generally accepted accounting principles in
Canada. As required by the Company Act (British Columbia), we report that, in
our opinion, these principles have been applied on a consistent basis.
The financial statements as at June 30, 1996 and for the years ended June 30,
1996 and 1995, prior to restatement for the change in reporting currency as
described in note 2, were audited by other auditors who expressed an opinion
without reservation on those statements in their report dated October 18, 1996.
We have examined the adjustments that were applied to restate the 1996 and 1995
financial statements and in our opinion, such adjustments are appropriate and
have been properly applied.
Significant differences between the accounting and disclosure requirements of
Canadian and United States generally accepted accounting principles are
quantified and explained in note 11 to the financial statements.
KPMG
Chartered Accountants
Vancouver, Canada
August 29, 1997
F-1
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Consolidated Balance Sheets (note 1)
(expressed in United States dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
June 30, June 30,
1997 1996
Assets
Current assets:
Cash and cash equivalents $ 735,847 $ 395,560
Accounts receivable and prepaids 90,502 -
Inventory 33,858 -
860,207 395,560
Investment in ArgenTel (note 4) 200,000 -
Mortgages and loans receivable 26,522 217,497
Equipment (note 5) 201,773 269
Deferred development costs (note 6) 3,175,721 -
$ 4,464,223 $613,326
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 214,232 $41,549
Subscriptions received in advance of issuance of
capital stock (note 7) 1,032,109 -
Non-controlling interest 9,479 -
Shareholders' equity:
Capital stock (note 7) 4,027,455 615,807
Deficit (822,371) (44,030)
Cumulative translation adjustment 3,319 -
3,208,403 571,777
Operations (note 1)
Subsequent events (note 12)
$ 4,464,223 $ 613,326
See accompanying notes to consolidated financial statements.
</TABLE>
On behalf of the Board:
Steven L. Sinn Director
Ross Wilmot Director
F-2
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Consolidated Statements of Operations and Retained Earnings (Deficit) (note 1)
(expressed in United States dollars)
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
Revenues:
Subscriber $ 16,752 $ - $ -
Other 31,636 100,170 102,898
48,388 100,170 102,898
Operating costs:
Technical operations 28,060 - -
Sales and marketing 148,956 - -
Administration 610,891 52,004 14,692
Amortization 56,839 116 166
844,746 52,120 14,858
Income (loss) before the undernoted (796,358) 48,050 88,040
Other income (expenses):
Writedown of mortgages and loans - (93,555) -
Other 16,086 - -
16,086 (93,555) -
Income (loss) before non-controlling interest (780,272) (45,505) 88,040
Non-controlling interest 1,931 - -
Net income (loss) for the year (778,341) (45,505) 88,040
Retained earnings (deficit), beginning of year (44,030) 40,045 19,250
Dividends paid - (38,570) (67,245)
Retained earnings (deficit), end of year $ (822,371) $ (44,030) $40,045
Earnings (loss) per share $ (0.43) $ (0.02) $ 0.04
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Consolidated Statements of Changes in Financial Position (note 1)
(expressed in United States dollars)
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
Cash provided by (used in):
Operations:
Net income (loss) for the year $ (778,341) $ (45,505) $88,040
Items not involving cash:
Amortization 56,839 116 166
Non-controlling interest (1,931) - -
Change in non-cash operating working
capital 86,353 38,292 3,911
(637,080) (7,097) 92,117
Financing:
Issuance of shares, net of issue costs 3,889,874 38,231 243,955
Redemption of shares (477,999) - -
Dividends - (38,570) (67,245)
Amounts receivable related to the issuance
of shares (38,030) - -
Subscriptions received in advance of the
issuance of capital stock 1,032,109 - -
4,405,954 (339) 176,710
Investments:
Investment in ArgenTel (200,000) - -
Mortgages and loans receivable 190,975 349,238 (243,195)
Increase in deferred development costs (100,527) - -
Acquisition of equipment, net of disposals (115,727) - -
Business acquisitions, net of cash
acquired (note 3) (3,203,308) - -
(3,428,587) 349,238 (243,195)
Increase in cash and cash equivalents 340,287 341,802 25,632
Cash and cash equivalents, beginning
of year 395,560 53,758 28,126
Cash and cash equivalents, end of year $ 735,847 $ 395,560 $53,758
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended June 30, 1997, 1996 and 1995
1. Operations:
Promax Communications Inc. (formerly First Canadian Financial Corporation) (the
"Company") was incorporated under the laws of British Columbia as a Mortgage
Investment Corporation on July 23, 1993. From the date of incorporation through
January, 1997 the Company was engaged in the issuance of residential property
mortgages. On January 22, 1997 an agreement among certain current and former
shareholders was concluded which permitted the Company to initiate a business
strategy of developing paging licenses in Latin America.
By date of April 7, 1997, as subsequently amended, the Company entered into an
agreement with Auto Link Telecom S.A. ("Auto Link") to acquire 77.76% of its
issued and outstanding capital stock as follows: 33.34% of the outstanding
voting stock (which constitutes 11.10% of Auto Link's outstanding capital stock)
and 100% of the outstanding non-voting stock (all of which constitutes 66.66% of
Auto Link's outstanding capital stock). The Company was also granted irrevocable
and irretractable option rights with respect to purchasing the remaining 22.24%
of Auto Link's issued and outstanding capital stock (representing 66.66% of the
outstanding voting stock). Auto Link holds permits from the Brazilian Ministry
of Communications to operate paging services in Sao Paulo, Brazil and 32
surrounding municipalities. These consolidated financial statements include the
results of Auto Link's operations from April 30, 1997 (the effective date of
acquisition) to June 30, 1997.
By date of April 30, 1997 the Company, through Auto Link, entered into an
agreement to acquire the Amparo Central de Telecommunicacoes ("Amparo") paging
business in Brazil. At the date of acquisition, Amparo had approximately 300
subscribers. These consolidated financial statements include the results of
Amparo's operations from April 30, 1997 (the effective date of acquisition) to
June 30, 1997.
In June, 1997, the Company completed the acquisition of Servicios de
Telecomunicaciones S.A. ("Servicios"), a company licensed to provide paging
services in Bolivia. Servicios had no operations in the year.
To date the Company has generated no net income from its paging business. These
consolidated financial statements have been prepared on a going concern basis,
which assumes the realization of assets and settlement of liabilities in the
normal course of business.
F-5
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Notes to Consolidated Financial Statements, page 2
(expressed in United States dollars)
Years ended June 30, 1997, 1996 and 1995
2. Significant accounting policies:
The Company prepares its consolidated financial statements in accordance with
generally accepted accounting principles in Canada. Except as disclosed in note
11, they are also in accordance, in all material respects, with accounting
principles generally accepted in the United States. The significant accounting
policies are as follows:
(a) Basis of presentation:
The consolidated financial statements include the accounts of the Company, and
its direct and indirect wholly-owned subsidiaries including: Auto Link, Amparo
and Servicios. All material intercompany balances and transactions have been
eliminated. These consolidated financial statements include the results of
operations of Auto Link and Amparo from the date of their acquisitions (see note
1).
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates that affect the
reported value of assets, such as mortgages and loans, and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(b) Reporting currency:
Because the Company's operations are now primarily denominated in U.S. dollar
based currencies, the Company changed to U.S. dollar reporting in its 1997
financial statements. The comparative financial statements for the years ended
June 30, 1996 and 1995 have been restated from Canadian dollars to U.S. dollars
using a translation of convenience whereby the June 30, 1996 year-end exchange
rate of 0.7309 was applied to each of the previously reported figures.
