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Exhibit 2a
STEPHEN R. HARRIS, ESQ.
BELDING & HARRIS
Nevada Bar No. 001463
417 West Plumb Lane
Reno, Nevada 89509
Telephone: (702) 786-7600
Facsimile: (702) 786-7764
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEVADA
IN RE:
POWERTEL USA, INC.,
formerly known as Case No. BK-97-30265-BMG
NEVADA ENERGY COMPANY, INC., (Chapter 11)
also formerly known as
MUNSON GEOTHERMAL, INC.,
Debtor. Hrg. DATE: June 29, 1998
and TIME: 2:00 p.m.
DEBTOR'S SECOND AMENDED DISCLOSURE STATEMENT PURSUANT TO
11 U.S.C. Section 1125
IMPORTANT INFORMATION FOR CREDITORS AND SHAREHOLDERS
of
POWERTEL USA, INC.
(formerly known as
Munson Geothermal, Inc. and
Nevada Energy Company, Inc.)
IF YOU ARE A CREDITOR OR SHAREHOLDER OF POWERTEL USA, INC., DEBTOR
HEREIN, THIS Second Amended DISCLOSURE STATEMENT ("DISCLOSURE STATEMENT")
CONTAINS IMPORTANT INFORMATION THAT YOU SHOULD READ AND EVALUATE. AS YOU
REVIEW THIS DOCUMENT, REMEMBER:
1. THIS DISCLOSURE STATEMENT IS SUBMITTED TO ALL CREDITORS
AND SHAREHOLDERS OF POWERTEL USA, INC. ("DEBTOR" OR 'POWERTEL").
THIS STATEMENT CONTAINS IMPORTANT INFORMATION THAT MAY AFFECT
YOUR DECISION TO ACCEPT OR REJECT THE DEBTOR'S PLAN OF
REORGANIZATION ("PLAN").
2. THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT
IS INTENDED TO PROVIDE ADEQUATE DISCLOSURE REGARDING THE DEBTOR'S
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PLAN. ALL CREDITORS AND SHAREHOLDERS ARE URGED TO READ THE DISCLOSURE
STATEMENT WITH CARE AND IN ITS ENTIRETY.
3. ON JUNE 29, 1998, THE BANKRUPTCY COURT APPROVED THIS DISCLOSURE
STATEMENT AS CONTAINING ADEQUATE INFORMATION PURSUANT TO 11 U.S.C. Section
1125, FOR SOLICITATION OF ACCEPTANCES OR REJECTIONS OF THE PROPOSED PLAN. THE
BANKRUPTCY COURT, HOWEVER, IS AN IMPARTIAL TRIBUNAL; THEREFORE, THE COURT
NEVER OFFICIALLY ENDORSES ANY PLAN OF REORGANIZATION. IF YOU ARE ELIGIBLE TO
VOTE, A COPY OF THE PROPOSED PLAN ACCOMPANIES THIS DISCLOSURE STATEMENT. IF
YOU ARE NOT ELIGIBLE TO VOTE, A COPY OF THE PROPOSED PLAN IS AVAILABLE UPON
REQUEST.
4. IF YOU ARE ELIGIBLE TO VOTE YOU ARE URGED BY DEBTOR TO VOTE IN FAVOR
OF THE PLAN AND TO RETURN YOUR BALLOT NO LATER THAN JULY _, 1998. IN THE
OPINION OF THE BOARD OF DIRECTORS OF POWERTEL AND ITS MANAGEMENT, THE PLAN AS
SUBMITTED IS THE BEST AND MOST FEASIBLE MEANS TO REHABILITATE THE BUSINESS AND
ADDRESS THE CONCERNS OF CREDITORS AND SHAREHOLDERS.
5. THE PROPOSED PLAN ANTICIPATES THAT DEBTOR WILL ISSUE COMMON STOCK IN
THE IMPLEMENTATION OF THIS PLAN. THE COMMON STOCK HAS NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO 15 U.S.C. Section 77, THE
SECURITIES ACT OF 1933, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
REVIEWED OR APPROVED THE CONTENT OF THIS DISCLOSURE STATEMENT. ANY
REPRESENTATION OTHERWISE IS BOTH INCORRECT AND IN VIOLATION OF THE SECURITIES
ACT OF 1933.
6. THIS DISCLOSURE STATEMENT CONTAINS FORWARD LOOKING INFORMATION WITH
RESPECT TO THE ANTICIPATED FUTURE BUSINESS AND FINANCIAL AFFAIRS OF THE
DEBTOR. THESE FORWARD LOOKING STATEMENTS ARE NOT GUARANTEES OR ASSURANCES THAT
THE FORWARD LOOKING EVENTS WILL OCCUR AS DESCRIBED. THERE ARE SUBSTANTIAL
RISKS AND CONTINGENCIES WHICH CAN INFLUENCE, IMPEDE OR PROHIBIT THE ABILITY OF
THE DEBTOR TO ACHIEVE THESE FORWARD LOOKING STATEMENTS. THE RISKS AND
CONTINGENCIES ARE DISCUSSED IN SECTION XI OF THIS DISCLOSURE STATEMENT.
7. THE PLAN OF REORGANIZATION CONTEMPLATES THAT THE COURT WILL CONFIRM
(a) AN AGREEMENT BY WHICH THE DEBTOR'S WILL ACQUIRE UPON CONFIRMATION OF THE
PLAN 100.0% OF THE ISSUED AND OUTSTANDING COMMON STOCK OF DIEGO TEL, INC. IN
EXCHANGE FOR A COMMITMENT TO ISSUE SHARES OF CLASS A COMMON STOCK IN AN AMOUNT
UP TO 35.0% OF THE ISSUED AND OUTSTANDING CLASS A COMMON STOCK. THIS COMMON
STOCK WILL BE DISTRIBUTED WHEN DIEGO TEL ACHIEVES CERTAIN REVENUE
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PROJECTIONS; AND (b) THE TRANSFER OF 50.0% OF DEBTOR'S CLASS A COMMON STOCK
PURSUANT TO A SETTLEMENT AND RELEASE AGREEMENT IN ORDER TO RESOLVE LITIGATION,
DISPUTES AND CLAIMS BETWEEN THE DEBTOR, NEVADA ENERGY PARTNERS I (A NEVADA
LIMITED PARTNERSHIP), NEVADA ELECTRIC POWER COMPANY AND OTHERS. AS A RESULT OF
THESE TWO EVENTS, THE DEBTOR MAY ISSUE A LARGE QUANTITY OF ITS CLASS A COMMON
STOCK -- 85.0% -- TO A TOTAL OF SEVENTEEN ENTITIES OR PERSONS. PLEASE SEE PAGE
74 FOR SPECIFIC DETAILS. THIS MAY HAVE LONG TERM IMPLICATIONS FOR THE DEBTOR.
SPECIAL NOTICE
The Plan provides that the Reorganized Debtor will purchase Diego
Tel and have entered into two agreements. A copy of each of these
contracts is enclosed. Review them carefully. These contracts
contain important provisions which will effect the Reorganized
Debtor.
TABLE OF CONTENTS
Page
1. INTRODUCTION AND SUMMARY OF PROPOSED
PLAN OF REORGANIZATION................................................................ 1
A. Introduction................................................................... 1
B. General Overview of PowerTel USA, Inc. and the Chapter 11 Case................. 1
C. Summary Information............................................................ 5
II. DEFINITIONS........................................................................... 12
III. INFORMATION ABOUT THE DEBTOR.......................................................... 17
A. Corporate Structure............................................................ 17
B. Summary of Debtor's Operations 1990-May 1996................................... 19
C. Change of Control (May 3,1996)................................................. 20
D. Summary of Pre-Petition Events from May 3, 1996 through the Petition Date...... 21
IV. INFORMATION ABOUT THE CHAPTER 11 CASE................................................. 28
A. The Involuntary Petition....................................................... 28
B. Actions by the Interim Trustee................................................. 29
C. The Debtor-in-Possession....................................................... 29
D. Summary of Activities of the Debtor-in-Possession.............................. 30
V. THE DEBTOR'S ESTATE................................................................... 32
A. Business Operations............................................................ 32
B. Assets and Financial Condition................................................. 32
C. Claims and Liabilities......................................................... 33
D. Business Affairs............................................................... 35
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Page
E. Litigation and Claims.......................................................... 35
VI. THE REORGANIZED DEBTOR'S BUSINESS PLAN................................................ 39
VII. THE PROPOSED PLAN..................................................................... 44
A. Designated Dates............................................................... 44
B. Classification of Claims and Interest.......................................... 44
C. Provisions for Payments of Claims.............................................. 46
VIII. DISCUSSION OF PROCEDURAL MATTERS COMMON TO ALL CLAIMS............................... 58
A. Acceptance or Rejection of Plan: Effect of Rejection By
One or More Classes of Claims.................................................. 58
B. Amendment to the Plan.......................................................... 59
C. Disallowance of Settled Claims and Post-Petition Additions..................... 59
D. Discharge of Debtor............................................................ 59
E. Disputed Claims Reserve........................................................ 59
F. Events of Default.............................................................. 61
G. Executory Contracts and Unexpired Leases....................................... 61
H. Means for Execution of the Plan................................................ 62
1. Multiple Claims................................................................ 64
J. Post-Confirmation Injunction and Automatic Stay................................ 64
K. Prohibition Against Discriminatory Treatment................................... 64
L. Provisions Covering Distributions.............................................. 65
M. Provisions for Execution and Supervision of the Plan........................... 65
N. Provisions for Treatment of Disputed Claims.................................... 66
0. Restriction on Transfer of Shares.............................................. 67
P. Set Offs....................................................................... 68
Q. Title to Assets; Discharge of Liabilities...................................... 69
R. Effect of Discharge on Rights Between Third Parties............................ 69
S. Filing of Additional Documents................................................. 70
T. Post Confirmation Acquisitions, Mergers and Stock Splits....................... 70
U. Class A Common Stock in Lieu of Cash........................................... 70
V. Settlement of Claims on Interests.............................................. 70
W. Ratification of Agreements..................................................... 71
X. Contested Claims............................................................... 71
IX. DISCUSSION OF MATTERS OF CORPORATE GOVERNANCE......................................... 72
A. Officers and Directors of Reorganized Debtor................................... 72
B. Compensation for Directors..................................................... 72
C. Cash Compensation for Officers and Employees................................... 72
D. Provisions for Management...................................................... 72
E. Capitalization................................................................. 73
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Page
X. CERTAIN INCOME TAX CONSEQUENCES OF THE PLAN........................................... 74
A. General........................................................................ 74
B. Acquisition of DIEGO TEL....................................................... 78
C. Creditors...................................................................... 79
XI. MAJOR CONTINGENCIES AND RISK FACTORS.................................................. 79
A. General Business Matters....................................................... 79
B. Energy Cogeneration Related Matters............................................ 82
C. Telecommunications Related Operating Results Subject to Significant
Fluctuations................................................................................ 82
Significant Competition........................................................ 90
D. Other Matters.................................................................. 93
XII. LIQUIDATION ANALYSIS.................................................................. 95
XIII. VOTING PROCEDURES AND REQUIREMENTS.................................................... 97
A. Ballots and Voting Deadline.................................................... 97
B. Creditors and Shareholders Entitled to Vote.................................... 98
C. Definition of Impairment....................................................... 99
D. Classes Impaired Under the Plan................................................ 99
E. Identification of Claims and Equity Interest Not Impaired by the Plan.......... 99
F. Information on Voting and Ballots.............................................. 99
G. Vote Required for Class Acceptance............................................ 100
H. Confirmation of the Plan...................................................... 100
XIV. CONCLUSION........................................................................... 102
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1. INTRODUCTION AND SUMMARY OF PROPOSED PLAN OF REORGANIZATION
A. Introduction.
You have been provided with this document (which is called a "Disclosure
Statement") (Note: capitalized terms are defined in Article 11 of this
Disclosure Statement) because you have been identified as having a potentially
legally recognized claim or interest in Debtor (referred to as either
"PowerTel" or "Debtor'), which is currently involved in a reorganization
pursuant to Chapter 11 of the Bankruptcy Code, 11 U.S.C. Sections
1101-1174. This Disclosure Statement is being made available to Creditors,
Equity Interest holders, and others in order that everyone who has an interest
in Debtor will have up-to-date information with respect to Debtor and its
proposed Plan of Reorganization ("Plan").
Depending upon the nature of your interest in the debtor, you may be
entitled to vote on the acceptance or rejection of the Plan, and this
Disclosure Statement will assist you in evaluating your course of action.
Therefore, you should read the Disclosure Statement carefully.
This Disclosure Statement is relatively complicated but every effort has
been made to organize it in a logical and straight forward fashion. To that
end, the Disclosure Statement will follow the sequence set forth:
History
New Business Plan
Plan of Reorganization
Legal, Corporate, and Judicial Matters Common to all Claims
Risk Factors
Liquidation Analysis
Voting Procedures
B. General Overview of PowerTel USA, Inc. and the Chapter 11 Case.
Debtor is a Delaware corporation established in 1983 which has largely
functioned as a
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nonregulated utility holding company during the period 1983 (the year of its
incorporation) through February 1997 (when this Chapter 11 case was
commenced). Its operations were mostly conducted through wholly owned
subsidiaries, partnerships, and/or joint ventures with third parties. During
this period, Debtor was known by various names (i.e., Munson Geothermal, Inc.
and Nevada Energy Company, Inc.). In 1997, the former Board of Directors and
President attempted to amend the Debtor's Articles of Incorporation to change,
among other things, the name of the Company from Nevada Energy Company to
PowerTel USA, Inc. Although the amendment was not valid because it was not
approved by the shareholders, the Company has functioned using the name
"PowerTel USA" and is referred to by that name in this reorganization.
The Class A Common Stock of Debtor is registered with the Securities and
Exchange Commission pursuant to Section 12 of the Securities Exchange Act of
1934, 15 U.S.C. Section 78, and prior to March 1997, the Class A Common Stock
was traded in the over-the-counter market through various members of the
National Association of Securities Dealers, Inc. ("NASD"). Debtor's Class A
Common Stock was listed as a "small cap" stock with the NASD, but that listing
was suspended in or about March 1997.
In addition to its Class A Common Stock, Debtor has the following Equity
Interests:
1) Class B Common Stock.
The Class B Common Stock was issued in conjunction with the Munson
Reorganization. The Class B is owned of record (100.0%) by Nevada Energy
Partners 1, a Nevada limited partnership ("NEP"), which has sold the Class B
to sixteen (16) business entities which owns equitable title. Pursuant to a
settlement agreement which resolves certain pending litigation (see Article
III), the Class B will be exchanged for Class A Common Stock in an amount
equal
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to 50.0% of the issued and outstanding Class A Common Stock computed as of ten
days after the Effective Date.
2) Series A. Series B, and Series C Preferred Shares.
The Series A (2,000,000 shares) was sold on May 3, 1996, to Golden
Chance, Ltd., nominee for Waterford Trust Company.
The Series B was sold on May 3, 1996, to four outgoing Directors of NEC,
Messrs. Richard Cascarilla (two shares), Jeff Hartman (one share), Michael
Kassouff (one share), and Jeffrey Modesitt (one share). The Series B had
special voting rights in the event that Waterford/Golden Chance defaulted with
respect to timely payments of its purchase obligations with respect to the
Series A.