(c) Cash equivalents:
Cash equivalents are represented by short-term investments issued by major
financial institutions having original terms to maturity of three months or less
when acquired.
(d) Inventory:
Inventory consists of pagers held for resale which are recorded at the lower of
purchase cost to the Company and net realizable value.
(e) Investment in ArgenTel:
The Company's investment in ArgenTel Corporation (note 4) is accounted for by
the cost method.
(f) Mortgages and loans:
Mortgages and loans are stated net of any allowance for credit losses. The
Company has written no new mortgages since September, 1995 and has been
gradually liquidating its portfolio. As at June 30, 1997, one mortgage remains
in the portfolio.
F-6
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Notes to Consolidated Financial Statements, page 3
(expressed in United States dollars)
Years ended June 30, 1997, 1996 and 1995
2. Significant accounting policies (continued):
(g) Equipment:
Equipment is recorded at cost and includes all costs of towers, transmitters,
and other equipment. Equipment is amortized over its estimated useful life as
follows:
Assets Basis Life/Rate
Towers and transmitters straight-line 10 years
Computer equipment and other straight-line 5 years
(h) Deferred development costs:
Deferred development costs are recorded at cost and are being amortized
on a straight-line basis over their estimated useful life of 10 years.
(i) Foreign exchange:
The Company's businesses which operate in other than U.S. dollars are considered
to be self-sustaining in nature. Accordingly, assets and liabilities are
translated into United States dollars at rates of exchange in effect at the
balance sheet date. Transactions which impact the determination of earnings are
translated at average exchange rates during each reporting period. Exchange
gains and losses arising from the translation of the businesses into U.S.Dollars
are excluded from the determination of income and disclosed as the cumulative
translation adjustment in shareholders' equity in the consolidated
balance sheets. Other exchange gains and losses are included in the
determination of income.
(j) Loss per share:
Loss per share is calculated based on the weighted average number of common
shares outstanding after giving retroactive effect to the stock consolidation in
the year ended June 30, 1997.
(k) Financial instruments:
Financial instruments include cash and cash equivalents, accounts receivable,
mortgages and loans, and accounts payable and accrued liabilities, the estimated
fair values of which do not differ materially from their carrying value.
(l) Comparative figures:
Certain comparative figures have been reclassified to conform with the basis of
presentation adopted in the current year's consolidated financial statements.
F-7
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Notes to Consolidated Financial Statements, page 4
(expressed in United States dollars)
Years ended June 30, 1997, 1996 and 1995
3. Business acquisitions:
During 1997 the Company acquired the Auto Link, Amparo and Servicios businesses.
These acquisitions have been accounted for by the purchase method with the
identifiable assets, liabilities, revenues and expenses consolidated from the
date of the respective acquisitions.
The fair value of the consideration on these acquisitions has been allocated to
the assets acquired and liabilities assumed as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Auto Link Amparo Servicios Total
Cash $ 36 $ 656 $ - $ 692
Other current assets - 10,180 - 10,180
Equipment 20,714 77,086 - 97,800
Deferred development costs 2,502,876 138,890 540,000 3,181,766
2,523,626 226,812 540,000 3,290,438
Less:
Current liabilities 1,411 73,617 - 75,028
Non-controlling interest 8,215 3,195 - 11,410
Net assets acquired $2,514,000 $ 150,000 $ 540,000 $ 3,204,000
Consideration:
Common shares $ 400,000 $ - $ 390,000 $ 790,000
Cash, including costs 2,114,000 150,000 150,000 2,414,000
$ 2,514,000 $ 150,000 $ 540,000 $3,204,000
</TABLE>
The Company holds an irrevocable and irretractable option to purchase the
remaining 22.24% of the issued and outstanding stock of Auto Link. Pursuant to
Brazilian law, the remaining 22.24% cannot be transferred until a three-year
operations period has passed (expected to occur in September, 1998) and until
the Ministry of Communications approves the transfer of the licenses. The
aggregate consideration due for the remaining 22.24% of Auto Link consists of
500,000 Class A common shares.
4. Investment in ArgenTel:
On January 10, 1997, the Company loaned $200,000 to ArgenTel Corporation
("ArgenTel"). The loan is non- interest bearing until after demand and
convertible, at the Company's option, into 20% of the issued and outstanding
stock of ArgenTel. ArgenTel holds a 99% interest in Luis G. Ledesma
Communicacciones SRL, which is licensed to provide paging services in Argentina.
F-8
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Notes to Consolidated Financial Statements, page 5
(expressed in United States dollars)
Years ended June 30, 1997, 1996 and 1995
5. Equipment:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1997 1996
Towers and transmitters $ 101,787 $ -
Computer equipment and other 112,383 643
214,170 643
Less accumulated amortization 12,397 374
$ 201,773 $ 269
6. Deferred development costs:
1997 1996
Costs incurred $ 3,220,163 $ -
Less accumulated amortization 44,442 -
$ 3,175,721 $ -
7. Capital stock:
(a) Authorized:
10,000,000 Class A common shares without par value
10,000,000 Class B common shares without par value
Each Class A and Class B common shares has a right to one vote. The Class B
common shares are convertible into Class A common shares at the holder's options
on a one-for-one basis upon payment to the Company of a sum equal to the average
paid-up capital per share of Class A common stock on the date of such
conversion.
(b) Issued:
1997 1996
5,645,173 Class A common shares $ 4,026,805 $ 614,930
1,795,200 Class B common shares 650 877
$ 4,027,455 $ 615,807
</TABLE>
F-9
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Notes to Consolidated Financial Statements, page 6
(expressed in United States dollars)
Years ended June 30, 1997, 1996 and 1995
7. Capital stock (continued):
(b) Issued (continued):
Issued Class A common stock:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Number of
shares Amount
Balance, June 30, 1994 3,048,560 $ 332,744
Issued during the year:
For cash, net of costs 2,211,322 243,955
Balance, June 30, 1995 5,259,882 576,699
Issued during the period:
For cash, net of costs 363,439 28,907
As brokers' fees 117,232 9,324
Balance, June 30, 1996 5,740,553 614,930
Redeemed (4,397,188) (477,999)
5:1 consolidation (1,074,694) -
268,671 136,931
Issued during the period:
For cash on:
Private placements, net of costs 3,881,502 2,745,083
Conversion of class B common shares 605,000 342,791
On business combinations (note 3) 790,000 790,000
As brokers' fees 100,000 12,000
Balance, June 30, 1997 5,645,173 $ 4,026,805
</TABLE>
Class A common shares issued as brokers' fees are valued at the fair value of
the shares at the date the services are provided.
At June 30, 1997, the Company had entered into subscription agreements and had
received cash related to the issuance of 315,000 Class A common shares for
aggregate consideration of $1,032,109.
F-10
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Notes to Consolidated Financial Statements, page 7
(expressed in United States dollars)
Years ended June 30, 1997, 1996 and 1995
7. Capital stock (continued):
(b) Issued (continued):
During the year ended June 30, 1997 the Company was a defendant in a legal
action in which certain Class A shareholders sought to have the Company wound up
or, in the alternative, to have their shares valued and repurchased. The action
was settled by agreement and as a result the Company redeemed 4,397,188 pre-
consolidation Class A common shares.