The Series C was authorized but never issued.
On February 13, 1997, several Creditors of Debtor filed an Involuntary
Petition for Reorganization pursuant to section 303 of the United States
Bankruptcy Code (the "Bankruptcy Code"). Thereafter, the Court permitted
Debtor to resume operations functioning as a Debtor-in-Possession pursuant to
section 1107 of the Bankruptcy Code.
Debtor has filed a proposed Plan with the Court. The Plan is the only
Plan which is being submitted for consideration to its Creditors. Debtor has
also prepared this Disclosure Statement which has been reviewed by the Court
and found to contain the requisite information necessary to permit Creditors
and other interested parties to make an informed decision as to the proposed
Plan.
This Disclosure Statement is being made available to all known Creditors
of Debtor, Equity Interest holders, and other parties-in-
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interest in order to disclose important information pertaining to the proposed
Plan in order that each Creditor, Equity Interest holder and party-in-interest
will be reasonably informed before making a decision to accept or reject the
proposed Plan.
The purpose of this Introduction and Summary is to provide an overview
of selected information which most often is requested upon receipt of a
Disclosure Statement. ALL SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THE
PLAN ITSELF, WHICH IS CONTROLLING IN THE EVENT OF ANY INCONSISTENCY.
The Plan as designed and proposed by Debtor sets forth a specific
proposal for the treatment of Debtor's Creditors and Equity Interest holders.
A copy of the Plan will be transmitted only to all "Impaired" Creditors and
Voting Shareholders because they are the only persons and entities who are
entitled to vote on acceptance or rejection of the Plan. Classes 4, 5, 7, and
8 are the only classes of Creditors deemed to be impaired.
This Disclosure Statement is not intended to replace a careful review
and analysis of the Plan. Rather, this Disclosure Statement is intended to
aide you in your independent review and analysis. While substantial effort has
been made to explain all of the terms and conditions of the Plan, you may have
additional questions or comments. If this is the situation, you are encouraged
to contact legal counsel to Debtor, and counsel will attempt to be of
assistance; it is important, however, to understand that the attorneys who are
representing Debtor are not permitted to provide legal representation to
individual Creditors or shareholders. Therefore, if you have questions
regarding your specific legal rights or remedies, you should confer with your
personal attorney. Moreover, neither this Disclosure Statement nor the Plan
are intended to provide legal, tax, investment, or accounting advice to
Creditors or shareholders.
To the extent that there are questions with respect to the information
set forth in this Disclosure Statement or the proposed Plan, questions should
be directed to:
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Van P. Carter, Esq.
Walter & Haverfield P.L.L.
1300 Terminal Tower
Cleveland, Ohio 44113
Telephone: (216) 348-8934 ext. 6032
Telefax: (216) 575-0911
e-mail: w&h@walterhav.com
Counsel for PowerTel USA; or
or
Richard A. Cascarilla, President
PowerTel USA, Inc.
c/o 321 W. Lake Lansing Road
East Lansing, Michigan 48823
Telephone: (517) 333-5277
Telefax: (517) 333-9869
DEBTOR STRONGLY ENCOURAGES YOU TO VOTE IN FAVOR OF THE PROPOSED PLAN
WHICH IS THE ONLY MEANS (IN THE OPINION OF DEBTOR'S BOARD OF DIRECTORS AND
MANAGEMENT) TO ADDRESS THE CONCERNS OF CREDITORS AND SHAREHOLDERS.
On June 29, 1998, the United States Bankruptcy Court entered an order
approving this Disclosure Statement as containing information of a kind and in
sufficient detail to permit Creditors and Equity Interest holders who are
eligible to vote to make an informed decision as to acceptance or rejection of
the proposed Plan. A copy of the Order approving this Disclosure Statement is
available upon request.
This Disclosure Statement should be read in its entirety prior to
voting. No solicitation of votes may be made except pursuant to this
Disclosure Statement and section 1125 of the Bankruptcy Code, and no person
has been authorized to use any of the information set forth in this Disclosure
Statement or otherwise to solicit acceptances or rejections of the Plan other
than with the information contained in this Disclosure Statement. Creditors
should not rely
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upon any information pertaining to Debtor other than the information contained
in this Disclosure Statement with the attached Exhibits.
EXCEPT AS SET FORTH IN THIS DISCLOSURE STATEMENT AND ITS EXHIBITS, NO
REPRESENTATIONS CONCERNING DEBTOR, ITS ASSETS, ITS PAST OR FUTURE OPERATIONS,
OR THE PLAN ARE AUTHORIZED, NOR ARE ANY SUCH REPRESENTATIONS TO BE RELIED UPON
IN ARRIVING AT A DECISION TO ACCEPT OR REJECT THE PROPOSED PLAN.
THERE HAS NOT BEEN AN INDEPENDENT AUDIT OF THE FINANCIAL INFORMATION
CONTAINED IN THIS DISCLOSURE STATEMENT. THE DEBTOR IS UNABLE TO WARRANT OR
REPRESENT THAT THE FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE
STATEMENT IS WITHOUT ANY INACCURACY.
THE APPROVAL BY THE BANKRUPTCY COURT OF DEBTOR'S DISCLOSURE STATEMENT
DOES NOT CONSTITUTE ANY ENDORSEMENT BY THE COURT OF THE DEBTOR'S PLAN OR A
GUARANTY OF THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN.
C. Summary Information
1. Who is in Bankruptcy?
PowerTel USA, Inc. (which is sometimes referred to as "the Debtor" and
sometimes as "PowerTel") is the business entity which is the subject of the
pending bankruptcy case. The Debtor was incorporated in the State of Delaware
in 1983 under the name "Munson Geothermal, Inc." In 1990, the debtor was
renamed "Nevada Energy Company, Inc." An attempt was made to rename the Debtor
as "PowerTel USA, Inc." in January 1997 and the Company will be using that
name for purposes of this proceeding.
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2 What is the nature of this reorganization?
This reorganization is being conducted pursuant to Chapter 11 of the
Bankruptcy Code. In summary, Chapter 11 permits a business such as Debtor to
propose a plan by which its liabilities may be restructured in order to remain
in business. In this instance, on February 13, 1997, several of the creditors
of Debtor filed an Involuntary Petition for Reorganization pursuant to Section
303 of the United States Bankruptcy Code. After the proceeding was initiated,
the Bankruptcy Court appointed an interim trustee to manage the affairs of the
debtor.
At that time, Debtor's Board of Directors consisted of Messrs. Charles
Cain, Peter Cannell, and Michael Kassouff. Messrs. Cain and Cannell resigned,
and Mr. Kassouff (as the sole remaining Director), pursuant to applicable
Delaware law and Debtor's By-Laws, elected Messrs. Lawrence Herth and Richard
A. Cascarilla as replacement Directors. Mr. Cascarilla had been a Director of
NEC prior to May 3, 1996. The Board of Directors elected Mr. Cascarilla as
President and Mr. Herth as Secretary-Treasurer.
Following these events, the United States Trustee concurred in a request
that management of the Debtor be resumed by the Board of Directors of Debtor
and its Officers. Accordingly, on September 24, 1997, the United States
Bankruptcy Court permitted the company to resume management of its own affairs
and function as a "Debtor-in-Possession" pursuant to Section 1107 of the
Bankruptcy Code. As a Debtor-in-Possession, Debtor is permitted to conduct its
day-to-day business affairs but remains accountable to the Court.
3. Where is this taking Place?
The Chapter 11 case was filed in the United States Bankruptcy Court for
the State of Nevada. The presiding judge is the Honorable Bert M. Goldwater.
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Reno, Nevada was the principal place of business of Debtor at the time
of filing. The corporate offices were subsequently relocated to East Lansing,
Michigan, the Chapter 11 proceeding, however, remains in Reno and is subject
to the jurisdiction of that Court.
4. What is being submitted to the Creditors for their
Analysis?
Debtor has prepared a proposed Plan to address its financial
responsibilities. The Creditors are being asked to review and approve that
Plan. The purpose of this Disclosure Statement is to provide in-depth,
detailed information so Creditors may determine whether to accept or reject
the proposed Plan.
Also included with this Disclosure Statement is a ballot (Exhibit 1)
which will be used by Creditors and Equity Interest holders who are eligible
to vote in order to cast a vote in favor of or against the Plan. The
Disclosure Statement is also accompanied by various exhibits which contain
information of an operational, financial, or business nature. It is important
to read and examine the Disclosure Statement and all Exhibits.
5. When will this take place?
The Bankruptcy Court has reviewed this Disclosure Statement and has made
a determination that it meets the criteria established by the Bankruptcy Code,
in particular Section 1125. That determination was made on June 29, 1998.
The Court has also established a date by which ballots must be received
by the Court. That date is August 24, 1998. When you vote, depending upon the
nature of your Claim, it may be necessary for you to make an election with
respect to two or more alternative payment structures.
After the ballots are received, Debtor will submit a report to the
Bankruptcy Court with respect to outcome of the voting. If the Plan is
approved, the Bankruptcy Court will hold a
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hearing for the purpose of confirming the Plan. In the event that one or more
classes of Creditors should reject the Plan, the Court has the authority,
pursuant to section 1129 (b) of the Bankruptcy Code, to mandate the adoption
of the Plan. This requires at least one (1) impaired accepting class of
Creditors. This authority is sometimes referred to as the "cramdown" power of
the Court.
6. What is the nature of the Plan? Debtor has proposed a
Plan which has four main components:
a. Creditors.
Each Creditor will be assigned to one of eight classes of Creditors.
There is a ninth class for Disputed Claims of Creditors and a tenth class for
Equity Interest holders.
With the exception of four classes, all Creditors will be paid in full
in Cash on the Effective Date, which is one hundred twenty (120) days after
the Plan has been approved by the Court.
Four classes of Creditors (Class 4, Allowed Priority Tax Claims, Class
5, Allowed Claims of Secured Creditors, Class 7, Allowed Claims of general
Unsecured Creditors of Claims in Excess of $1,200, and Class 8, Claims of
Nevada Energy Partners, Ltd. and others) will be paid a percentage of their
Claim based upon the dollar amount of their Claim or will otherwise receive on
the Payment Date less than 100.0% of the amount of each Claim. Because
Creditors in Classes 4, 5, 7 and 8 will not receive 100.0% of their Claims in
Cash, the Creditors in these Classes are considered to be "Impaired" and,
therefore, Creditors in Classes 4, 5, 7 and 8 are the only Creditors who will
be allowed to vote on acceptance or rejection of the proposed Plan.
As to the Creditors in Class 4, the Plan provides that these Claims will
be paid in Cash in
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sixteen (16) equal quarterly installments over a four (4) year term with the
first payment being made on the Payment Date.
As to Creditors in Class 5, the Plan provides that these Claims will be
paid in full in Cash on the Effective Date or, alternatively, at the Debtor's
sole option, in equal monthly installments, the first installment to be made
on the Payment Date and continuing over a term consisting of thirty (30)
months, or upon such other terms as may be agreed upon between the Creditor
and Debtor.
As to the Creditors in Class 7, the Plan provides that the Creditor may
elect to receive either (1) a lump sum payment of $1,200 on the Effective
Date, (2) a combination of Cash and Class A Common Stock, or (3) all stock.
As to Class 8, which has multiple parties-in-interest, Debtor is
proposing the Court ratify its settlement of litigation and a compromise of
claims involving the Class 8 claimants.
As to Class 9, that class has been reserved for disputed claims.
b. Equity lnterest Holders
As to the Equity Interest Holders in Class 10, most shareholders owning
Class A Common Stock are also entitled to vote on acceptance of the Plan.
These shareholders entitled to vote are any shareholder of record holding
Class A Common Stock on May 21, 1998 except any shareholder who acquired Class
A Common Stock subsequent to May 3, 1996 and (a) who failed to file a Proof of
Interest or (b) filed a Proof of Interest which Proof of Interest has been
disputed by Debtor. The capitalization of Debtor will be significantly
effected as follows:
i. Class B Common Stock will be converted to Class A
Common Stock, and there will be a reverse stock split to reduce the number of
shares to no less than 500,000 and no more than 20,000,000. Thereafter, the
Series A and Series C Preferred Shares
16
and the Class B Common Stock shall be deemed to be extinguished by Amendment
to the Articles of Incorporation;
ii. The Series B Preferred Shares shall be repurchased
by Debtor.
The Articles of Incorporation will be amended to extinguish Series B Preferred
Shares and to establish a new class of preferred shares called "Special
Stock."
iii. All Class A Common Stock issued after May 3, 1996
will be rescinded and deemed to be null and void ab initio. except as to
shareholders who are (i) bona fide purchasers for value, and (ii) filed a
Proof of Interest on or before November 10, 1997, which Proof of Interest was
not disputed by the Debtor.
iv. The reverse stock split effect by NEC in January
1997 will be deemed null and void ab initio.
v. By virtue of the conversion of the Class B Common
Stock to Class A Common Stock and the issuance of Class A Common Stock in
conjunction with the acquisition of Diego Tel, there will be substantial
dilution of the equity interest of the Class A Common Stock shareholders of
record as of May 3, 1996, whose interest will be diluted from 100% of the
issued and outstanding Class A Common Stock to 15.0%.
c. Judicial Actions
Promptly after the Confirmation Date, the Bankruptcy Court shall enter
an Order to the effect that:
i. All Common and Preferred Stock issued by Debtor
subsequent to May 3, 1996 is null and void ab initio, except as to
shareholders who (i) are bona fide purchasers for value, and (ii) have filed a
Proof of Interest on or before November 10, 1997, which Proof of Interest was
not contested by the Debtor;
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ii. The election of Michael Kassouff as a Director is
hereby ratified and all subsequent elections of officers are also ratified.
iii. The 1:6 reverse stock split effected by Debtor in
January 1997 is null and void ab initio;
iv. The amendments to Debtor's Articles of
Incorporation filed with the Secretary of State for the State of Delaware in
January 1997 are null and void ab initio,
v. Any claimed security interest of Brady Geothermal
Park Power Partners against any asset of Debtor is null and void.
vi. The following actions taken by the Debtor's Board
of Directors are null and void ab initio:
(a.) Proposal to Amend Corporate Name and Symbol
(b.) Proposal to Increase Authorized Shares
(c.) Proposal to Increase Authorized Class B
Shares
(d.) Proposal to Authorize Class C Stock
(e.) Proposal to Authorize Lease Guaranty for
Santa Barbara Property
(f.) Debtor reserves the right to amend,
supplement or modify this listing upon
further investigation of the corporate
records.
vii. The Debtor is authorized to retain and to enforce
any claims or interests which the Debtor has or may have pursuant to the
Bankruptcy Code, whether or not such claims or interests have been lodged in
an adversary proceeding commenced prior to the Confirmation of the Plan.
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viii. Debtor is granted 120 days from the Confirmation
Date to cure all defaults, if any, to National Union Fire Insurance Company,
pursuant to policy number 445- 53-00, renewal of policy number 443-38-50, and is
authorized to reserve all rights to pursue any and all remedies covered by said
policy.
ix. Debtor shall be authorized to take all necessary
steps to effect the above.
d. Litigation and Claims.
Debtor has entered into settlements with various creditors, litigants
and other parties, the most significant of which is the settlement with NEP. The
Court will (1) ratify those Settlements and (2) authorize the Debtor to retain
and to enforce any claims or interests which the Debtor has or may have pursuant
to the Bankruptcy Code.
7. How do I vote for or against the Plan?
Creditors who are eligible to vote and Voting Shareholders will be
entitled to cast a vote in favor of acceptance or rejection of the Plan. The
ballot is enclosed as Exhibit 1. Creditors who are eligible to vote and Voting
Shareholders should follow the procedures set forth in Article XII of this
Disclosure Statement.
In deciding whether to vote in favor of or against the Plan as proposed
by Debtor, Creditors and entitled to vote and Voting Shareholders should review
this Disclosure Statement carefully. Certain words and phrases have a specific
meaning, and these words and phrases are defined in Article II of this
Disclosure Statement.
8. How can I obtain a copy of documents referenced in the Plan or
Disclosure Statement?
The Plan and Disclosure Statement reference various agreements and
documents, some
19
of which are not attached as Exhibits. For a copy of any document referenced
in either the Plan or the Disclosure Statement, please contact Debtor or its
legal counsel at the addresses and telephone numbers in Article 1, Section B
of this Disclosure Statement.
II. DEFINITIONS
As used in the Plan, the following special terms have the respective
meanings set forth below:
A. Administration Expense: Any cost or expense of administration of the
Chapter 11 case entitled to priority pursuant to section 507(a)(1) and allowed
pursuant to section 503(b) of the Bankruptcy Code, including without
limitation, any actual and necessary expenses of preserving the Debtor's
estate, and actual and necessary expenses of operating the business of the
Debtor (including the post-petition compensation of Officers and Directors of
Debtor), any indebtedness or obligations incurred by or assessed against the
Debtor in connection with the conduct of its business, or for the acquisition
or lease of property or for providing of services to the Debtor, and
allowances of compensation or reimbursement of expenses to the extent allowed
by the Bankruptcy Court under the Bankruptcy Code, and any fees or charges
assessed against the Debtor's estate pursuant to Title 28, Chapter 123, United
States Code.
B. Affiliates: Every other entity which is an "affiliate" of Debtor
within the meaning of section 101 (2) of the Bankruptcy Code.
C. Allowed Claim or Allowed Equity Interest: Any Claim against or Equity
Interest in the Debtor, proof of which was filed on or before the last date
designated by the Bankruptcy Court as the last date for filing Proofs of
Claims or Equity Interest or (if no Proof of Claim or Equity Interest is
filed) which has been or hereafter is listed by the Debtor as liquidated in
amount and not disputed or contingent and, in either case, a Claim or Equity
Interest as to
20
which no objection to the allowance thereof has been interposed or such Claim
or Equity Interest has been allowed in whole or in part by a Final Order.
Unless otherwise specified in the Plan, "Allowed Claim" shall not, for the
purposes of computation or Distributions under the Plan, include post-petition
interest on the amount of such Claim.
D. Allowed Priority Tax Claim: A Priority Tax Claim to the extent that
it is or has become an Allowed Claim, which in any event shall be reduced by the
amount of any offsets, credits, or refunds to which the Debtor or
Debtor-in-Possession shall be entitled on the Confirmation Date.
E. Allowed Secured Claim: A Secured Claim to the extent it is or has
become an Allowed Claim.
F. Allowed Unsecured Claim: An Unsecured Claim to the extent it is or
has become an Allowed Claim.
G. Bankruptcy Code: The Bankruptcy Reform Act of 1978, as amended and
codified as Title 11, United States Code.
H. Bankruptcy Court: The unit of the United States District Court for
the District of Nevada having jurisdiction over the Chapter 11 case, or in the
event such court ceases to exercise jurisdiction over the Chapter 11 case, such
court or adjunct thereof that exercises jurisdiction over Chapter 11 cases in
lieu of the United States Bankruptcy Court for the District of Nevada.
J. Bankruptcy Rules: The Federal Rules of Bankruptcy Procedure (as
amended), as applicable to the Chapter 11 cases.
K. CEC: Combustion Energy Company, a Nevada corporation with its
21
principal place of business in Reno, Nevada.
L. Cash: Cash, cash equivalents and other readily marketable securities
or instruments issued by a person other than Debtor, including, without
limitation, readily marketable direct obligations of the United States of
America, certificates of deposit issued by banks and commercial paper of any
entity, including interest accrued or earned thereon.
M. Chapter 11 Case: The case being conducted pursuant to Chapter 11 of
the United States Bankruptcy Code in which Debtor is the Debtor-in-Possession
and identified as Case No. 97-30265-BMG.
N. Claim: Any right to payment from the Debtor, which right arose on or
before the Petition Date, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
legal, equitable, secured or unsecured; or any right to an equitable remedy for
future performance if such breach gives rise to a right of payment from the
Debtor, whether or not such right to an equitable remedy is reduced to judgment,
fixed, contingent, matured, disputed, undisputed, secured or unsecured.
O. Class A Common Stock: The Class A Common Stock of Debtor.
P. Class B Common Stock: The Class B Common Stock of Debtor previously
issued by NEC pursuant to the Munson Reorganization.
Q. Confirmation Date: The Date upon which the Bankruptcy Court shall
enter the Confirmation Order; provided, however, that if on motion the
Confirmation Order
22
or consummation of the Plan is stayed pending appeal, then the Confirmation
Date shall be the entry of the Final Order vacating such stay or the date on
which such stay expires and is no longer in effect.
R. Creditor: Any person that has a Claim against the Debtor that arose
on or before the Petition Date.
S. Debtor: PowerTel, USA, Inc. formerly known as Nevada Energy Company,
Inc. ("NEC") and also formally known as Munson Geothermal, Inc. ("Munson").
T. Debtor-in-Possession: PowerTel, as Debtor-in-Possession.
U. Declaration Date : The thirtieth (30th) day after the Confirmation
Date.
W. Diego Tel: Diego Tel, Inc. a Nevada corporation to be acquired by
Debtor.
Y. Disputed Claim. Claims or Equity Interests against the Debtor which
(a) are listed in a "Schedule of Unresolved Claims" which may be filed with the
Bankruptcy Court by the Debtor on or before the Confirmation Date, or (b) are
the subject of an objection which has been filed on or before the Effective Date
by a party-in-interest and which objection has not been withdrawn or resolved by
entry of a Final Order on or before the Effective Date or (c) are identified in
the Debtor's Schedules as contingent, unliquidated or disputed.
X. Distributions: The property required by the Plan to be distributed
to the holders of Allowed Claims and Allowed Equity Interests.
AA. Effective Date: Date upon which certain Distribution to be made
pursuant
23
to the Plan will be effect, which date shall be on the first business day
following the expiration of one hundred twentieth (120th) day after the
Confirmation Date.
BB. Equity Interest: Any interest in the Debtor represented by
ownership of Common and/or Preferred Stock.
CC. Exchange Act: The Securities Exchange Act of 1934, as amended and
codified in 15 U.S.C. Section 78b, et. seq.
DD. Final Order: An order of judgment of the Bankruptcy Court which has
not been reversed, stayed, modified or amended and as to which (a) any appeal
that has been taken has been finally determined or dismissed, or (b) the time
for appeal has expired and no notice of appeal has been filed.
EE. Munson Reorganization: The 1988 Chapter 11 case involving Munson
Geothermal, Inc. and referenced as Case No. 88-278.
FF. NEP: Nevada Energy Partners I, Limited Partnership, a limited
partnership organized pursuant to the laws of the State of Nevada. The general
partner is Nevada Electric Power Company, which is wholly owned by Jeffrey
Antisdel, former president of the Debtor.
GG. NEP Agreement: The August 16, 1996 Agreement between NEP and
Debtor.
HH. NEP Settlement: The Settlement and Release Agreement dated as of
December 1, 1997 by and among Debtor, NEP and others.
JJ. NEPC Indemnification: The Indemnification Agreement dated as of
24
December 1, 1997 by and among Nevada Electric Power Company, the Debtor and
others.
KK. Ownership Settlement: The Settlement and Release Agreement dated as
of February 10, 1998 by and among Mr. John Vogel, Mr. Dean Chamberlain, David
Wallace, the Debtor and others.
LL. Payment Date: Date upon which certain payments to be made pursuant
to the Plan will be effected, which date shall be the first business day
following expiration of three hundred sixty-five (365) days following the
Confirmation Date.
MM. Person: An individual, a corporation, a partnership, an
association, a joint stock company, a joint venture, an estate, a trust, an
unincorporated organization or a government or any particular subdivision
thereon or other entity.
NN. Petition Date: February 13, 1997, the date of filing of the
involuntary bankruptcy petition.
OO. Plan: The Plan of Reorganization, either in its present form or as
it may be altered, amended, or modified from time to time.
PP. PowerTel: PowerTel USA, Inc., the Debtor.
QQ. Pre 1990 Priority Tax Claim: Any Priority Tax Claim arising prior
to 1990 and which was the subject of the Plan of Reorganization adjusted in the
Munson Reorganization.
RR. Priority Non-Tax Claim: Any Claim other than (i) an Administrative
Expense or (ii) a Priority Tax Claim to the extent entitled to priority and
payment under section 507(a) of the Bankruptcy Code.
SS. Priority Tax Claim: Any Claim entitled to priority in payment under
section
25
507(a)(8) of the Bankruptcy Code.
TT. Pro Rata: Proportionately so that the ratio of the amount of a
particular Claim or interest to the total amount of Allowed Claims or Allowed
Equity Interests of the class in which the particular Claim or interest is
included is the same as the ratio of the amount of consideration distributed on
account of such particular Claim or interest to the consideration distributed on
account of Allowed Claim or Allowed Equity Interest of the class in which the
particular Claim or interest is included.
UU. Reorganized Debtor: The Debtor subsequent to Confirmation of the
Plan.
VV. Secured Claim: A right to payment from the Debtor, other than an
Administration Expense or Priority Tax Claim, for a prepetition debt to the
extent that it is validly and properly secured, in accordance with applicable
law, by any form of collateral, real, personal, intangible or tangible, which is
evidenced by a timely filed Proof of Claim or by Debtor's Schedules.
WW. SEC: The United States Securities and Exchange Commission.
XX. Schedules: Schedules and Statement of Affairs, as amended, filed by
the Debtor with the Bankruptcy Court listing liabilities and assets.
YY. TTI: Telecom Technologies, Inc., a wholly owned subsidiary of the
Debtor.
ZZ. Unsecured Creditor: Any Creditor that holds a Claim which is not a
Secured Claim.
AAA. VivaTel: Viva Telecommunications, Inc., a Nevada corporation,
acquired by the Debtor.
BBB. Voting Shareholder: Any shareholder of record on May 21, 1998
holding Class
26
A Common Stock except any shareholder who has filed a Proof of Interest for
which Proof of Interest was disputed by Debtor.
CCC. Wage Claim: A claim for wages due, payable, and earned prior to
the Petition Date.
III. INFORMATION ABOUT THE DEBTOR
A. Corporate Structure.
Debtor was incorporated in Delaware on December 20, 1983 under the name
"Munson Geothermal, Inc." In 1990, following confirmation of a Plan of
Reorganization pursuant to Chapter 11 of the Bankruptcy Code, the Debtor's name
was changed to "Nevada Energy Company." In January 1997, the Debtor's Articles
of Incorporation were refiled with the Secretary of State for Delaware in an
attempt to change the name of the Debtor to "PowerTel USA, Inc."
According to the Debtor's Articles of Incorporation, the Debtor has the
following classes of common and preferred stock:
* Class A Common Stock, par value of $.001 The Class A
Common Stock is publicly traded by members of the
National Association of Securities Dealers, Inc.
("NASD"). In March 1997, the Debtors Class A Common
Stock was listed by the NASD as a "small cap" stock,
but the Class A Common Stock was delisted. As of the
Petition Date, there were about 1,000 shareholders of
record owning Class A Common Stock.
* Class B Common Stock, par value of $.001 The Class B
Common Stock was initially created in 1990 when the
27
Debtor's Articles of Incorporation were amended
following confirmation of a Plan of Reorganization in
the Munson bankruptcy. The Class B Common Stock pays
no dividend but is voting. The Class B Common Stock
has a right to be converted to Class A Common Stock
at any time.
When issued in 1990, the Class B Common Stock,
if converted, would be equal to 50.0% of the
issued and outstanding Class A Common Stock,
computed subsequent to the conversion. The
Class B Common Stock is vested with a
"non-dilution" provision, i.e. for every share
of Class A Common Stock which is issued, an
additional share of Class B Common Stock has a
right to be issued. As of the Petition Date,
the sole shareholder of record owning Class B
Common Stock was Nevada Energy Partnership I,
a Nevada limited partnership.
On or about August 1996, NEP converted Class B common stock to Class A
common stock and sold the Class A to 16 Bahamian corporations; however, the
shares certificates were never transferred. Accordingly, while NEP appears as
the shareholder of record, equitable title is owned by the 16 Bahamian
corporations
* Series A Preferred Shares
An amendment to the Debtor's Articles of
Incorporation in 1996 authorized the Debtor to issue
2,000,000 Series A Preferred Shares, which were
immediately sold to Golden Chance, Ltd., an Isle of
Man company limited by shares, as nominee per
Waterford Trust Company Limited, an Irish
corporation. The Series A Preferred Shares are
28
nonvoting but are convertible into Class A Common
Stock at a 1:1 ratio. As of the Petition Date, the
sole shareholder of record of the Series A Preferred
Shares was Golden Chance, Ltd.
* Series B Preferred Shares
When the Debtor's Articles of Incorporation were
amended to authorize the issuance of Series A
Preferred Shares, the Articles of Incorporation were
also amended to authorize the Debtor to issue Series
B Preferred Shares. The Series B Preferred Shares do
not receive a dividend and are non-voting unless and
until there is a default with respect to the purchase
of Series A Preferred Shares by Golden Chance, Ltd.
As of the Petition Date, there were 5 shares of
Series B Preferred Shares issued and outstanding,
which were owned of record by Mr. Richard A.
Cascarilla (2 shares), Mr. Jeffrey Hartman (1 share),
Mr. Jeffrey Modesitt (1 share) and Mr. Michael
Kassouff (1 share).
* Series C Preferred Shares
The Debtor's Articles of Incorporation state that the
Debtor is authorized to issue 20,000,000 shares of
Series C Preferred. To the best of the Debtor's
information, no Series C Preferred Shares have been
issued.
B. Summary of Debtor's Operations 1990-May 1996.
1 . Operations. Commencing with the confirmation of the Plan of
Reorganization for the Debtor by the United States Bankruptcy Court for the
District of Nevada in Case No. 88-278 captioned In re: Munson Geothermal, Inc.
in December 1990 and continuing through May 3, 1996 the Debtor functioned as a
non-regulated utility holding company primarily
29
engaged in the development, financing, construction and operation of geothermal,
wind and biomass energy resources which are used primarily to generate electric
power. In 1994, the Debtor (through one of its then subsidiaries) acquired by
merger Herth Printing and Business Supplies, Inc. As a result of that
acquisition, the Debtor also began to operate a custom printing and catalogue
based retail office supply business.