Issued Class B common stock:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Number of
shares Amount
Balance, June 30, 1994, 1995 and 1996 12,001,000 $ 877
5:1 consolidation (9,600,800) -
Converted into Class A common shares (605,000) (227)
Balance, June 30, 1997 1,795,200 $ 650
</TABLE>
(c) Commitments:
At June 30, 1997, there were outstanding options to purchase (i) 285,000
Class A Common Shares at an exercise price of $0.60 per share and (ii) 325,000
Class A Common Shares at an exercise price of $2.00 per share. These options
expire in 2002.
8. Income taxes:
At June 30, 1997 the Company has income tax loss carry forwards in Canada of
approximately $850,000 which are available to reduce taxable income in future
years. The potential benefits of these loss carry forwards and other deductions
have not been recognized in the accounts.
F-11
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Notes to Consolidated Financial Statements, page 8
(expressed in United States dollars)
Years ended June 30, 1997, 1996 and 1995
9. Segmented information:
The Company operates in a single industry segment (note 1). Geographic segment
information as at and for the year ended June 30, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Latin
Canada America Total
Revenues $ 31,636 $ 16,752 $ 48,388
Loss for the period 324,077 454,264 778,341
Total assets 1,036,536 3,427,687 4,464,223
</TABLE>
In the years ended June 30, 1996 and 1995, the Company operated only in Canada.
10. Related party balances and transactions:
Included in accounts payable is $17,215 (1996 - $6,578) due to related parties.
Included in expenses for the year ended June 30, 1997 are management, consulting
and administration fees of $86,000 (1996 - $nil; 1995 - $nil) charged by related
parties.
11. Reconciliation to United States accounting principles:
The basic consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada which differ in certain
respects from those accounting principles that are generally accepted in the
United States. The significant differences to these consolidated financial
statements are set out below.
(a) For United States accounting purposes, the Company has adopted SFAS 109,
"Accounting for Income Taxes". The adoption of SFAS 109 had no effect on the
Company's financial position or results of operations as the future benefit of
loss carry forwards would be fully offset by a valuation allowance.
(b) For United States accounting purposes, capital stock issued for non-cash
consideration, including on the acquisition of businesses and as broker fees,
are non-cash transactions which would be excluded from the consolidated
statements of changes in financial position and reported separately.
(c) In accordance with the provision of SFAS 123 "Accounting for Stock-Based
Compensation", for United States accounting purposes the Company applies the
provisions of APB Opinion No. 23 to the measurement and recognition of value of
stock-based compensation.
F-12
<PAGE>
PROMAX COMMUNICATIONS INC.
(formerly First Canadian Financial Corporation)
Notes to Consolidated Financial Statements, page 9
(expressed in United States dollars)
Years ended June 30, 1997, 1996 and 1995
12. Subsequent events:
(a) Skylink:
Subsequent to June 30, 1997, the Company, through Auto Link, entered into an
agreement to acquire 77.76% of the paging business of Andrade Gomez
Communicacioes S.A. operating under the name Skylink ("Skylink") and an
irrevocable option to acquire the remaining 22.24% of Skylink. Skylink provides
service to approximately 9,500 subscribers in greater Sao Paulo, Brazil. The
aggregate consideration for the Skylink acquisition is approximately $6,850,000
in cash plus 300,000 Class A common shares, subject to adjustment for changes in
the number of valid subscribers acquired. A finder' fee of 300,000 Class A
common shares is payable to a director of the Company. The first payment of
$3,500,000 was made in July, 1997 with the remaining $3,350,000 to be paid in
September, 1997. Funds for the first payment were generated from available cash
and cash equivalents at June 30, 1997 and a bridge loan in the principal amount
of $3,800,000 consisting of 3,800 units from a private placement. Each unit
consists of a secured one-year 12% promissory note and an 18 month warrant to
purchase 250 Class A common shares at $3.25 per share. The Company intends to
amend, subject to regulatory approval, the warrant exercise price to be $2 per
share.
(b) Offering:
The Company has prepared an offering memorandum for the offering of 7,000,000
Class A common shares at an offering price of $ 2 per share. The net proceeds
from this offering are intended to be applied to the completion of the Skylink
acquisition, to repay the bridge loan of $3,800,000 entered into in July 1997,
to purchase paging equipment, pagers and paging infrastructure equipment, and
for general working capital purposes.
F-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROMAX COMMUNICATIONS INC.
By: /s/ Steven L. Sinn
Steven L. Sinn,
President and Chief Executive Officer
Date: September 30, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Signature Title
Date
/s/ Steven L. Sinn Chairman, President, Chief Executive 9/30/97
Officer, and Director (Principal
Executive Officer)
/s/ Minaz Devji Corporate Secretary and Director 9/30/97
/s/ Ross Wilmot Vice President, Finance and Director 9/30/97
(Principal Financial Officer)
</TABLE>
24
SHARE PURCHASE AGREEMENT
THIS AGREEMENT dated for reference May 1, 1997
BETWEEN:
PENSBREIGH HOLDINGS LTD., Chancery House, High Street,
Bridgetown, Barbados, West Indies
(the "Seller")
AND:
PROMAX COMMUNICATIONS INC., 1200 - 1185 West Georgia
Street, Vancouver, British Columbia, V6E-4E6
(the "Buyer")
WITNESSES THAT WHEREAS:
(A) As of the reference date of this Agreement, the Seller controls all of the
300 issued and outstanding common shares (the "Shares") in the capital of
Servicios de Telecomunicaciones S.A. ("SETESA");
(B) SETESA has obtained a concession from the Bolivian Government, permitting
SETESA to install and operate a remote pager service throughout Bolivia; and
(C) The Seller has represented to the Buyer that it is duly authorized to sell
the Shares and has agreed to sell to the Buyer and the Buyer has agreed to buy
from the Seller all of the Shares upon and subject to the terms and conditions
set out in this Agreement;
NOW THEREFORE in consideration of the payment of $20,000 by the Buyer to the
Seller (the receipt and sufficiency of which is acknowledged) and in
consideration of the covenants and agreements herein contained, the parties
hereto covenant and agree as follows:
PART 1
DEFINITIONS AND INTERPRETATIONS
Definitions
1.1 In this Agreement, the following terms shall have the meanings set out below
unless the context clearly requires otherwise: (a) "Agreement" means this
Agreement, including the Schedules attached to this Agreement;
<PAGE>
(b)
"Business" means the remote pager service business carried in Bolivia by SETESA
under authority of the Concession (as that term is defined below); (c) "Closing
Date" means the day of execution of this Agreement, or such other date as is
agreed in writing among the Seller and the Buyer; (d) "Concession" means the
Concession Contract for the Operation of a Public Telecommunications Network and
for the Rendering of a Beeper Mobile Service, dated July 24, 1996, between
SETESA and the Superintendencia (as that term is defined below) and attached
hereto as Schedule 1, which permits SETESA to operate a remote pager service
throughout Bolivia using the UHF frequencies of 931.4375 Mhz and 931.9375 Mhz;
(e) "Encumbrances" means any mortgage, charge, pledge, hypothecation, security
interest, lien, encroachment, covenant, condition, right of re-entry, lease,
licence, assignment, option or claim or any other encumbrance or title defect of
whatsoever nature or kind regardless of form, whether or not registered or
registerable and whether or not consensual or arising at law (statutory or
otherwise), including rights of creditors under bankruptcy or insolvency
legislation; (f) "Financial Statements" means those audited financial statements
of SETESA dated December 31, 1996 and the interim unaudited financial statements
of SETESA dated March 31, 1997, and attached hereto as Schedule 2; (g)
"Liabilities" means those liabilities set out in the Financial Statements; (h)
"Parties" means the parties to this Agreement as set out above; (i) "Promax
Shares" means the 390,000 post-consolidation Class "A" common shares of the
Buyer; (j) "Promax Trustee" means the party described in Section 3.5 hereof
who will
hold in trust the Promax Shares under the terms and conditions set out herein;
(k) "Purchase Price" means $150,000 (USD) and the Promax Shares; (l) "SETESA"
means Servicios de Telecomunicaciones S.A.; (m) "Shares" means all of the shares
in the capital of SETESA more particularly described herein; and (n)
"Superintendencia" means the Superintendencia de Telecomunicaciones of Bolivia.