The Debtor's operations were conducted through a variety of joint
ventures, partnerships and subsidiaries and are discussed in detail in filings
made by the Debtor with the Securities and Exchange Commission. The latest SEC
filings by the Debtor include the following:
* An annual report for the twelve months ended February
28, 1996 as reported on Form 1 O-KSB, and
* Quarterly reports for the three months ended on May
30, August 30 and November 30, 1996 as reported on
Form 10-QSB. The Debtor believes that the financial
information contained in its quarterly reports for
the period ending May 30, August 30 and November 30,
1996 as reported on form 10- QSB and filed with the
FCC may have been inaccurate for, among other things,
failure to take into consideration the existence of
and disbursement from the Palm Desert Bank account.
A copy of any one or all of the foregoing reports are available upon
request, without charge, by contacting the Debtor or its legal counsel.
2. Financial Results. During the period 1990 through May 3, 1996, the
Debtor continuously generated revenue from operations and was able to meet its
financial obligations as they became due. The Debtor was also profitable on an
intermittent basis.
During this approximately six year period, the Debtor's Class A Common
Stock traded
30
in the over-the-counter market in a range of $3.62/share (high) to $0.25/share
(low).
The Debtor's filings with the SEC referenced above contain detailed
financial. statements for the fiscal years ending February 28, 1990, 1991, 1992,
1993, 1994, 1995 and 1996. Interim (unaudited) financial statements also appear
in the Debtor's quarterly reports on Form 10-QSB for the three months ended May
30, August 30 and November 30, 1996.
3. Management. During the period 1990 through May 3, 1996, the Debtor's
Board of Directors and Officers consisted of:
Name Position
---- --------
Jeffrey Antisdel Director and President
Richard A. Cascarilla Director and Secretary
Jeffrey Modesitt Director
Jeffrey Hartman Director
Michael Kassouff Director
Information on the professional experience, education and background of
each of the individuals identified above was contained in the Debtor's annual
Proxy solicitation, which are also available without charge upon request to
Debtor or its legal counsel.
C. Change of Control (May 3, 1996).
On or about May 3, 1996, the Debtor sold to Golden Chance, Ltd., an
Isle of Mann corporation limited by shares, 2,000,000 shares of the Debtor's
Series A Preferred Shares. The terms of sale, in summary, were (i) $100,000
cash, and (2) a promissory note to pay $4,900,000 together with interest over a
term not to exceed twelve (12) months. Golden Chance, Ltd. was obligated to pay
the Debtor the amount of $500,000 per month commencing in August 1996. The
promissory note did not allow for prepayment. The promissory note was guaranteed
by Waterford Trust Company Limited, an Irish corporation.
Simultaneously with the sale of the Series A Preferred Shares, the
Debtor sold 5 shares
31
of its Series B Preferred Shares.
Upon the issuance of the Series A Preferred Shares to Golden Chance,
Ltd., the Board of Directors of the Debtor resigned and was replaced by
Directors designated by Golden Chance, Ltd. as follows:
Name Position
---- --------
Charles Cain Director
Charles Cannell Director
Robert Goold Director
Messrs. Antisdel and Cascarilla agreed to remain as President and
Secretary (respectively) on an interim basis until new officers were appointed
by the Board of Directors.
The new Board of Directors and their "consultant"/advisor, Mr.
Pattinson Hayton III, assumed control of the Debtor on or about May 3, 1996.
Unknown to the Debtor and its former Board of Directors, Mr. Hayton had been
previously enjoined by the United States District Court for the District of
Columbia, Docket No. 88-305-NHJ on August 18, 1988, from violating certain
provisions of the federal securities laws and had been fined $60,000 for civil
contempt of that injunction.
D. Summary of Pre-Petition Events from May 3, 1996 through the Petition
Date.
During the period May 3, 1996 through the Petition Date, the
operational and financial affairs of the Debtor deteriorated significantly.
Among other things,
* Valuable assets were sold, transferred or conveyed
for little or no consideration,
* Large amounts of cash were wire transferred
off-shore, paid to third parties or converted into
travelers checks and released,
* False, misleading or inaccurate documents were filed
with the Securities
32
and Exchange Commission,
* Litigation was commenced by various third parties
seeking restitution and/or specific performance of
contractual commitments involving the Debtor,
* One or more companies were acquired for substantial
cash and Class A Common Stock despite the fact that
the acquired company had no assets, no revenue, no
proprietary products and was unable to produce
audited or auditable financial statements,
* Golden Chance, Ltd. defaulted with respect to payment
of its $4,900,000 promissory note for the purchase of
Series A Preferred Shares, and Waterford failed to
fulfill its financial guarantee
* False, misleading or inaccurate press releases were
issued, and
* Massive amounts of Class A Common Stock were issued
for which the Debtor received little or no
consideration.
Several events warrant more detailed discussion, including the
following:
1 . Sale of Class B Common Stock.
In May 1996, when Waterford contracted to purchase the Series A
Preferred, Golden Chance contracted to purchase 100% of the issued and
outstanding Class B Common Stock from Nevada Energy Partners I ("NEP"), a Nevada
limited partnership. Under the contract, NEP retained the Class B Common Stock
until fully paid but Golden Chance received a proxy to vote the Class B stock
which was less than 20% of
33
the outstanding voting shares of the Debtor. The General Partner for NEP was
Nevada Electric Power Company, a Nevada corporation which was owned 100.0% by
Mr. Jeffery Antisdel, the then President of the Debtor. The General Partner of
NEP owned 40.0%. Under the August 16, 1996 agreement the Class B Common Stock
owned by NEP was convertible into Class A Common Stock on a 1:1 ratio. As of
August 1996, the Class B Common Stock, if converted, was equal to 50.0% of the
issued and outstanding Class A Common Stock. Because the Class B Common Stock
had voting rights, whoever controlled the Class B Common Stock had a significant
impact on the resolution of issues submitted to the Shareholders for approval.
In May 1996, the Debtor's Articles of Incorporation provided that a
"supermajority" vote of 80.0% of the voting stock (i.e. the Class A and Class B
Common Stock) was required to amend the Debtor's Articles of Incorporation.
When Golden Chance purchased the Series A Preferred Stock, and they
subsequently entered into a separate agreement with NEPC. Although the Debtor
has not been provided with a copy of this Agreement, it is Debtor's
understanding that the Agreement provided, in substance, as follows:
* NEPC granted to Golden Chance a Power of Attorney to
vote the Class B Common Stock, and
* Golden Chance agreed to purchase 4,437,473 shares of
Class B Common Stock, from NEPC in exchange for
$1,200,000 to be paid at the rate of $50,000 per
month, and pursuant to the terms of a Promissory Note
given to NEPC by Golden Chance. No payments were ever
made.
34
The Debtor's Annual Meeting of Shareholders was scheduled for August
16, 1996 in Santa Barbara, California. Prior to the meeting, David Wallace,
Esq., legal counsel for NEPC, declared an event of default with respect to the
$1,200,000 Promissory Note issued to NEPC and threatened to revoke the proxy
granted to Golden Chance to vote the Class B Common Shares. If the proxy were
revoked, NEP would have controlled less than 50.0% of the votes to be cast at
the annual meeting.
Immediately prior to the commencement of the Annual Meeting, a new
agreement was negotiated between the Debtor (whose Directors had been designated
by Golden Chance), and NEPC. The subject Agreement is attached hereto as Exhibit
2.
Subsequent to the execution of this revised agreement, Mr. Wallace
negotiated an agreement between NEPC and 16 Bahamian corporations. The Debtor
has learned that NEPC contracted to sell about 4,437,473 shares of Class A
Common Stock to the 16 Bahamian corporations for a total of about $1,200,000
which obligation was set forth in Promissory Notes issued to NEPC. Debtor has
been informed that no payments were ever made on this Note.
After the commencement of this Chapter 11 case and the entry of an
Order authorizing the Debtor to function as Debtor-in-Possession, the Debtor has
given notice of its intent to commence an adversary proceeding for the purposing
of setting aside the August 1996 agreement as being in violation of Section 547
and/or 548 of the Bankruptcy Code.
All of the parties to the August 1996 Agreement have entered into a
settlement agreement that is attached hereto as Exhibit 2.
2. The Palm Desert Bank Account.
On May 2, 1996 a bank account was opened in Palm Desert, California at
a branch office
35
of Bank of America in the name of "Nevada Energy Company." The initial deposit
into that account consisted of $100,000, which was the initial payment to be
made by Golden Chance for the purchase of the Debtor's Series A Preferred
Stock.
Although this bank account was in the name of "Nevada Energy Company,"
no corporate officer of the Debtor controlled this account. The new Board of
Directors designated by Waterford, authorized the formation of this account and
placed it under the control of Mr. Pattinson Hayton's assistant, Darlene Ramos.
During the period May 2 through August 5, 1996, a total of $1,342,401
was wire transferred into this account. Of this sum, the Debtor received less
than $200,000. All of the balance (i.e. more than $1,100,000) was disbursed
without the prior knowledge or approval of any of Debtors officers, although Mr.
Antisdel (the then President of the Debtor) knew of this bank account and
demanded that the payments be deposited into the Debtor's bank account in Reno,
Nevada.
Prior to the 1996 Annual Meeting of Shareholders, Mr. Jeffery Antisdel
received an itemized schedule of disbursements from the Palm Desert bank
account. This schedule confirmed disbursements of large amount of money, but
detailed documentation was not provided. Mr. Antisdel and Mr. Cascarilla entered
into an agreement with the Debtor's auditors, Kafoury, Armstrong and Company, to
investigate this account. Darlene Ramos refused to turn over the necessary
documents at Pattinson Hayton's direction.
Following the Annual Meeting of Shareholders, there was a meeting
involving two of the Debtors three Directors, the officers, Mr. Antisdel, Mr.
Cascarilla, Mr. Hayton and. others. At that meeting, Mr. Hayton represented that
he would repay to the Debtor any proceeds which Mr. Antisdel determined had been
improperly disbursed. Mr. Antisdel was terminated by the
36
Debtor's Board of Directors in September 1996 prior to making any determination
regarding disbursements from the Palm Desert account.
The Debtor is currently investigating these disbursements and the
accuracy of its filings with the SEC, and intends to seek disgorgement and/or
restitution where appropriate.
3. Telecom Technologies, Inc. ("TTI").
In August 1996, the Directors designated by Waterford authorized the
Debtor to acquire 100% of the issued and outstanding common stock of TTI in
exchange for (i) the payment of $500,000 cash, and (ii) 2,000,000 shares of
Class A Common Stock, which was then trading for about $1.00 per share. The
Debtor purchased TTI from WINA Associates.
Immediately prior to the 1996 Annual Meeting of Shareholders, Messrs.
Antisdel and Cascarilla learned that TTI had recently been sold by Mr. and Mrs.
Dean Chamberlain (its sole shareholders) to WINA Associates for (i) a promise to
pay $135,000 of which only $45,000 had been paid, and (ii) 100,000 shares of
Class A Common Stock. Mr. Chamberlain also confirmed his understanding that Mr.
Pattinson Hayton owned or controlled WINA Associates.
Mr. Antisdel then directed the Debtors auditors to examine the books
and records of TTI in anticipation of requisite SEC filings. The auditors
informed Mr. Antisdel that TTI did not maintain its financial records in
accordance with generally accepted accounting principles. According to the
auditors, TTI had little or no revenue or assets.
Messrs. Cascarilla and Antisdel objected to this transaction and asked
that the Golden Chance designated Board of Directors rescind the transaction.
The Board refused to do so. Debtor later filed a Form 8K indicating that the
transaction had been rescinded, but no consideration was returned to the Debtor.
The Debtor is in the process of investigating this transaction and
intends to seek
37
restitution and/or disgorgement.
4. The Santa Barbara Lease.
In the fall of 1996, Mr. Hayton went to Santa Barbara and entered into
negotiations to lease 100.0% of a multistory building consisting of about 32,000
sq. ft. At that time, the Debtor had only four employees and nominal revenue,
which was not sufficient to pay the monthly rental. Although the exact purpose
for this transaction is not known, it is believed that Mr. Hayton wanted to
utilize the building as a vehicle to create the illusion that the Debtor's
business and operations were successful and growing, and operate his personal
business at the Debtor's expense.
Central Communications Corporation ("CCC"), a subsidiary of Debtor,
thereafter executed a lease agreement to rent the entire building. In order to
give CCC the illusion of stability, the Debtor (under the control of the Golden
Chance Board of Directors) caused financial statements to be prepared and filed
with the SEC which were inaccurate. Once acquired, Mr. Hayton occupied an
executive suite and conducted business on behalf of other companies and
enterprises at that facility.
The landlord demanded that the Debtor guarantee the leasehold
obligation. The Board of Directors never authorized this guarantee.
CCC never had any revenue. CCC ultimately defaulted with respect to its
lease payment obligations. The landlord has filed a Proof of Claim seeking to
rely upon the alleged guarantee of Debtor. The Debtor has objected to this Proof
of Claim and denies that its Board of Directors ever authorized the guarantee.
After the approval of the Disclosure Statement, the landlord withdrew
the claim.
38
5. February 1997 Stock Issuance.
On February 6, 1997, just 7 days before the Petition Date, Mr.
Pattinson Hayton (the then President of the Debtor) arranged for 470,000 shares
of the Debtor's Class A Common Stock to be issued to three (3) entities. The
Class A common stock was to be distributed as follows:
Name Number of Shares
- --------------------------------------------------------------------------------
Pillsbury Madison & Sutro 150,000
Jones, McCloy and Peterson 220,000
Wilson, Elser, Moskowitz, Esselman and Dicker 100,000
The Debtor received little or no consideration for the issuance of this stock.
At that time, the Debtor's Class A stock was traded at approximately $0.125 per
share. The Debtor is in the process of investigating these transactions and
intends to seek disgorgement and or restitution arising out of these events.
The plan of reorganization provides, among other things, that the
January, 1997 "amended" Articles of Incorporation are rescinded and withdrawn
and in place thereof new Articles of Incorporation will be filed with the
Secretary of State for the State of Delaware.
The Debtor is in the process of investigating the facts and
circumstances surrounding the attempt in 1997 to amend the Articles of
Incorporation. The Debtor anticipates that it will pursue claims for damages and
restitution arising out of such actions.
6. Attempt to Amend Articles of Incorporation.
In the Fall of 1996, the Debtor's then Board of Directors designed a
strategy to amend the Debtor's Articles of Incorporation in order to increase
the authorized number of shares of Class A common stock and to create a new
class of common stock, to be known as "Class C
39
Common Stock". At that time, the Debtor's Articles of Incorporation contained
a "super majority" voting requirement. In other words, in order for the
Articles of' Incorporation to be amended, the affirmative vote of eighty
percent (80%) of the issued and outstanding Class A and Class B common shares
was required.
Without securing the affirmative vote of eighty percent (80%) of the
Class A and Class B common shares, the then Board of Directors of the Debtor,
working in conjunction with various attorneys, caused an affidavit to be filed
with the Secretary of State for the State of Delaware to the effect that the
super voting requirement had not been properly adopted and, therefore, the
Articles of Incorporation to be amended on the basis of the affirmative vote of
only fifty percent (50%) of the issued and outstanding Class A and Class B
common shares.
On the basis of that affidavit, the Secretary of State for the State of
Delaware permitted the Debtor to file Amended Articles of Incorporation.
The Debtor has determined that the affidavit as submitted to the
Secretary of State for the State of Delaware was false and inaccurate.
Accordingly, the attempt to amend the Articles of Incorporation was void.
7. Waterford Defaults.
In consideration of its purchase of the Series A Preferred Shares,
Golden Chance was contractually obligated to pay to Debtor a total of $4,950,000
to be paid in equal monthly installments of $500,000 per month commencing August
1996.
Prior to September 1996, Golden Chance was in default of its payment
obligations. At that time. Mr. Antisdel (as President) made demand for payment
upon Waterford Trust Company Limited, an Irish corporation, which had guaranteed
timely payment of the Golden Chance note. Waterford failed to fulfill its
guarantee commitment.
40
Messrs. Antisdel (as President, and Richard Cascarilla, as Secretary to
the Debtor) prepared a special report on Form 8-K to be filed with the SEC
reporting the default. Messrs. Antisdel and Cascarilla were fired the day before
that Form 8-K could be filed.
Thereafter, the Debtor's Board of Directors adopted a resolution
waiving the default. At least two members of the Board of Directors (Messrs.
Cain and Cannel) were also Directors or affiliates of Waterford and/or Golden
Chance.
Subsequent to the default, to the best of Debtor's knowledge, Golden
Chance made no further payments on its promissory note and Waterford failed to
fulfill its guarantee.
As a result of these events, the Debtor's financial condition
deteriorated significantly subsequent to May 3, 1996, and Debtor failed to pay
its creditors' claims.
For this reason, several creditors filed a Petition for Involuntary
Reorganization pursuant to Section 303 of the Bankruptcy Code.
IV. INFORMATION ABOUT THE CHAPTER 11 CASE.
A. The Involuntary Petition.
Three of Debtor's creditors -- Mr. Richard Cascarilla, Unishippers and
Geothermal Development Associates -- filed an involuntary petition pursuant to
Section 303 of the Bankruptcy Code to reorganize the Debtor. The Petition was
filed on February 13, 1997 (the "Petition Date").
At that time, the Debtor's Board of Directors and Officers consisted of
the following individuals:
41
Name Position
---- --------
Pattinson Hayton, III President
Kevin Quinn Secretary
Charles Cain Director
Charles Cannell Director
Michael Kassouff Director
Mr. Kassouff had been elected by the Series B shareholders after Golden
Chance went into default with respect to its $4,900,000 promissory note
initially given for the purchase of the Series A Preferred Shares.
When the involuntary petition was filed, the Debtor opposed the
Petition. In summary, the Debtor asserted that it was generating revenue and,
therefore, the Petition was inappropriate. Mr. Kassouff was of the opinion that
the appointment of a Trustee was necessary and appropriate for the protection of
both creditors and shareholders.
After holding a hearing to consider the objections made on behalf of
the Debtor by Mr. Hayton, the Bankruptcy Court entered an Order (1) authorizing
the Petition to remain as filed, and (2) appointing an interim trustee. At this
hearing, the Debtor was represented by Mr. Kevin Quinn, an alleged attorney
hired by Pattinson Hayton, whose licence to practice law had been suspended by
the State Bar of California, and subsequently disbarred.
B. Actions by the Interim Trustee.
The Interim Trustee assumed control of the Debtor, began an analysis of
the Debtor's assets and liabilities and attempted to gain control over the
affairs of the Debtor. He was opposed in this process by Mr. Hayton who, among
other things, caused the Debtor to issue Class A Common Stock subsequent to the
appointment of the Interim Trustee but without the consent of the Bankruptcy
Court or the Interim Trustee.
Among other things, the Interim Trustee negotiated and completed a sale
of the Debtor's
42
interest in San Jacinto Power Company, an energy cogeneration project. The sales
price was $200,000 cash and assumption of outstanding liabilities which exceeded
$300,000.
C. The Debtor-in-Possession.
While the Interim Trustee was attempting to secure control over the
affairs of the Debtor, Messrs. Cain and Cannell resigned as Directors. The sole
remaining Director (Mr. Michael Kassouff) elected as successor Directors Messrs.
Richard A. Cascarilla and Mr. Lawrence A. Herth.
Immediately thereafter, the Board of Directors terminated Messrs.
Hayton and Quinn and elected Mr. Richard A. Cascarilla as President and Mr.
Lawrence Herth as Secretary.
The new Board of Directors then filed a petition requesting that the
Court permit the Debtor to resume operations functioning as the
Debtor-in-Possession pursuant to 11 U.S.C. Section 1107. The Court approved that
Petition in September, 1997.
D. Summary of Activities of the Debtor-in-Possession.
Functioning as Debtor-in-Possession, Debtor concentrated its efforts in
the following arenas:
* The Trustee negotiated the sale of the Debtor's
partnership units in a California venture known as
San Jacinto Power Company.
* The Company engaged professionals to assist in the
investigation of claims and causes of action to be
initiated by or on behalf of Debtor in order to
recoup assets which had been dissipated in violation
of sections 547, 548 or 550 of the Bankruptcy Code.
* An evaluation was conducted of the pending litigation
in which Debtor was a defendant for the purpose of
determining the validity of defenses
43
and exploring the feasibility of settlement.
* Management focused upon an evaluation of current
Debtor resources in order to design a new business
plan upon which a plan of reorganization would be
structured.
* Efforts were initiated for the purpose of identifying
and regaining possession of Debtor assets which had
been dissipated and/or conveyed to third parties.
* Negotiations were commenced with Debtor's largest
creditor and shareholder NEP for the purpose of
resolving open issues that would result in meaningful
support for a plan of reorganization.
* Working in conjunction with Mr. David Wallace,
management identified a specific strategy for the
penetration of international telecommunication
services, and commenced to implement that strategy
through the acquisition of two companies which had
been established by Mr. Wallace anticipated (VivaTel
and Diego Tel), which had recently developed
relationships for access to telecommunication
services as both as a vendor and supplier and had
secured one or more letters of credit which totaled
$270,000 and other equity funding.
As of result of these activities, several significant documents were
prepared and agreements were entered into:
1. Debtor, Diego Tel, VivaTel and Mr. Wallace entered into a
Share Exchange Agreement dated as of December 1, 1997,
pursuant to the terms of which Debtor acquired 100.0% of the
issued and outstanding Common Stock of VivaTel and
44
Diego Tel. The agreement involving Diego Tel is predicted to
be superseded by an Amended and Restated Agreement for
Exchange of Stock (Debtor also entered into an "Ownership
Settlement" Agreement regarding VivaTel, see Article III,
Section G, "Litigation and Claims"). Both Agreements require
approval of the Bankruptcy Court.
2. Debtor, NEP, Nevada Energy Power Company ("NEPC") and others
entered into a "Settlement Agreement" with respect to claims
and assertions between them. As a result of this Settlement
Agreement, which was effective as of December 1, 1997, Debtor
recouped ownership of Combustion Energy Corporation and its
operations (Herth Printing & Business Supplies), as well as
title to a parcel of real estate situated in Reno, Nevada.
3. Debtor negotiated an "Indemnification Agreement" with Nevada
Electric Power Company and Mr. Jeffrey Antisdel, pursuant to
the terms of which NEPC and Mr. Antisdel guaranteed that net
operating losses recognized by Debtor during the tenure of Mr.
Antisdel were valid and would remain in full force and effect.
NEPC and Mr. Antisdel agreed to indemnify and hold Debtor
harmless from any and all expenses and damages which it might
incur in the event that there is any adjustment with respect
to these net operating losses.
4. A Plan of Reorganization and Disclosure Statement were
prepared, reviewed by the Debtor's Board of Directors, adopted
by the Board of Directors, submitted to the Court for review
and (with the permission of the Court) transmitted to the
Creditors for consideration.
In addition, as of December 1, 1997, Debtor resumed operations. Revenue
for the period
45
December 1997 through May 1998 was attributable to Debtor's subsidiary CEC,
which owned Herth Printing and Business Supplies.
Substantial time, energy and resources have been expended in the
exploration and development of a new business plan. See Article III, Section E.
As part of this endeavor, management and professionals assisting the Debtor have
been involved in extensive, protracted and complex negotiations on various
facets of this new business plan, especially the acquisition of Viva Tel and
Diego Tel.
V. THE DEBTOR'S ESTATE.
A. Business Operations.
As of the petition date, the Debtor s operations consisted almost
exclusively of its interest in San Jacinto Power, which was subsequently sold by
the interim trustee.
In or about April, 1998, the Debtor entered into a Settlement and
Release Agreement with NEP, one which is discussed below in more detail. As a
result of this agreement, retroactively to December 1, 1997, Debtor regained
ownership of a revenue generating former subsidiary (Combustion Energy Corp.).
Through the reacquisition of this subsidiary, the Debtor currently receives
revenue which is reported to the Court in the Debtor's monthly reports, which
are available upon request.
B. Assets and Financial Condition.
As of the Petition Date, the Debtor's assets consisted of the
following:
* Ownership of the following subsidiaries:
San Jacinto Power Company
* Ownership of ten (10) energy cogeneration units
* Claims for damages arising out of transactions
involving consist of its
46
former President and Directors
* Claims for damages against third parties set forth in
Section E below.
Financial statements for the period ending May 31, 1998 and pro forma
financial statements are enclosed as Exhibit 3.
C. Claims and Liabilities.
In addition to the pending litigation, the Debtor has various claims
and is investigating the following:
Among others, the Debtor investigation is focusing upon:
1. Banks and others which participated in the receipt and
transfer of monies belonging to Debtor;
2. Attorneys who issued legal opinions and/or assisted in the
design and implementation of transactions in violation of law;
3. CPA's who issued opinions with respect to financial statements
upon which Debtor relied to its detriment;
4. Corporations and individuals who received Cash, Class A Common
Stock or other assets from Debtor for which Debtor received
little, no or inadequate consideration; and
5. Individuals who participated or aided and abetted
participation by others in acts and practices which resulted
in damages to Debtor.
6. The administration of a bank account established in Palm
Desert, California allegedly on behalf of Debtor and the
disbursement of more than $1,000,000 from that account;
7. The purchase of 100.0% of the issued and outstanding common
stock of Telecom
47
Technologies, Inc. by Debtor in 1996;
8. The formation and administration of Central Communications
Company and its operations including, but not limited to, the
lease of real property situated in Santa Barbara, California;
9. Whether Messrs. Cain, Cannell, Goold, Tevis, Hayton, Bowers
and Kevin Quinn fulfilled their statutory and fiduciary duties
as Officers and/or Directors of Debtor;
10. Whether Waterford Trust Co. or its nominee (Golden Chance,
Ltd.) violated Section 17(a) of the Securities Act of 1933,
Section 10(b) or Rule 10-b(5) of the Securities Exchange Act
of 1934 or any analogous state statute in conjunction with the
purchase of Series A Preferred Shares from Debtor in May 1996
and, if so, whether Debtor has the right to seek restitution
from persons controlling such entities;
11. Whether during the period May 3, 1996 through the Commencement
Date Debtor failed to file reports otherwise required to be
filed pursuant to the Securities Exchange Act of 1934 and, if
so, whether Debtor has a cause of action against the then
Officers and Directors of Debtor for damages and expenses
arising out of such failures;
12. Whether one or more individuals who are subject to section 16
of the Securities Exchange Act of 1934 purchased and sold
securities issued by the Debtor within a six (6) month period
in violation of section 16(b) of that statute;
13. Whether Cash, real property, contract rights, intellectual
property or other assets (real, personal or equitable) were
misappropriated, misused or wrongfully
48
appropriated by third parties;
14. Whether Messrs. Cain, Cannell, Goold, Tevis, Hayton, Quinn or
Bowers, individually or acting in concert, directly or
indirectly usurped any corporate opportunity, contract or
asset of Debtor for personal gain;
15. Whether any person identified in the Securities Act of 1933 or
the Securities Exchange Act is liable to Debtor for violations
of either of these statutes;
16. Whether Debtor has a cause of action arising pursuant to the
Racketeer Influence and Corrupt Organizations Act;
17. Whether, subsequent to the Petition Date, any assets of the
estate of the Debtor was misappropriated to or wrongfully
taken by a third party;
18. Whether any underwriters, brokers, dealers, banks and stock
transfer agents participated in or aided and abetted in the
transfer of securities issued by Debtor; and
19. Whether Debtor has a claim for indemnification arising out of
a policy for Directors and Officers liability insurance in
effect for part of 1996.
While its investigation is not yet complete, on the basis of
information uncovered to date, the Board of Directors of Debtor anticipates that
Debtor will institute civil proceedings against multiple parties unless they
voluntarily settle with the Debtor.
The Plan provides, pursuant to section 1123 (b)(3) of the Bankruptcy
Code, for the retention and enforcement by the Debtor of any claim or interest
belonging to the estate of the Debtor including, but not limited to, the matters
summarized above.
Debtor has been contacted by the SEC with respect to an ongoing
investigation by the SEC into the activities of various individuals. Debtor has
offered to cooperate with the SEC in
49
this matter.
The Board of Directors has also authorized the President (Mr.
Cascarilla) to confer with the United States Attorney for the District of Reno,
Nevada for the purpose of discussing potential criminal conduct of certain
individuals and entities.
In order to enact the new business plan, the Debtor has prepared and
submitted to the Court a Plan of Reorganization to resolve the claims of its
Creditors.
D. Business Affairs.
The Debtor's operations subsequent to the Petition Date are discussed
in periodic reports filed by the Debtor with the Court on a monthly basis. A
copy of the monthly reports are available upon request.
E. Litigation and Claims.
Debtor was both a plaintiff and a defendant in civil litigation pending
as of the commencement of the Chapter 11 case. When the Chapter 11 case was
initiated, all pending civil litigation, in which Debtor was a defendant, was
automatically stayed pursuant to section 362 of the Bankruptcy Code.
Civil litigation and the status of each matter is as follows:
Proceedings in which
Debtor is a Defendant
Case Docket No. Nature of Claim Comment
- ---- ---------- --------------- -------
Mary Kay Robinson, 216651 Breach of Lease-- 1. Case stayed
Trustee v. Central Superior Court Alleged Damages 2. Plaintiff filed
Central Communications Santa Barbara, of $1,200,000 Proof of Claim
Company and Nevada California 3. NEC denies
Energy Company disputed Proof of
Claim
50
Jeffrey Antisdel vs. CV96-07001 Breach of Contract Settlement
Nevada Energy Company County of Damages alleged negotiated
Washoe, to be approximately in amt of $384,500
Nevada $384,500
Jeffrey L. Hartman, CV96-07453 Breach of Contract Claims to be paid
Michael Kassouff and County of Damages alleged with interest
Jeffrey Modesitt vs. Washoe, to be about
Nevada Energy Company Nevada $13,200 for each Plaintiff
Nevada Energy Partners CV96-07487 Breach of Contract, Settled. See Article
vs. Nevada Energy Company County of Washoe Specific Performance and III Section I.