Interpretation 1.2 In this Agreement, except as otherwise expressly provided:
<PAGE>
(a) a reference to a designated Part, paragraph, sub-paragraph or Schedule is a
reference to the designated Part, paragraph, sub-paragraph or Schedule of this
Agreement; (b) the words "herein", "hereof', "hereunder" and other similar words
refer to this Agreement as a whole and not to any particular Part, paragraph,
subparagraph or Schedule; (c) the headings are for convenience only and do not
form a part of this Agreement and are not intended to interpret, define, or
limit the scope, extent or intent of this Agreement or any provision hereof; (d)
words importing the masculine gender include the feminine or neuter, words in
the singular include the plural, words importing a corporate entity include
individuals, and vice versa; (e) any accounting term not otherwise defined in
this Agreement has the meaning assigned to it in accordance with generally
accepted accounting principles applicable in Bolivia; (f) any monetary amount
referred to in this Agreement is in United States funds; (g) any term defined
within the text of this Agreement has the meaning given to that term in the text
of the Agreement; (h) where applicable, the Spanish versions of the Schedules
attached hereto are the authoritative versions of those Schedules, and the
English translations of the Spanish versions of certain Schedules have been
prepared and attached for convenience only; and (i) a reference to a notice,
approval, authorization or consent means a written notice, approval,
authorization or consent. Schedules 1.3 The following Schedules are incorporated
into and form an integral part of this Agreement:
SCHEDULE DESCRIPTION
1 Concession Agreement
2 Audited Financial Statements as of December 31, 1996
and unaudited
Interim Financial Statements as of March 31, 1997
3 Intellectual Property
<PAGE>
PART 2
PURCHASE AND SALE
Purchase and Sale
2.1 Subject to the terms and conditions hereof, the Seller hereby sells to the
Buyer and the Buyer hereby purchases from the Seller the Shares for a total
purchase price of $150,000 (USD) plus the allotment and issuance as fully paid
and non-assessable Promax Shares (the "Purchase Price"). Payment of Purchase
Price 2.2 The Buyer has paid and the Seller has acknowledged receipt of $20,000
(USD) of the Purchase Price which, notwithstanding anything to the contrary
herein the parties agree is non-refundable, and the Buyer will pay the Purchase
Price to the Seller on the following basis: (a) on execution hereof, (i) $30,000
(USD), (ii) the Promax Shares, 350,000 of the Promax Shares legended as non-
transferable for two years from the Closing Date and 40,000 of the Promax Shares
legended as non-transferable for one year from the Closing Date will be allotted
and issued to the Seller which will be placed in escrow with the Promax Trustee
pursuant to the terms and conditions set forth in Part 3, (b) 60 days after
execution hereof, $50,000 (USD); and (c) 90 days after execution hereof,
$50,000(USD). Closing Deliveries 2.3 On execution hereof the Seller shall
deliver to the Buyer or its Bolivian legal counsel the following: (a) a letter
of direction to Ossio Abogados providing irrevocable instructions to release the
certificates representing the Shares to Buyer's Bolivian counsel together with
share transfer deeds that, upon receipt of the Superintendencia's consent
described in Section 4.1 hereof, will cause the Shares to be transferred to
the Buyer
and provide the Buyer certificates representing the Shares duly registered in
the name of the Buyer, except for one share which will be registered in the name
of Mario Bonino, in trust; and (b) within 45 days after execution hereof, to the
Buyer, a legal opinion of licensed Bolivian legal counsel confirming that: (i)
the Shares have been duly issued, validly transferred to the Buyer and represent
the only outstanding shares in the capital of SETESA;
<PAGE>
(ii) the Superintendencia's consent described in Section 4.1 hereof has
been obtained;
(iii) that the Buyer's representatives (described in Section13.1)have been
duly appointed as directors of SETESA and constitute a majority of the board
of its directors; and
(iv) legal counsel has examined the corporate records of SETESA and confirms
that SETESA is in compliance with the terms and warranties of this Agreement.
PART 3
ESCROW
Promax Trustee
3.1 The parties agree that the Buyer will cause to be placed in trust with the
law firm of Godinho, Sinclair (the "Promax Trustee") the Promax Shares to be
held by the Promax Trustee until the Buyer has received the Superintendencia's
consent described in Section 4.1 hereof, and the Shares and the opinion referred
to in Section 2.3(b). The Promax Trustee shall provide written confirmation on
execution hereof that it is in possession of the Promax Shares and that it will
deal with them in accordance with the terms of this Agreement. Delivery/Dispute
Notice 3.2 On delivery of all Shares registered in the Buyer's name, together
with the opinion referred to in Section 2.3(b) and the consent of the
Superintendencia's described in Section 4.1, the Promax Trustee shall thereupon
deliver the Promax Shares to the Seller and the Shares to the Buyer. If the
Shares are not delivered to the Buyer as contemplated herein together with the
opinion free of any conditions within one year of the Promax Shares being placed
in escrow with the Promax Trustee, then the Promax Trustee may either continue
to hold the Promax Shares or pay the Promax Shares into a Court of competent
jurisdiction pending a judicial outcome of any dispute between the Buyer and
Seller. Seller May Vote Shares 3.3 Notwithstanding that the Promax Shares have
been placed in escrow with the Promax Trustee pending delivery of the Shares by
the Seller, the Seller shall be entitled to all voting rights with respect to
such Promax Shares.
<PAGE>
PART 4
CONSENT OF THE SUPERINTENDENCIA
Seller to Obtain Consent
4.1 The Seller will use its best efforts to obtain the consent of the
Superintendencia to the sale of the Shares to the Buyer immediately after
execution hereof. If the Seller has been unable to obtain the consent of the
Superintendencia within 45 days of the date of execution hereof, this Agreement
may be terminated at the Buyer's option, all obligations of the Buyer hereunder
will end, and any payments made by the Buyer, other than the initial $20,000
payment, will be returned to the Buyer and the Shares and transfer deeds will be
returned to the Seller.
PART 5
CLOSING
Closing
5.1 The closing of the transactions contemplated hereunder will occur at the
Buyer's office noted on page one and will be deemed to have been completed upon
the execution hereof by both parties, the payment by the Buyer of the initial
$30,000 to the Seller referred to in Section 2.1 and the provision by the Seller
to the Buyer of the written direction and the Promax Trustee's letter
referred to in Section 2.3 and Section 3.1 respectively. Receipt
Acknowledged 5.2 The Seller acknowledges delivery and receipt of the initial
$20,000 paid by the Buyer to the Seller as well as the $30,000 paid on
execution of this Agreement pursuant to Section 2.2(a) as of the date hereof.
Due Diligence 5.3 The Buyer hereby acknowledges that it has completed to its
satisfaction a due diligence review of SETESA.
PART 6
SELLER'S REPRESENTATIONS AND WARRANTIES
<PAGE>
The Seller represents and warrants to the Buyer as follows and acknowledges that
the Buyer is relying on the representations and warranties of the Seller in
entering into this Agreement and completing the purchase of the Shares:
Share Capital
6.1 (a) Share Capital - The authorized share capital of SETESA consists of 1,000
common shares, of which 300 shares have been duly and validly authorized,
allotted and issued as outstanding and fully-paid and non-assessable shares; (b)
Title to Shares - The Seller has all requisite authority to sell the Shares and
is the beneficial owner of all of the Shares, with good and marketable title
thereto, free and clear of all liens, charges and Encumbrances; (c) Rights to
Acquire Securities - No person has any agreement, option, right or privilege
(whether by law, pre-emptive or contractual), present or future, contingent or
absolute, or capable of becoming an agreement, option, right or privilege: (i)
to require SETESA to issue or allot any further shares in its capital or any
other security convertible or exchangeable into shares in its capital or to
convert or exchange any securities into or for shares in the capital of SETESA;
(ii) to require SETESA to purchase, redeem or otherwise acquire any of the
issued and outstanding Shares in SETESA's capital; or (iii) to purchase or
otherwise acquire any Shares in the capital of SETESA; and (d) No Commissions
Payable - there are and will be no commissions payable by the Seller or SETESA
to any person as a result of the completion of the transactions contemplated
under this Agreement. Corporate Status and Authority 6.2 (a) Corporate Status -
SETESA is duly incorporated, validly existing and in good standing under the
laws in force in Bolivia; (b) Corporate Authority - SETESA has all requisite
power, authority and capacity to carry on the Business as presently conducted by
it and to own and use its assets; (c) Business Activities - SETESA carries on
business in Bolivia, does not carry on any business in any other jurisdiction
and does not carry on any business other than the Business; (d) Amendments to
Memorandum or Articles - SETESA has not made any amendments to its constating
documents other than those that have been filed with the appropriate Bolivian
authorities as of the reference date of this Agreement;
<PAGE>
(e) No Subsidiaries -
SETESA has no subsidiaries and does not own any shares, and is not a party to
any agreements of any nature to acquire any shares, in any other corporations or
entities and is not a party to any agreements to acquire or lease any other
business operations; and (f) Corporate Records - The corporate records and
minute books of SETESA reflect, in all material respects, all proceedings of the
directors and shareholders of SETESA, and include minutes of all meetings of its
directors and shareholders, resolutions passed by the directors and
shareholders, and up-to-date and accurate shareholder, director and transfer
registers.
Assets
6.3 (a) Ownership - SETESA has good and marketable title to all of its assets
free and clear of all Encumbrances other than the Liabilities; (b) Equipment
Leases - As of the reference date of this Agreement SETESA has no leased assets;
(c) Condition of Assets - SETESA does not own any tangible assets; (d)
Intellectual Property - All of the intellectual property owned by SETESA
including, without limitation, all trade-marks, trade-names and copyrights, is
set forth in Schedule 3 to this Agreement (the "Intellectual Property"). Except
as set out in Schedule 3, SETESA is not the registered owner or registered user
of any other trade-marks or trade-names. To the best of the Seller' knowledge,
the Business does not infringe upon the trademarks, trade-names or other
intellectual property of any other person, firm or corporation and SETESA has
the full right and authority to utilize the Intellectual Property used by it in
the conduct of the Business; (e) Real Property - As of the reference date of
this Agreement SETESA owns no real property; and (f) Leased Premises - As of the
reference date of this Agreement SETESA leases no premises or other real
property.
Business Operations
6.4 (a) Business - The sole business of SETESA is the Business;
(b) Operating Authorities - SETESA has acquired and currently holds the
Concession and all other necessary and required permits, licenses consents,
authorizations, approvals, certificates or other similar documents granted by or
entered into with any governmental or regulatory authority in connection with
SETESA's assets or the carrying on of the Business (collectively, the
"Permits"). Each Permit is in full force and effect and there are no unwritten
agreements or arrangements relating to the Permits. SETESA's interests in the
Permits are free and clear of all Encumbrances other than the Liabilities.
SETESA has not previously assigned the Permits or its interests in the Permits.
SETESA is not in breach of any of the terms of the Permits and no event or
condition has occurred which could give rise to the cancellation or termination
of any of the Permits or the inability of SETESA to exercise any of its rights
under the Permits;
<PAGE>
(c) Compliance with Laws - SETESA is conducting the Business
in compliance with the terms of the Concession and all other applicable laws and
regulations and is not in default of any such laws or regulations. To the best
of the Seller' knowledge, after due enquiry, there are no work or other similar
orders issued by any Bolivia governmental authority that are outstanding against
SETESA; and (d) Material Contracts - SETESA is not a party to or bound by any
material agreement or material commitment of any kind with any person, firm or
corporation other than the Concession. SETESA has not entered into any contract,
commitment or agreement, whether written or oral, which could materially impair
the value of the Business or assets or the transactions contemplated under this
Agreement.
Financial Matters
6.5 (a) Books and Records - The books and records of SETESA fairly and correctly
set out and disclose in all material respects the financial position of SETESA
and contain an accurate recording of all financial transactions of SETESA; (b)
Financial Statements - The Financial Statements have been prepared on a basis
consistent with previous financial statements of SETESA and present fairly, in
all material respects, the financial position of SETESA as at 31 December 1996;
(c) No Material Change - Since 31 December 1996 until the reference date of this
Agreement, there has been no change in the operations, affairs, assets or
liabilities of SETESA which has materially adversely affected or which will
materially adversely affect SETESA, except for general economic conditions
affecting the industry in which SETESA operates; (d) Liabilities - SETESA has no
liabilities (direct, indirect, contingent or otherwise) other than the
Liabilities; (e) Loans and Credit Facilities - As of the reference date of this
Agreement, SETESA does not have any loans (to or from any shareholders or
otherwise), operating lines of credit or other credit facilities or any bonds,
debentures, mortgages, notes or other similar indebtedness outstanding except
for those included as part of the Liabilities. SETESA is not obliged to create
or issue any bonds, debentures, mortgages, notes or other similar indebtedness;
(f) Receivables - As of the reference date of this Agreement SETESA has no
accounts receivable; (g) Guarantees/Indemnities - SETESA has not guaranteed or
indemnified (or agreed to guarantee or indemnify) or entered into any other like
commitment in respect of any debt, liability or other obligation of any person;
(h) Insurance Policies - As of the reference date of this Agreement SETESA has
no insurance policies relating to any of its assets;
<PAGE>
(i) Taxes, Tax Returns and
Other Reports - All tax returns and other reports of SETESA required by law to
be filed prior to the reference date of this Agreement have been filed with the
appropriate authorities and are true, complete and correct in every material
respect. All applicable income and other taxes, levies, assessments and other
governmental charges (collectively, the "Taxes") relating to the Shares and the
Business required to be paid prior to the time of closing on the Closing Date
have been, or will be, paid in full and SETESA has no liability, contingent or
otherwise, for any Taxes except Taxes not yet due and payable for the current
fiscal year of SETESA; (j) Adverse Tax Proceedings - There are no actions,
suits, proceedings, investigations or claims by any governmental authority
pending or threatened against SETESA relating to Taxes; and (k)
Deductions/Remittances - SETESA has withheld and remitted all amounts required
to be withheld and remitted by it and it has paid such amounts including any
penalties or interest due to the appropriate authorities on a timely basis and
in the form required by such authorities.