Nevada damages in excess of
$6,000,000
Smith, Katzenstein & Furlow 96-12-004-JEB Action on account, Settled, Stipulated
vs. Nevada Energy Company Superior Court, Damages of $78,731 judgment for
New Castle, DE $78,731
Proceedings in Which
Debtor is a Plaintiff
Case Docket No. Nature of Claim Comment
Nevada Energy Company 216568 Rescission and Specific Dismissed per
vs. Nevada Energy Partners, Superior Court Performance settlement. See
Santa Barbara, CA Article II Section C
NEC v. Charles Cain 15421 NC Breach of fiduciary duty Pending in
Court of Chancery discovery stage
New Castle County,
DE
NEC v. Peter Cannell 15421 NC Breach of fiduciary duty Pending in
Court of Chancery discovery stage
New Castle County,
DE
NEC v. John Goold 15421 NC Breach of fiduciary duty Default obtained
Court of Chancery
New Castle County,
DE
51
NEC v. Stefan Tevis 15421 NC Breach of fiduciary duty Default obtained
Court of Chancery
New Castle County,
DE
NEC v. Waterford Trust 96C-12-150 Breach of contract Default Judgment
Company and Golden Chance Superior Court obtained for
New Castle County, approximately
DE $5,000,000
Claims and Potential Claims by PowerTel U.S.A.
Charles Cain
Peter Cannell
John Goold
Stefan Tevis
Waterford Trust Co., judgment entered for $5,000,000
Golden Chance Limited, judgment entered for $5,000,000
1. Telecom (AE)
- an Isle of Man corporation which represented that it held
contract rights to telecommunication projects. Allegedly assigned rights to
Wina Associates, Ltd. which later sold these rights to NEC for 2,000,000
shares of Class A stock and $500,000 cash. Original contracts were from Dean
Chamberlain for $135,000 and 100,000 shares of Class A stock.
2. Roderick McCloy, Attorney
- Canadian attorney who is a director of Waterford Trust Co.,
attorney for Golden Chance, Telecom (AE), and personally for the NEC
directors. Never represented NEC, but received $500,000 cash by wire transfer
and check identified as attorneys' fees. Also was issued stock in an excess of
220,000 shares. Acted as escrow agent for various entities and worked with
Pacific International for distributing all the unrestricted stock issued by
the company under S-3, S-8, and Reg S opinions issued by Kevin Quinn, who has
not held a law license since 1993.
3. Kevin Quinn
- disbarred attorney who has been suspended since 1993. Issued
Reg S opinions for Telecom (AE), Golden Chance and PowerTel since May of 1996.
Also filed an S-8 registration in 1996 for 1.3 million shares of Class A
stock. Was secretary of the company. Has received in excess of 500,000 shares
of unrestricted stock.
52
4. Mortlake Venture Capital Corporation.
- California corporation allegedly owned by Pattinson Hayton. Has
received over $370,000 and 300,000 shares of stock for little or no
consideration.
5. Pillsbury Madison & Sutro/Graham Taylor, Esq.
- Subsequent to the Petition Date, the Debtor's Board of
Directors initiated an internal investigation into the activities of the
Debtor during the period of May 1996 through the Petition Date. Among other
things, the Debtor has focused on the activities of the various attorneys,
accountants and financial advisors who had been engaged by the
Waterford-Golden Chance Board of Directors. One of the law firms so engaged
was Pillsbury, Madison & Sutro of San Francisco, California which was engaged
as "securities counsel" and "general counsel' to the company.
During the course of that investigation, the Debtor has identified
certain evidence which appears to indicate that Pillsbury, Madison & Sutro had
been legal counsel to Pattinson Hayton (and/or his affiliated companies and
associates), Waterford and Golden Chance, and that Pillsbury, Madison & Sutro
provided legal representation to Mr. Hayton regarding matters involving the
Securities and Exchange Commission. One of the partners of that firm, Graham
Taylor, has been a long time friend and associate of Mr. Hayton. The Debtor
has also traced funds and Class A Common Stock into the possession and/or
control of Pillsbury, Madison & Sutro. While Pillsbury, Madison & Sutro was
serving as "securities counsel," filings were made by debtor with the SEC
which appear to be inaccurate, false and/or misleading. The role and
involvement of Pillsbury, Madison & Sutro in these events is being
investigated.
In view of the foregoing, the Debtor is pursuing an investigation for
the purpose of confirming whether the Debtor has causes of action against
Pillsbury, Madison & Sutro and/or any of its partners. In addition, the Debtor
is in the process of evaluating whether Pillsbury, Madison & Sutro secured
written waivers of actual or potential conflicts of interest and/or engaged in
acts and practices by or on behalf of another client to the detriment of the
Debtor. Finally, Debtor is evaluating whether it has claims for damages to
itself and its shareholders arising out of the conduct of Pillsbury, Madison &
Sutro.
At this time, the Debtor's investigation is continuing. Pillsbury,
Madison & Sutro has cooperated by providing Debtor with access to almost 3700
pages of documents, but has declined an offer to meet with Debtor for the
purpose of discussing the firm's conduct
6. James Kaplan, Esq.
- Florida attorney at firm of Wilson, Elser, Moskowitz & Eselman,
who has worked with Hayton for many years. He also has represented Waterford.
Has received unrestricted stock in excess of 100,000 shares.
53
7. Donald Davis, Esq.
- California attorney. Issued the S-3 opinion for $10,000.
8. Morris, Nichols, et al.
- Delaware firm which issued the legal opinion which NASDAQ
relied on to approve the reverse split of the company's common stock.
9. Weil, Gotchill & Manges
-New York law firm which wrote an eight-page letter to NASDAQ on
February 13, 1997, on behalf of the company which contained factual errors.
10. Paul Messina, C.P.A.
- located in Palm Springs are and has done auditing work for
Hayton, Waterford, and NEC. Did financial statements for Waterford which were
relied upon by NEC in finalizing the GCL deal. Also was the independent
auditor who counted the ballots at the August stockholder meeting.
11. Signature Transfer Company
- Texas stock transfer company hired by the Waterford board.
Issued Class A common stock without general ledgers held by former transfer
company, Corporate Stock Transfer in Colorado. Documents verify that the two
overlapped for approximately eight days while substantial stock was issued.
12. Claims
Stone Brothers (Disputed)
As discussed elsewhere in this Second Amended Disclosure
Statement, Debtor owns Ormats power generating equipment and related equipment
("Ormats"). The Ormats are located in Fernley, Nevada, at Stone Brothers
Nevada Machinery. There is a dispute with Stone Brothers regarding its
entitlement to rent for the storage of the Ormats. The Debtor believes that
the Independent Contractor Agreement between Stone Brothers Welding &
Equipment Sales and Nevada Energy Co. dated July 3, 1992, governs the
respective obligations of the parties. If the parties are unable to resolve
the dispute, the matter will be set for hearing for the Court to decide the
issues.
In some instances, Defendants have operated in foreign countries and the
potential for recovery is uncertain. In other instances, the credit worthiness
of the Defendants are unknown. In most instances, the Debtor is represented by
legal counsel who has agreed to pursue claims
54
and collecting on a contingent fee basis. There is no assurance or guarantee
that Debtor will be successful in its attempt to collect on these judgments.
In addition to the foregoing, Debtor has initiated an investigation into
the acts and practices of its Directors and Officers during the period May 3,
1996 through February 1997. The investigation also focuses upon all business
transactions to which Debtor was a party during this time period. The
objective is to determine whether Debtor has a claim pursuant to the
Bankruptcy Code (Section 547 or 548) or otherwise (i.e., pursuant to Delaware
law, the Federal securities laws or the applicable common law) for damages
and/or disgorgement and return of assets.
VI. THE REORGANIZED DEBTOR'S BUSINESS PLAN
Upon confirmation of the Plan of Reorganization, the Debtor will be deemed
to be "reorganized."
The Reorganized Debtor's business plan will consist of three business
segments, viz:
1. Functioning as a non-regulated utility holding company, the
Reorganized Debtor will seek to identify and develop an application
for its ORMAT units in the operation of geothermal, wind and
biomass energy projects, primarily through joint ventures and
partnerships with third parties. At this time, no specific project
has been identified.
2. The exploitation of its current printing and business supply
operation situated in Reno, Nevada conducted under the name
"Herth Printing and Business Supply."
3. The creation, development and implementation of an international
long distance telecommunication business focusing exclusively
upon the sale of long distance services where the ultimate
destination is out of the United States.
55
With respect to the development of an energy cogeneration business, the
Reorganized Debtor is anticipated to have substantial physical resources,
consisting of its ORMAT Units. Management believes that the Reorganized Debtor
will be successful in negotiating joint venture or partnership relationships
in which the Reorganized Debtor will contribute its Energy Cogeneration
equipment. It is also likely, however, that the Reorganized Debtor will
require additional working capital in order to implement that line of
business.
With respect to its printing and business supply operation, management
anticipates that the Reorganized Debtor will continue to function largely as
it has done in the past. However, the Reorganized Debtor will be mindful of
opportunities to expand the business and printing supply operation, perhaps
through the acquisition of other companies or operations. At this time, no
such acquisition has been identified or under consideration. In the event that
the Board of Directors of the Reorganized Debtor determine that continued
operation of the printing and business supply operation is not consistent with
the long term objectives of the Reorganized Debtor, consideration may be given
to a sale or disposition of that portion of the Reorganized Debtor's business.
With respect to its entry into the long distance telecommunication
market, the Reorganized Debtor intends to do so through the acquisition of
VivaTel and Diego Tel, which will be finalized upon confirmation of the Plan
of Reorganization.
The Reorganized Debtor will acquire VivaTel for a one-time payment of
$500. VivaTel is currently owned by Mr. David Wallace, who is its sole
shareholder, officer and director. Diego Tel currently holds an authorization
granted by the Federal Communications Commission pursuant to Section 214 of
the Federal Communications Act.
A Section 214 authority permits the holder to market and sell long
distance
56
telecommunication services in the United States on condition that the ultimate
destination of the long distance telephone call is to a country which is
outside the United States. At this time, a Section 214 license permits long
distance telephone calls to over 100 countries. To the best of management's
knowledge, no additional license or permit is required in order to conduct
such business within the United States.
With respect to Diego Tel, the Reorganized Debtor has entered into a
contract to purchase 100.0% of the issued and outstanding common stock of
Diego Tel from Mr. David Wallace upon confirmation of the Plan. The terms of
the acquisition are as follows:
* Subject to receipt of certain cash payments arising out of
telecommunications operations as discussed below in more detail,
the Reorganized Debtor will issue to Mr, Wallace Class A Common
Stock in an amount not to exceed 35.0% of the issued and
outstanding Class A Common Stock computed as of a date ten (10)
days after the Effective Date of the Plan of Reorganization.
Under the terms of the contract, no Class A Common Stock will be
issued to Mr. Wallace unless and until the Reorganized Debtor
receives cash receipts arising from the telecommunications
operations. For each month that the Reorganized Debtor receives
cash receipts of at least $100,000 greater than the preceding
calendar month, an incremental 10.0% will be distributed to Mr.
Wallace.
* Mr. Wallace will have a total of 30 months commencing with the
Effective Date of the Plan within which to generate a minimum of
$4,500,000 in cash receipts to the Reorganized Debtor. Assuming
that the entire $4,500,000 in cash receipts is generated
pursuant to the formula set forth in the Purchase Agreement, Mr.
Wallace will be deemed to have earned and will receive Class A
Common Stock
57
in an amount equal to 35.0% of the issued and outstanding common
stock of the Reorganized Debtor computed ten (10) days after the
Effective Date.
* In the event that the Reorganized Debtor does not receive any
cash receipts within the 30 month period or if the cash receipts
fail to achieve the minimum threshold of $100,000 per month, no
Class A Common Stock will be issued to Mr. Wallace.
* In the event that the first payment threshold is achieved (i.e.,
in the event that there is a minimum of $100,000 cash receipts
within a calendar month) but the total cash receipts of
$4,200,000 are not received, a prorata distribution will be made
to Mr. Wallace.
A copy of the contract, as amended and supplemented, is enclosed as
Exhibit 4.
Based upon the current market value of the Debtor's Class A Common
Stock, the Board of Directors has valued the Class A Common Stock to be earned
by Mr. Wallace to be less than $150,000. In the opinion of Debtor's Board of
Directors, the purchase price is quite reasonable.
Mr. Wallace has provided representations and warrants that Diego Tel has
been issued and has valid authority pursuant to Section 214 of the Federal
Communications Act.
In addition, Diego Tel has leased or otherwise acquired fiber optic
cables suitable for the transmission of long distance telecommunication services
to its point of presence in Southern California. In addition, according to Mr.
Wallace, Diego Tel has purchased or leased appropriate gateway switching
equipment in order that Diego Tel can function as a direct distributor of long
distance telecommunication services. Finally, Diego Tel has entered into a five
(5) year agreement with a Mexican carrier, to provide services into Mexico.
58
As part, of its agreement with Mr. Wallace, the Reorganized Debtor will
be placing substantial reliance upon Mr. Wallace with respect to the
development, marketing and implementation of its long distance
telecommunications program. Mr. Wallace, a Board Certified Tax Attorney, has
prior experience in the organization and operation of a for-profit business.
Mr. Wallace will receive no compensation from the Debtor.
David Wallace is 50 years old and has known Richard Cascarilla, the
current president, since 1981. Mr. Wallace first became interested in the
telecommunication field at age 18 when he received a First Class Radio Telephone
Operator's License from the Federal Communications Commission. He then operated
a commercial radio station as the board engineer.
He attended the University of Michigan and received a B.S. in
Microbiology from the Literature, Science and Arts College. After graduation, he
became the supervisor of the Genesee County Public Health Department in Flint,
Michigan. Subsequently, he returned to school and received a law degree from the
Thomas M. Cooley law school in Lansing, Michigan. He was admitted to the
Michigan and Florida Bar in 1981. In 1989 he passed the tax certification
examination by the Florida Bar and was board certified as a tax attorney.
Mr. Wallace has operated an oil and gas drilling company in Michigan,
and owned a furniture business in Florida.
Since 1996 Mr. Wallace began devoting his time to the telecommunications
business. In 1997 this business was a substantial portion of his business
activities. He has developed a level of expertise that the Debtor believes will
benefit the company, its creditors and shareholders.
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Mr. Wallace has previously represented NEP and NEPC in 1996, and
negotiated the August 16, 1996 settlement between the Debtor, NEP and NEPC.
Mr. Wallace has fully cooperated with the Debtor in preparing its legal
case against the former Board and their affiliates. Mr. Wallace lives in
Sarasota, Florida, with his wife, Dr. Arlie Wallace and their three children.
The management and Board of Directors of the Debtor believe that Mr.
Wallace, who has invested substantial time and personal resources in the
exploration and examination of the telecommunications arena, has the knowledge,
ability and skill to develop this business.
The Reorganized Debtor's telecommunications business plan anticipates
that the Reorganized Debtor will seek to exploit a niche market for long
distance telecommunications needs among immigrant, minority and lower income
migrant workers who need access to long distance telecommunication services but
who might not otherwise have access to more traditional, conventional modes of
communication. In addition, the Reorganized Debtor intends to market its long
distance telecommunication services to businesses which utilize long distance
telecommunication services in large volumes for transmission of voice and data
to one or more of the countries served by Diego Tel.