Employee Matters
6.6 (a) No Employees - As of the date of this Agreement SETESA has no employees.
SETESA is not party to any oral or written consulting contract, management
contract, labour services contract, collective agreement, union contract or
other similar agreement for the services of a particular individual or group of
individuals; and (b) Employee Claims - From the start of operations of SETESA on
22 July 1992 until the reference date of this Agreement, no person has made any
private claim against SETESA for wrongful dismissal, nor are any persons owed
any compensation by SETESA under the employment laws of Bolivia.
Litigation and Claims
6.7 (a) Judgments - There are no outstanding judgments, decrees, orders, rulings
or injunctions by or against or otherwise involving the Shares, SETESA or the
assets of SETESA; (b) Litigation - There are no claims, actions, suits,
litigation, legal proceedings, arbitration proceedings, or administrative or
governmental proceedings pending, or to the best of the Seller' knowledge
threatened, against the Shares, SETESA, the assets of SETESA or the Business
before or by any governmental agency, domestic or foreign; and (c) No Bankruptcy
or Dissolution - No actions have been taken or authorized by SETESA, the Seller
or any other person to initiate any proceedings for or in respect of the
bankruptcy, insolvency, liquidation, dissolution or winding-up of SETESA.
<PAGE>
Effect of this Transaction
6.8 (a) No Adverse Implications - Subject to receiving the consent of the
Superintendencia for the sale of the Shares to the Buyer as required under Part
5, the making of this Agreement and the completion of the transactions
contemplated hereunder and the performance of and compliance with the terms
hereof does not and will not: (i) conflict with or result in a breach of or
violate any of the terms, conditions or provisions of the constating documents
of SETESA; (ii) conflict with or result in a breach of or violate any of the
terms, conditions or provisions of any law, judgment, order, injunction, decree,
regulation or ruling of any court or governmental authority, domestic or
foreign, to which either of SETESA or any of the Seller is subject or constitute
or result in a default under any contract to which SETESA or the Seller is a
party; (iii) give to any person any remedy, cause of action, right of
termination, cancellation or acceleration, right to or to enforce security, or
suspension or reduction of benefits under any contract or give any person the
right to accelerate the maturity for the payment by SETESA of any amount payable
by it; (iv) give to the Bolivian Government or governmental authority including
any governmental department, commission, bureau, board or administrative agency
any right of termination, cancellation or suspension of, or constitute a breach
of or result in a default or reduction of benefits under any permit, license,
consent, authorization, approval, privilege or other concession held by SETESA;
or (v) result in the creation of Encumbrances on the Business.
Seller's Status
6.9 The Seller represents further that it:
(a) is duly incorporated and validly subsisting under the laws of Barbados; (b)
has all necessary corporate power and has taken all necessary proceedings to
authorize this Agreement and to convey the Shares to the Buyer; (c) has duly
executed and delivered this Agreement as a binding obligation of the Seller,
enforceable in accordance with its terms; and (d) the execution and delivery of
this Agreement, the consummation of the transactions contemplated hereby, and
the due observance and performance by the Seller of its obligations contained in
this Agreement will not conflict with or result in a breach or a violation of
any of the terms, conditions or provisions of any law, judgement, order,
injunction, decree, regulation or ruling of any court or other governmental
authority, domestic or foreign, to which the Seller is subject, nor constitute
or result in a default under any agreement, contract, or commitment to which the
Seller is a party or by which the Seller is bound, or to which the Seller is
subject.
<PAGE>
PART 7
BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer represents and warrants to the Seller as follows and acknowledges that
the Seller is relying on those representations and warranties in entering into
this Agreement and in concluding the purchase and sale of the Shares: (a)
Corporate Status - The Buyer is duly incorporated and validly existing and in
good standing under the laws in force in British Columbia. (b) Corporate
Authority - The Buyer has all requisite power, authority and capacity to acquire
the Shares pursuant to this Agreement. (c) Authorization of this Agreement -
This Agreement has been duly authorized, executed and delivered by the Buyer and
is a valid and binding obligation of the Buyer enforceable against it in
accordance with its terms; (d) Effect of the Agreement - The execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby, and the due observance and performance by the Buyer of its obligations
contained in this Agreement will not conflict with or result in a breach or a
violation of any of the terms, conditions or provisions of any law, judgement,
order, injunction, decree, regulation or ruling of any court or other
governmental authority, domestic or foreign, to which the Buyer is subject, nor
constitute or result in a default under any agreement, contract, or commitment
to which the Buyer is a party or by which the Buyer is bound, or to which the
Buyer is subject.
PART 8
COVENANTS
Access to the Company
8.1 Following the date of execution of this Agreement, the Seller will cause
SETESA to afford to the Buyer and its authorized representatives access during
normal business hours to all properties, books, contracts, commitments and
records of SETESA and to furnish such copies thereof and other information as
the Buyer may reasonably request, and to permit the Buyer and its authorized
representatives to make such audit of the books of account of SETESA and
physical verification of the assets of SETESA as the Buyer may reasonably see
fit. At the request of the Buyer, the Seller will cause SETESA to execute such
consents, authorizations and directions as may be necessary to permit any
inspection of any its property or to enable the Buyer or its authorized
representatives to obtain full access to all files and records relating to the
Business or SETESA's assets maintained by governmental or other public
<PAGE>
authorities in Bolivia. The exercise of any rights of inspection by or on behalf
of the Buyer under this paragraph will not mitigate or otherwise affect the
representations and warranties of the Seller hereunder, which will continue in
full force and effect.
Conduct Business in the Ordinary Course
8.2 Between the date of execution of this Agreement and until the Buyer receives
the Shares and the opinion in Section 2.3(b), the Seller and Buyer will: (a)
cause SETESA to conduct the Business diligently and only in the ordinary course
and in a manner consistent with past practice; (b) preserve and maintain the
goodwill of SETESA and the Business; (c) permit and arrange for representatives
of the Buyer to meet with senior managers employed by SETESA from time to time
for the purposes of keeping informed as to the current status of the Business;
(d) not permit SETESA to change its accounting practices, procedures or methods;
(e) not permit SETESA to enter into any contract or commitment other than in the
ordinary course of business; (f) not permit SETESA to incur any capital
expenditures; (g) not permit SETESA to issue any shares in its capital or other
securities; (h) not permit SETESA to amend or vary or agree to amend or vary any
of the terms of the Concession or any other Permit, license, consent,
authorization, approval or privilege held by it except in the ordinary course of
business or with the consent of the Buyer; (i) not permit SETESA to declare or
pay any dividends or other distributions on any class or kind of its shares
except as may be necessary to achieve the financial result contemplated by the
Financial Statements; (j) not permit SETESA to repurchase or redeem any of its
shares or reduce its capital in any way; (k) not make any material change to the
compensation paid to any employee or pay or agree to pay any bonus to or enter
into any agreement with any salaried employee, officer or director of SETESA
which would affect either the payment or the period of notice to which they
would be entitled in the event of termination.
<PAGE>
No Payments
8.3 Between the date of execution of this Agreement and the time of closing on
the Closing Date, the Seller will not permit SETESA to make or agree to make any
payment to any director, officer, employee or agent of the company except in the
ordinary course of the Business and at the regular rates of salary and
commission for such person.
Superintendencia's Consent
8.4 To obtain the consent contemplated under Part 4, the Seller will use its
best efforts to obtain the consent of the Superintendencia, immediately after
execution hereof and Buyer will use its best efforts to provide any
documentation that may be required from them to obtain the said consent within
15 days of execution of this Agreement.