The Business Plan anticipates that Diego Tel will operate as a "low
cost" provider retaining a small percentage of the gross revenue while having a
small overhead.
Proforma financial projections with respect to the Reorganized Debtor's
telecommunications operations are attached as Exhibit 5. These proforma
financial statements have been prepared by Mr. Wallace.
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VII. THE PROPOSED PLAN
A. Designated Dates
The Plan designates four dates which govern the Debtor's obligations
pursuant to the Plan. The dates are:
1. Confirmation Date, the date on which the Bankruptcy
Court confirms the Plan.
2. Declaration Date, which is the thirtieth (30th) day
after the Confirmation Date. Creditors must make certain
elections on or before the Declaration Date in order
that the Debtor can determine the amount of Cash and
Class A Common Stock to be issued or disbursed pursuant
to the Plan.
3. Effective Date which is one-hundred twenty (120) days
after the Confirmation Date. On the Effective Date, the
Debtor will distribute Class A Common Stock and certain
Cash Payments to those unimpaired Creditors eligible to
receive the same pursuant to the Plan.
4. Payment Date, which is three hundred sixty-five (365)
days after the Confirmation Date. On the Payment Date,
the Debtor will distribute additional Cash payments to
be made to impaired creditors pursuant to the Plan.
The four dates have been selected by the Debtor in order to allow
sufficient time (1) to implement the administrative components of the Plan (e.g.
to amend the Articles of Incorporation and to issue new stock certificates to
existing shareholders), (2) to allow Creditors a reasonable period of time to
evaluate the financial and operational performance of the Debtor in order to
determine whether to elect to accept Class A Common Stock in lieu of
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(or as partial payment for) Cash, (3) to effect a distribution of Class A
Common Stock to Creditors pursuant to the Plan, and (4) to generate Cash from
operations in order to disburse Cash payments to Creditors as provided in the
Plan.
B. Classification of Claims and Interest
For purposes of the Plan, Claims of Creditors and Equity Interest
holders are classified as either "Allowed" or "Disputed."
A Claim is "Allowed" if:
(a) Proof of Claim was filed on or before the last date designated by
the Bankruptcy Court as the last date for filing Proofs of Claims or (if no
Proof of Claim is filed) the Claim or Equity Interest has been listed by the
Debtor as liquidated in amount and not disputed; and
(b) Debtor has either (i) not filed an objection to the Claim. or (ii)
if an objection was filed by Debtor, the Court refused in a Final Order to
sustain the objection.
A Claim that is not "Allowed" is deemed to be Disputed.
The Plan focuses upon Allowed Claims and Equity Interests, with each
Claim or interest allocated into one of nine classes (one class is for Disputed
Claims).
* Class 1 - Allowed Claims for Administrative Expense.
* Class 2 - Allowed Wage Claims.
* Class 3 - Allowed Munson Reorganization Priority Tax Claims.
* Class 4 - Allowed Priority Tax Claims.
* Class 5 - Allowed Claims of Secured Creditors.
* Class 6 - Allowed Claims of Unsecured Creditors Not in Excess of
twelve hundred dollars ($1,200).
* Class 7 - Allowed Claims of Unsecured Creditors in Excess of
twelve hundred
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dollars ($1,200).
* Class 8 - Allowed Claims of Nevada Energy Partners, Ltd., NEPC,
and others.
* Class 9 - Disputed Claims.
* Class 10 -Allowed Equity Interests.
C. Provisions for Payments of Claims
1. Provisions for Payment of Allowed Administration Expenses
Claim (Class 1)
The first Class of Creditors to be paid (Class 1) consists of those
Creditors in possession of an Allowed Claim for Administrative Expenses. In
summary, Claim 1 Claims pertain to expenses incurred by the Debtor which are
actual and necessary expenses of preserving the estate of Debtor or operating
its business, any indebtedness or obligations incurred by or assessed against
the Debtor in connection with the conduct of its business or for the acquisition
or lease of property or for providing services to the Debtor, as well as
allowances for compensation or reimbursement of expenses to the extent allowed
by the Bankruptcy Court. Finally, administrative expenses include any fees or
charges assessed against the Debtor's estate pursuant to 28 U.S.C. Section 123.
The known and anticipated administrative expenses are estimated to be at least
$200,000.
The Plan provides that on the Effective Date each Allowed Administration
Expense shall be paid in full in Cash or upon such other terms as may be agreed
upon by and between the Creditor and Debtor. However, Administration Expenses
representing indebtedness or other obligations incurred or assumed by the Debtor
shall be assumed and paid or performed by the Debtor in accordance with the
specific terms and conditions of any agreement relating to such obligation.
Among other things, the Allowed Administrative Expenses include (but are
not limited
63
to) the following:
* Post-petition compensation to the current Directors and Officers
of Debtor;
* Payments to attorneys and accountants for services rendered to
the Debtor; and
* Expenses incurred in conjunction with the ordinary and necessary
business expense incurred between February 13, 1997 and the
filing of the Plan.
The post-Confirmation Fees and Administrative Expenses shall be paid as
they are incurred and billed, without further approval of the Bankruptcy Court.
In addition, the Confirmation Order for the Plan shall designate a "Bar
Date" which is the date by which filing of Claims must be made by those entities
asserting Claims for compensation pursuant to sections 330 and/or 530 of the
Bankruptcy Code. In general, this encompasses Claims for compensation to
professionals (such as attorneys and accountants) providing services to Debtor.
2. Provisions for Payment of Allowed Wage Claims (Class 2)
Debtor has designated Class 2 as being for Allowed Wage Claims for
payment of pre Petition wages. Under the proposed Plan, on the Effective Date,
each Allowed Wage Claim shall be paid in full in Cash or upon such other terms
as may be agreed upon between any Allowed Wage Claimant and the Debtor. There
are no Allowed Wage Claims. There are Disputed Wage Claims totaling about
$24,000.
3. Provisions for Payment of Pre-1990 Allowed Priority Tax
Claims (Class 3)
The pre-1990 Priority Tax Claims (Class 3) consists of Tax Claims for
obligations arising prior to 1990 and which are the subject of a plan of
reorganization confirmed in 1990 by the United States Bankruptcy Court in a
proceeding involving Munson Geothermal, Inc.
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The pre 1990 Priority Tax Claims shall be paid in full in Cash on the Effective
Date, or upon such other terms and conditions as may be agreed upon between any
pre-1990 Allowed Priority Tax Claimant and the Debtor. The Allowed Class 3
claims total about $26,000.
4. Provisions for Treatment of Post-1990 Allowed Priority
Tax Claims (Class 4)
With respect to Allowed Priority Tax Claims arising after 1990 (i.e. the
Class 4 Claims), the Plan provides that such Allowed Claims shall be paid over
a term consisting of sixteen (16) consecutive quarterly payments ending four
years after the Payment Date, with the first payment to be made on the Payment
Date, or upon such other terms as may be agreed upon by and between any Class
4 Claimant and the Debtor. There are no Allowed Class 4 Claims.
There are Disputed Class 4 claims totaling about $550,000.
5. Provisions for Treatment of Allowed Secured Creditors
(Class 5)
The fifth Class of Creditors (Class 5) consists of Secured Creditors
whose Claim has been Allowed. Class 5 Creditors will be paid in full in Cash on
the Effective Date. Alternatively, at the sole election of Debtor, the Allowed
Secured Claim, together with interest at a rate to be determined by the
Bankruptcy Court, shall be paid in equal monthly installments, the first
installment to be made on the Payment Date, over a term consisting of thirty
(30) consecutive months, or upon such other terms as may be agreed upon by and
between the Secured Creditor(s) and Debtor. There are no Allowed Class 5 claims.
There are Disputed Class 5 claims which total about $25,000.
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6. Provisions for Payment of Allowed Unsecured Creditors
not Exceeding $1,200 per Claim (Class 6)
Class 6 consists of Allowed Unsecured Claims not in excess of $1,200 per
Claim. Pursuant to the terms of the proposed Plan, Class 6 Creditors will be
paid in full in Cash on the Effective Date, or upon such other terms and
conditions as may be agreed upon by and between any Class 6 Creditor and Debtor.
Each Class 6 Creditor has the right to receive Class A Common Stock in
lieu of Cash, with the number of shares computed as follows:
C6 x 120% = F
F/(divided by) AVP = NS
where:
C6 = The dollar amount of the Class 6 Claim.
F = Proceeds to be converted into Class A Common Stock.
AVP = An average of the closing price per share for the fifteen trading
days immediately preceding the Effective Date.
NS = Number of Shares of Class A Common Stock to be issued.
For example, if the Class 6 Allowed Claim was $1,000, the computation
would be as follows:
$1,000 x 120% = $1,200
$1,200/$1.00 = 1,200 Shares of Class A Common Stock (assuming $1.00 to
be the AVP)
The Class A Common Stock will be issued on the Effective Date, which is
after Debtor will have effected a reverse stock split. The Creditor's election
must be made on or before the Declaration Date. The reverse stock split will
occur after the Declaration Date but at least twenty trading days before the
Effective Date. The Allowed Claims of Class 6 total about
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$30,000. There are no Disputed Class 6 Claims.
7. Provisions for Payment of Allowed Unsecured Claims in
Excess of $1,200 per Claim (Class 7)
Class 7 consists of Allowed Claims which are (i) unsecured and (ii) in
excess of $1,200. Pursuant to the proposed Plan, each Creditor holding a Class 7
Claim must make an election to receive either:
Option A. A lump sum payment of $1,200 to be paid on the Effective
Date as a full, complete settlement of the Class 7 Claim,
or
Option B. To receive a combination of Cash and Class A Common Stock
of Debtor (claimants selecting Option B must make a further
election to receive either (i) cash or (ii) stock), or
Option C. To receive only Class A Common Stock.
The following example is intended to illustrate the proposed treatment
of Class 7 Creditors by the Plan. Assume, for purposes of illustration only,
that Class 7 Creditor has an Allowed Unsecured Claim in the amount of $10,000
and assume that the average closing price per share for the fifteen (15) trading
days immediately preceding the Effective Date ("AVP") is $1.00 per share.
The alternatives would be computed as follows pursuant to the Plan:
Option A:
Receive $1,200 in Cash on the Effective Date.
Option B:
Plan 1: Cash
1. 20.0% of the Allowed Claim paid in Cash on the Payment
Date
2. 80.0% of the Allowed Claim to be paid over sixteen (16)
consecutive
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quarters commencing on the Payment Date
3. Class A Common Stock issued on the Effective Date
computed pursuant to the following formula:
C7 X 80% = NP
NP x 20% = F
F/(divided by) AVP = NS
where
C7 = The dollar amount of the Class 7 Claim.
NP = The dollar amount of the Class 7 Allowed Claim that was not scheduled to
be paid in lump sum on the Payment Date.
F = Dollar amount of funds allocated for purchase of Class A Common Stock.
AVP = An average of the closing price per share of Class A Common Stock for
the 15 trading days immediately preceding the Effective Date.
NS = Number of Shares of Class A Common Stock to be issued.
Or, by way of example:
$10, 000 x 80. 0% = $8,000
20.0% x $8,000 = $1,600
$1,600/ $1.00 = 1,600 Shares of Class A Common Stock
Option B:
Plan 2: Cash
1. 20.0% of the Allowed Claim paid in Cash on the Payment Date
2. Class A Common Stock to be issued on the Effective Date computed
pursuant to the following formula:
C7 X 80% = NP
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NP x 120% = F
F/(divided by) AVP = NS
where
C7 = The dollar amount of the Class 7 Allowed Claim.
NP = The dollar amount of the Class 7 Allowed Claim that was not
scheduled to be paid in lump sum on the Payment Date.
F = Dollar amount of funds allocated for purchase of Class A Common
Stock.
AVP = An average of the closing price per share of Class A Common Stock
for the 15 trading days immediately preceding the Effective Date.
NS = Number of shares of Class A Common Stock to be issued.
Or, by way of example:
$10, 000 x 80. 0% = $8,000
$ 8,000 x 120.0% = $9,600
$ 9,600/ $1.00 = 9,600 Shares of Class A Common Stock
Option C: Receive all Stock.
If the Class 7 Creditor elects, the Creditor may receive on the
Effective Date Class A Common Stock computed as follows:
C7 X 200% = F
F/(divided by) AVP = NS
where
C7 = The dollar amount of the Class 7 Claim.
F = Dollar amount of funds allocated for purchase of Class A Common
Stock.
AVP= An average of the closing price per share of Class A Common Stock
for the 15
69
trading days immediately preceding the Effective Date.
NS = Number of Shares of Class A Common Stock to be issued.
Or, by way of example:
$10, 000 x 200% = $20, 000
$20,000/$1.00 = 20,000 Shares of Class A Common Stock
The following table compares the various payment alternatives:
Option A Option B Option C
Plan 1 Plan 2
-------- --------------------- --------
Claim $10,000 $10,000 $10,000 $10,000
Cash paid on
Effective
Date or $ 1,200 $ 2,000 $ 2,000 -0-
Payment Date
(As the case
may be)
Cash paid
over sixteen
Quarters -0- $ 8,000 -0- -0-
Class A
Common
Stock
(Shares) -0- 1,600 9,600 20,000
In order to conserve its Cash, Debtor would prefer that Creditors elect
to accept Option C and thereby receive all stock.
The Class A Common Stock will be issued on the Effective Date, which is
after Debtor will have effected a reverse stock split. The Creditors election
must be made on or before the Declaration Date. The reverse stock split will
occur after the Declaration Date but at least twenty trading days before the
Effective Date. The Allowed Claims of Class 7 total about $1 million.
Class 7 Creditors are required to designate a payment mode when voting
on the Plan. If
70
a Class 7 Creditor fails to select a payment mode, the Creditor will be deemed
to have selected Option C - all stock. A Creditor may revoke his/her/its
election by in writing at any time provided that Debtor receives the written
revocation prior to noon Cleveland, Ohio time on the Declaration Date with
notice to the Debtor in the manner set forth in Article XII, Section A of this
Disclosure Statement.
The Allowed Class 7 Claims total about $1,000,000. The Disputed Class 9
Claims total about $1,600,000. In the event a Class 9 claim is allowed, in part
or in full, it becomes a Class 7 claim and will be entitled to the same
treatment as provided for other members of that Class.**
8. Provisions for Payment of Claims of Nevada Energy
Partners, Ltd. (Class 8)
Class 8 consists of the Claims of Nevada Energy Partners, Ltd.. In
summary, NEP, its Partners and the Debtor have entered into a Settlement and
Release Agreement, a copy of which will be provided upon request, pursuant to
the terms of which the following will transpire:
1. Subject to approval of the Bankruptcy Court and confirmation of
the Plan, the NEP Agreement between NEP and Debtor will be
amended and restated. As a result of this rescission of
conveyances, the Debtor shall receive 100.0% of the issued and
outstanding Common Stock of Combustion Energy Company and title
to a parcel of real property situated in Reno, Nevada.
2. Debtor will stipulate that NEP shall be deemed to be the
shareholder of record of 13,245,958 shares of Class B Common
Stock, which is convertible into 13,245,958 shares of Class A
Common Stock on August 16, 1996. NEP, as of December 17 1997,
will be deemed to have converted Class B Common Stock
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into Class A Common Stock such that NEP owns 13,245,958 shares
of Class A Common Stock which is equal to 50.0% of the issued
and outstanding Class A Common Stock of Debtor as of August 16,
1996.