Transfer of Technology
8.5 Following the closing of the transactions contemplated under this Agreement,
the Buyer will use commercially reasonable efforts to transfer appropriate
technology to SETESA in order to allow SETESA to expand and develop the
Business.
PART 9
NON-MERGER
Representations, Warranties, Covenants and Agreements to Survive
9.1 The representations, warranties, covenants and agreements of the Parties
contained herein and those contained in the documents and instruments delivered
pursuant to this Agreement will be true at and as of the time of closing on the
Closing Date as though made at the time of closing on the Closing Date and will
survive the closing and, notwithstanding the completion of the transactions
herein contemplated, will remain in full force and effect for a period of one
year after the execution hereof.
PART 10
SELLER'S INDEMNITY
Indemnity of the Seller
10.1 Subject to the terms and conditions of this Agreement, the Seller will
indemnify and save harmless the Buyer from any loss, damages, liabilities,
expenses, costs or claims whatsoever which may be incurred or suffered by the
Buyer as a result of or in connection with:
(a) any representations and warranties of the Seller contained in this Agreement
which are untrue and any covenants of the Seller which are unfulfilled; and
<PAGE>
(b)
any liabilities of SETESA attributable to the conduct of SETESA up to the date
first above written and any acts or omissions of the SETESA, its directors,
officers, employees and agents, whether or not negligent and which have not
otherwise been disclosed to the Buyer pursuant to this Agreement.
The indemnity provided for under this paragraph shall survive for a period of
two years following the Closing Date.
PART 11
NON-COMPETITION
Non-Competition by the Seller
11.1 The Seller covenants on behalf of itself and any prior shareholders of
SETESA and prior or current principals of SETESA that it, any prior shareholder
of SETESA and prior and current principals of SETESA will not, for a period of
one year from the Closing Date, either alone or in partnership or in conjunction
with any other person, firm, association, corporation or other entity as
principal, agent, shareholder, partner, investor, consultant, advisor or in any
other capacity, directly or indirectly, carry on, be engaged in, concerned with
or interested in any business which is the same as, substantially similar to or
competitive with the Business.
PART 12
CONDITIONS PRECEDENT
Conditions of Closing in Favour of the Buyer
12.1 The obligation of the Buyer to complete the purchase of the Shares is
subject to the fulfilment of each of the following conditions at the times
stipulated, which conditions are for the exclusive benefit of the Buyer: (a)
Satisfactory Completion of Due Diligence - satisfactory completion of its due
diligence as provided for under Part 4; (b) Representations and Warranties - the
representations and warranties of the Seller contained in this Agreement will be
true and correct at and as of the time of closing on the Closing Date with the
same force and effect as if those representations and warranties were made at
and as of the time of closing on the Closing Date; (c) Covenants - all of the
covenants, agreements and obligations hereunder on the part of the Seller to be
performed or complied with at or prior to the Closing Date, including the
Seller' obligation to deliver the documents and instruments herein provided for,
will have been performed and complied with as at the time of closing on the
Closing Date;
<PAGE>
(d) No Liabilities - SETESA will have no debts, liabilities or
contractual commitments other than the Liabilities; (e) Financial Condition -
The financial condition of SETESA at and as of the time of closing on the
Closing Date shall be substantially as set out in the Financial Statements, and
the Seller shall have provided to the Buyer a certificate of one of the current
directors of SETESA to that effect, dated as of the Closing Date; (f) Damage -
no substantial damage to any of the assets of SETESA will have occurred from the
date of execution of this Agreement to the time of closing on the Closing Date;
(g) No Material Adverse Change - there will have been no material change in the
condition of the assets of SETESA or the Business, including the prospects
thereof, from the date of execution of this Agreement to the time of closing on
the Closing Date; (h) Consent of the Superintendencia - the Seller will have
delivered to the Buyer within 30 days of the time that Buyer provides the
required documentation to Seller for the application for the consent of the
Superintendencia required to be obtained by the Seller under Part 4, and it will
not be subject to any conditions or terms that are unacceptable to the Buyer,
acting reasonably and in good faith; (i) Injunctions, etc. - at the time of
closing on the Closing Date no action or proceeding at law or in equity will be
pending or threatened by any person and no injunction or restraining order will
be in effect to enjoin or prohibit: (i) the purchase and sale of the Shares
contemplated hereby or the right of the Buyer to own the Shares; or (ii) the
right of SETESA to carry on the Business in the normal course; and (j)
Directorships - the directors and officers of SETESA will resign as of the
Closing Date and will be replaced by the following representatives of the Buyer:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name Office Resigning Appointed
- ------------------------------ ------------------------- ------- ------------------ ---------------------
Mario Bonino May 1, 1997
Steven Sinn President May 1, 1997
Minaz Devji Secretary May 1, 1997
</TABLE>
Failure to Fulfil Conditions
12.2 The conditions set forth in Section 13.1 are for the exclusive benefit of
the Buyer. If any of the conditions contained in Section 13.1 are not performed
or fulfilled at or prior to the times stipulated in Section 13.1, then the Buyer
may, by notice to the Seller, terminate this Agreement and, subject to the
exception set out below and the other applicable terms of this Agreement, in
that event the Buyer will be released from all obligations under this Agreement
and, unless the Buyer can show that the condition or conditions for the non-
<PAGE>
performance of which the Buyer has terminated the Agreement are reasonably
capable of being performed or caused to be performed by the Seller, the Seller
will also be released from all obligations under this Agreement. Should the
Buyer terminate this Agreement in accordance with this Section 13.2 the Purchase
Price, and any interest accrued thereon, will be returned to the Purchaser in
accordance with Section 2.3. Termination by the Buyer pursuant to this
Section13.2
will be without prejudice to the right of the Buyer to recover damages for any
misrepresentation, breach of warranty or non-fulfilment of any covenant or
agreement on the part of the Seller or any of them that arose prior to the
termination. Alternatively, subject to the other applicable terms of this
Agreement, the Buyer may elect to waive compliance with any such condition in
whole or in part without prejudice to any of its rights of termination in the
event of non- performance of any other condition, obligation or covenant in this
Agreement.
Conditions of Closing in Favour of the Seller
12.3 The obligation of the Seller to complete the sale of the Shares is subject
to the fulfilment by the Buyer of each of the following conditions at the times
stipulated, which conditions are for the exclusive benefit of the Seller: (a)
Representations and Warranties - The representations and warranties of the Buyer
contained in this Agreement will be true and correct at and as of the time of
closing on the Closing Date with the same force and effect as if those
representations and warranties were made at and as of the time of closing on the
Closing Date; (b) Covenants - All covenants, agreements and obligations
hereunder on the part of the Buyer to be performed or complied with at or prior
to the Closing Date, including the Buyer's obligations to deliver the documents
and instruments herein provided for, will have been performed and complied with
as at the time of closing on the Closing Date in all material respects; and (c)
Injunctions, etc. - No injunction or restraining order of a court or
administrative tribunal of competent jurisdiction will be in effect at the time
of closing on the Closing Date restraining or prohibiting the transactions
contemplated hereby and no action or proceeding will be threatened or instituted
and remain pending at the time of closing on the Closing Date before any such
court or administrative tribunal to restrain or prohibit the transactions
contemplated hereby.
Failure to Fulfil Conditions
12.4 The conditions set forth in Section 13.3 are for the exclusive benefit of
the Seller. If any of the conditions contained in Section 13.3 are not performed
or fulfilled at or prior to the times stipulated in Section 13.3, then the
Seller may, by notice to the Buyer, terminate this Agreement and, subject to the
exception set out below and the other applicable terms of this Agreement, in
that event the Seller will be released from all obligations under this Agreement
and, subject to the payment of the Purchase Price other than the initial $20,000
over to the Seller in accordance with Section 2.3, the Buyer will also be
released from all obligations under this Agreement. Should the Seller terminate
this Agreement in accordance with this Section 13.4 by reason of the Buyer's
non-compliance with Section 13.3(a) or 13.3(b) then the Purchase Price, and any
interest accrued thereon, will be paid over to the Seller in accordance with
Section 2.3.Should the Seller terminate this Agreement in accordance with this
Section 13.4 by reason of Section 13.3(c) then the Purchase Price less the
$20,000 initial payment,
<PAGE>
and any interest accrued thereon, will be repaid to the Buyer. Termination by
the Seller pursuant to this Section 13.4 and payment of the Purchase Price to
the Seller by reason of non-compliance with Section 13.3(a) or 13.3(b) will be
the sole right of the Seller to recover damages for any misrepresentation,
breach of warranty or non-fulfilment of any covenant or agreement on the part of
the Buyer that arose prior to the termination. Alternatively, subject to the
other applicable terms of this Agreement, the Seller may waive compliance with
any such term, covenant or condition in whole or in part without prejudice to
any of its rights of termination in the event of non-performance of any other
condition, obligation or covenant in this Agreement.
PART 13
MISCELLANEOUS PROVISIONS
Notice
13.1 All notices and other communications under this Agreement will be in
writing and may be delivered personally, by courier, by facsimile or by pre-paid
registered mail to the Parties at the addresses and facsimile numbers set forth
below or at such other addresses or facsimile numbers as may be advised by the
Parties from time to time:
(a) if to the Buyer:
Promax Communications Inc.
1200 - 1185 West Georgia Street
Vancouver, British Columbia
V6E 4E6
Fax No.: (604) 681-2501
with a copy to:
Lang Michener Lawrence & Shaw
1500 Royal Centre, 1055 West Georgia
Vancouver, British Columbia V6E 4N7
Fax No.: (604) 685-7084
Attention: Mr. B. Zinkhofer
(b) if to the Seller:
Pensbreigh Holdings Ltd.
Chancery House, High Street
Bridgetown, Barbados West Indies
Fax No.: (809) 431-0076
Attention: Trevor Carmichael, Q.C.
<PAGE>
with a copy to:
International Portfolio Management Inc.
1185 West Georgia Street, Suite 1200
Vancouver, British Columbia V6E 4E6
Fax No.: (604) 684-4601
Attention: Altaf Nazerali
(c) if to the Promax Trustee:
Godinho, Sinclair
1020 - 510 Burrard Street
Vancouver, British Columbia V6C 3A8
Fax No.: (604) 689-9940
Attention: Rory S. Godinho
Any notice or communication delivered personally or by courier will be deemed to
be received on the day of delivery. Any notice or communication delivered by
facsimile transmission will be deemed to be received on the first business day
following the day on which it is sent. Any notice or communication delivered by
pre-paid registered mail will be deemed to have been received on the fifth
business day following the day on which it was sent provided that if at the time
of mailing or between the time of mailing and actual receipt of the notice or
communication there should be a mail strike, slowdown or other labour dispute
which might affect the delivery of such notice or communication by mail, then
such notice or communication shall only be effective if actually delivered.
Proper Law
13.2 This Agreement will be governed by and construed in accordance with the
laws of the Province of British Columbia, which for all purposes will be deemed
to be the proper law of this Agreement.
Binding Effect
13.3 This Agreement will enure to the benefit of and be binding upon the Buyer
and the Seller and their respective heirs, executors, personal representatives,
successors and permitted assigns.
Time
13.4 Time is of the essence in this Agreement.
<PAGE>
Entire Agreement
13.5 Subject to any confidentiality agreement that may be entered into by the
Parties, the terms and provisions contained in this Agreement (including all of
the recitals and Schedules to this Agreement), as may be amended from time to
time, constitute the entire agreement between the Parties with respect to the
purchase and sale of the Shares and supersede any previous oral or written
communications.
Modification
13.6 This Agreement may not be modified or amended except by instrument in
writing signed by both the Buyer and the Seller.
Assignment
13.7 This Agreement and the rights and obligations contained in this Agreement
may not be assigned by either Party without the prior written consent of the
other Party.
Further Assurances
13.8 Each of the Parties to this Agreement will execute such further and other
documents and do such further and other acts as may be necessary to give effect
to this Agreement.
Severability
13.9 If any covenant, obligation or term of this Agreement is held to be invalid
or unenforceable, then the remainder of this Agreement will not be affected by
the invalid or unenforceable portion and this Agreement will be construed as
though it were executed without reference to the invalid or unenforceable
portion of this Agreement.
Expenses
13.10 The Buyer and the Seller will each pay their own expenses including,
without limitation, accountant's and lawyer's fees, incurred by them in
connection with the negotiations, execution and delivery of this Agreement under
the consummation of the transactions contemplated under this Agreement.
Counterparts
13.11 This Agreement may be executed in any number of counterparts, each of
which when delivered will be deemed to be an original and all of which together
will constitute one and the same document.
This ris page of a Share Purchase Agreement dated for reference May 1, 1997
between Pensbreigh Holdings Ltd. and Promax Communications Inc.
Attornment
a. Each party irrevocably attorns to the jurisdiction of the courts of British
Columbia and all courts having appellats jurisdiction thereover, and any
proceeding commenced or maintained by a party in respect of this Agreement will
be commenced or maintained only in such courts as is appropriate.
Arbitration
b. The Parties agree that they will strive to solve all disputes arising out of
or in connection with this Agreement, or in respect of any defined legal
relationship associated therewith or derived therefrom, in an amicable manner,
failing which such disputes shall be referred to and finally resolved by binding
arbitration in accordance with the International Commercial Arbitration Act
(British Columbia). Any such arbitration will be held before a panel of three
arbitrators. The Seller, acting collectively, shall be entitled to appoint one
arbitrator to the panel. The Buyer shall also be entitled to appoint one
arbitrator to the panel. The two arbitrators so appointed will then select the
third arbitrator by consensus, who will act as the chair of the panel. A
decision of the majority of the arbitrators shall be binding on the Parties. The
place of arbitration shall be Vancouver, British Columbia.
IN WITNESS WHEREOF the Parties have executed this Agreement this _____ day
of July, 1997, effective as of the date first noted above.
PENSBREIGH HOLDINGS LTD.
Per:
Authorized Signatory
PROMAX COMMUNICATIONS INC.
Per:
Authorized Signatory
<PAGE>
- 1 -
SCHEDULE 1
CONCESSION AGREEMENT
<PAGE>
- 1 -
SCHEDULE 2
FINANCIAL STATEMENTS
<PAGE>
- 1 -
SCHEDULE 3
INTELLECTUAL PROPERTY
- - nil
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
- AutoLink Telecon Telecomunicacoes Ltda., a company organized under
the laws of Brazil.
- Servicios de Telecomunicaciones S.A., a company organized under the
laws of Bolivia.
- Amparo Central de Telecomunicacoes Ltda, a company organized under
the laws of Brazil.
- Andrade Gomez Communicacoes S.A., a company organized under the laws
of Brazil.