3. Debtor stipulates that the Class A Common Stock held of record
by NEP is beneficially owned by sixteen separate corporations
who are also deemed to be Creditors of the Debtor.
4. Debtor agrees to permit the transfer of the Class A Common Stock
to the sixteen beneficial owners and stipulates that these
sixteen corporate entities shall be issued (if necessary)
additional Class A Common Stock such that they own 50.0% of the
issued and outstanding Class A Common Stock of Power Tel
computed as of ten (10) business days after the Effective Date,
which will be subsequent to the reverse stock split to be
effected by the Debtor pursuant to the Plan, and subsequent to
the issuance of Class A Common Stock to Creditors pursuant to
the Plan. In the event, however, that Creditors with a Disputed
Claim receive Class A Common Stock pursuant to the Disputed
Claims Reserve, there will not be any additional distributions
of Class A Common Stock pursuant to the NEP Settlement.
5. The limited partnership agreement for NEP will be deemed to be
amended and modified such that 99.0% of all profits and losses
are allocated to the capital account of the limited partner
effective as of January 1, 1995. The general partner (NEPC)
stipulates that Debtor is the sole limited partner. Any and all
distributions of cash and property are to be allocated 60.0% to
the limited partner and 40.0% to the general partner.
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6. All parties to the NEC Settlement do forever settle, release and
compromise all Claims and causes of action which they have or
may bring against any other party as of the date of that
Agreement, and NEP specifically waives and extinguishes its
Proof of Claim for Six Million Dollars ($6,000,000.).
(A copy of the NEP Settlement is attached as Exhibit 2).
9. Treatment of Disputed Claims (Class 9)
With respect to Claims that are Disputed, contingent or unliquidated, as
such time as a Claim becomes Allowed, the Claim will be reclassified into the
class in which it would have been allocated in the event that it had been
Allowed. For example, in the event that a Disputed, contingent or unliquidated
Claim should become Allowed and the Claim is one which would otherwise
constitute a Claim pursuant to Class 5, at such time as the Claim becomes
Allowed it will be deemed to be a Claim and encompassed within Class 5 and will
be paid pursuant to the provisions of Article V, Section E (Disputed Claims
Reserve). To the extent any disputed claim allocated to Class 9 is deemed to be
allowed for purposes of voting on the Plan, the disputed claim will vote as a
member of the class to which it would be allocated if it were not disputed.
10. Equity Interests (Class 10)
The last class, Class 10, is designed for Allowed Claims of holders of
Equity Interests. Pursuant to the Plan:
1. The Series A and Series C Preferred Shares and the Class B Common
Stock shall be extinguished through amendment to the Debtor's Articles of
Incorporation (Series B Preferred will also be extinguished through amendment
following the actions described in paragraph 2, below).
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2. The five (5) shares of Series B, Preferred Shares shall be
repurchased by the Debtor for a per share price of (i) 100,000 shares of Class A
Common Stock; and (ii) a 24 month option to purchase an additional 100,000
shares of Class A Common Stock at an exercise price of $0.10 per share. These
shares are currently owned by Rick Cascarilla (two shares), and Messrs. Jeffrey
Modesitt, Jeffrey Hartman, and Michael Kassouff (one share each). After
repurchase, the Series B Preferred Shares shall be extinguished by amendment to
the Articles of Incorporation, which amendment, among other things, shall
establish a new class of preferred shares to be known as "Special Stock." The
Special Stock has the right to elect two (2) Directors of Debtor's Board of
Directors. One share each of Special Stock, as set forth in the amended Articles
of Incorporation, shall be issued to Richard Cascarilla, Jeffrey Hartman and
Michael Kassouff as partial consideration for their serving on the Board of
Directors. The Articles of Incorporation and By-Laws will be amended so that the
Board will be authorized to set the terms of the Special Stock.
3. All holders of Class A Common Stock will be reinstated to the exact
same share ownership which existed as of May 3, 1996, immediately prior to the
sale of the Series A Preferred Shares to Waterford/Golden Chance.
4. The Debtor will convert the Class B Common Stock to Class A Common
Stock and will issue Class A Common Stock in an amount not to exceed 85.0% of
the outstanding Class A Common Stock, pursuant to (i) the Share Exchange
Agreement for acquisition of Diego Tel, Inc. and (ii) the NEP Settlement.
5. Debtor will effect a reverse stock split at a ratio to be designated
by the Board of Directors such that the total number of shares of Class A Common
Stock outstanding subsequent to the reverse stock split is no less than 500,000
shares nor more than 20,000,000
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shares.
RATIFICATION OF AGREEMENTS
During the pendency of the Chapter 11 case, the Debtor has negotiated
the resolution of various disputes. These negotiations have resulted in the
execution of two Settlement and Release Agreements and one Indemnification
Agreement. The Plan provides that, upon confirmation, the Court shall ratify the
two Settlement Agreements.
The Settlement Agreements
One Settlement Agreement (the "NEP Settlement") resolves the issue of
the August 16 Agreement. A copy of this Agreement is enclosed as Exhibit 2. In
summary, the objective of the NEP Settlement is to amend the Agreement entered
into as of August 16, 1996 by and among the Debtor, NEP and NEPC and to settle
and permanently resolve the disputes which resulted in the commencement of two
lawsuits involving the Debtor and a 6 million dollar claim by NEP.
In negotiating this settlement, the Board of Directors of the Debtor
took into consideration numerous factors including, but not limited to, the
following:
* The Debtor has limited capital resources to utilize in the
prosecution of any claim against the parties.
* The Debtor has been informed by Mr. Antisdel that a substantial
portion of the consideration consists of multiple Promissory
Notes in the aggregate principal amount of approximately $1
million. In the opinion of the Debtor's Board of Directors, the
collectibility of any of the Promissory Notes is uncertain, and
therefore the Debtor does not believe that the pursuit of that
claim would likely result in meaningful assets to the creditors
or to the Debtor.
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* NEP and/or NEPC commands a lawsuit in which the Debtor is a
defendant. The defense of that litigation would be
time-consuming and expensive. Given the Debtor's limited capital
resources, the Board of Directors does not believe that the
allocation of funds to defend such litigation is appropriate.
* As of the execution of the Settlement and Release Agreement,
there was little market for the Debtors Class A Common Shares,
which were trading for approximately $.0l per share.
In negotiating and consenting to the Settlement Agreement, the Board of
Directors of the Debtor specifically recognized that the practical consequence
of this Agreement will be a substantial dilution with respect to the equity
interest of the shareholders who own Class A Common Stock, but the Board of
Directors also took into consideration the legal right of NEP (as the sole
shareholder of record of the Class B Common Stock) to convert the Class B Common
Stock to Class A Common Stock at anytime and the right of NEP to enter into and
complete a sale of the Class B Common Stock (or the Class A Common Stock, when
converted) at anytime.
The Board of Directors of the Debtor has specifically determined that
the Settlement and Release Agreement is in the best interest of the Debtor, its
shareholders and the creditors as a whole.
The second Settlement and Release Agreement involves the Debtor, Mr.
John Vogel and Mr. Dean Chamberlin. In summary, after the Debtor entered into a
contract to purchase from Mr. David Wallace 100.0% of the issued and outstanding
common stock of Viva Telecommunications, Inc., three individuals (Messrs. John
Vogel, Dean Chamberlin and Mark Snyder) alleged that they owned a portion of the
common stock of Viva Telecommunications.
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Subsequent to the execution of the contract to acquire VivaTel, three
individuals (Messrs. John Vogel, Dean Chamberlin and Mark Snyder) asserted that
they owned the equitable right to a portion of the common stock of Viva Tel. The
Debtor commenced an adversary proceeding in the Bankruptcy Court for the purpose
of securing a declaratory judgment to the effect that Mr. Wallace owned 100.0%
of the issued and outstanding common stock of VivaTel. Thereafter, the Debtor
entered into a Settlement and Release Agreement with Messrs. John Vogel and Dean
Chamberlin. Pursuant to the terms of this Settlement and Release Agreement,
Messrs. John Vogel and Dean Chamberlin abandoned their claim of an interest in
VivaTel. In consideration of that abandonment, the Debtor agreed to pay certain
expenses not to exceed $20,000.
With respect to the claim of Mr. Snyder, the Bankruptcy Court has
entered a default with respect to Mr. Snyder who failed to effect a timely
appearance in the adversary proceeding. On May 13, 1998, the Bankruptcy Court
entered an Order to the effect that Mr. Wallace owned 100.0% of the issued and
outstanding common stock of VivaTel. No appeal has been made with respect to
that Order.
The Indemnification Agreement
As part of the NEP Settlement between and among the Debtor, NEC, NEPC
and the 16 Bahamian corporations, the parties agreed to a retroactive
reallocation of partnership interest between the general partner and the limited
partner of NEP.
In agreeing to this course of action, the Board of Directors of the
Debtor took into consideration the existence as of February 28, 1996 of a net
operating loss which totaled approximately $5,500,000.
During these negotiations, NEPC and its sale shareholder, Mr. Jeffrey
Antisdel, agreed to
77
represent and warrant that the Debtors cumulative net operating loss had not
been and would not be subject to an adverse determination or adjustment as a
result of (a) the confirmation of the Plan of Reorganization and implementation.
thereof, or (b) the issuance of securities by the Debtor prior to the Petition
Date. In addition, NEPC and Mr. Antisdel agreed to indemnify and hold the Debtor
harmless from any and 211 damages and expense which it might incur, including
legal fees, if any, in the event that the Debtor's net operating loss was to be
adversely effected as a result of the Settlement and Release Agreement.
The Plan of Reorganization proposes that the Bankruptcy Court will
confirm and ratify the two Settlement Agreements set forth above and the
Indemnification Agreement upon confirmation of the Plan.
VIII. DISCUSSION OF PROCEDURAL MATTERS COMMON TO ALL CLAIMS.
A. Acceptance or Rejection of Plan: Effect of Rejection by One or
More Classes of Claims
A Class of Creditors shall have accepted the Plan if the Plan is
accepted by at least 2/3 in amount and more than 1/2 in number of the Allowed
Claims of such class that have voted.
B. Amendment to the Plan
The Plan may be amended by the Debtor before or after the Effective Date
as provided in section 1127 of the Bankruptcy Code.
C. Disallowance of Settled Claims and Post-petition Additions
All Claims that have been settled and satisfied during the pendency of
the Chapter 11 Case will be deemed disallowed, without the necessity of filing
and prosecuting objections to such Claims. In addition, Debtor will not be
required to make any specific objection to Proofs of Claim alleging the right to
recover post-petition interest, penalties, fees and other accruals with respect
to repetition Claims (except secured Claims entitled to such accruals pursuant
to
78
section 506(b) of the Bankruptcy Code) and any Proofs of Claim asserting a right
to such payment will be disallowed to the extent thereof. The disallowance
provided for with respect to such post-petition additions is subject to
reconsideration upon a motion by the claimant filed with the Bankruptcy Court
and properly served upon Debtor. Notwithstanding any other provisions of the
Plan, only whole numbers of shares of Class A Common Stock shall be issued.
D. Discharge of Debtor.
The rights afforded in the Plan and the treatment of all Creditors
therein shall be in exchange for and in complete satisfaction, discharge and
release of Claims or Equity Interests of any nature whatsoever, including any
interest accrued thereon from and after the Petition Date against the Debtor or
any of its assets or properties. Except as otherwise provided herein, upon the
Confirmation Date, in accordance with section 1141 of the Bankruptcy Code, all
such Claims or Equity Interests against the Debtor shall be satisfied,
discharged and released in full. All Creditors and holders of Equity Interests
shall be precluded from asserting against the Debtor or its respective assets or
properties any other or further Claims based upon any acts or omission,
transaction or other activity of any kind or nature that occurred prior to the
Confirmation Date.
E. Disputed Claims Reserve.
1. In determining the amount of the Distributions due the
holders of Allowed Claims, the appropriate Pro Rata calculations required by the
Plan shall be made as if all Disputed Claims were Allowed Claims in the full
amount claimed by the holders thereof. Debtor will presume, for purposes of the
Disputed Claims Reserve, that all Disputed Claim Creditors elect to receive
Class A Common Stock. If the claim is allowed and the Creditor elects to receive
cash, the treatment is as set forth in paragraph 4 of this section.
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2. On the Effective Date, the Debtor shall compute the number of shares
of Class A Common Stock to which the Disputed Claim Creditor may be entitled and
shall hold such shares in a segregated account (hereinafter the "Disputed Claims
Reserve") to be held in trust by the Debtor for the benefit of the holders of
Disputed Claims pending determination of their entitlement thereto under the
terms of the Plan. The Class A Common Stock held in the Disputed Claims Reserve
shall be deemed to be "treasury" stock of the Debtor and thus non-voting during
the period within which it is held in the Disputed Claims Reserve. The Disputed
Claims Reserve shall also be held in trust by the Debtor for the benefit of the
holders of Allowed Claims.
3. As soon as practicable after a Disputed Claim becomes an Allowed
Claim, the Class A Common Stock reserved for such Allowed Claim shall be
released by the Debtor from the Disputed Claims Reserve and delivered to the
holder of such Allowed Claim. In the event that the Disputed Claim is
disallowed, the Class A Common Stock provided for such Claim shall be released
to Debtor for use in the course of its business, as deemed appropriate by its
Board of Directors.
4. In the event that a Disputed Claim becomes an Allowed Claim and the
Creditor is entitled to receive Cash, the Debtor shall pay such Cash upon the
later of (i) the Payment Date, or (ii) ninety (90) days after the Disputed Claim
becomes an Allowed Claim. In the event any Class A Common Stock remains
unclaimed upon expiration of five years following the Effective Date, such Class
A Common Stock shall be released to the Debtor.
5. The release of Class A Common Stock from the Disputed Claims Reserve
shall not be a basis for or result in the issuance of additional Class A Common
Stock pursuant to the NEP Settlement or the Diego Tel Amended and Restated
Agreement for Exchange of Stock.
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F. Events of Default
In the event that Debtor defaults under the provisions of the Plan, any
Creditor or party-in-interest desiring to assert such a default shall provide
Debtor with written notice of the alleged default. Debtor shall have thirty days
from receipt of the written notice in which to cure the default. Such notice
shall be delivered by certified mail (return receipt requested) to the attorneys
for Debtor at the address stated on the final page hereof. If the default is not
cured within the thirty day cure period, any Creditor or party-in-interest may
thereafter file and serve upon counsel for Debtor a motion to compel compliance
with the applicable provision of the Plan. The Bankruptcy Court, upon finding a
material default, shall issue an order compelling compliance with the applicable
provisions of the Plan.
G. Executory Contracts and Unexpired Leases
1. Assumption of Executory Contract under Plan.
Upon Confirmation of the Plan, any executory contracts or unexpired
leases not rejected by the Debtor with the Bankruptcy Court prior to the
Confirmation Date, or within sixty (60) days thereafter, or which are not the
subject of a motion to reject the same pending as of the Confirmation Date shall
be deemed to have been assumed by the Debtor upon the Confirmation Date, in
accordance with section 365 of the Bankruptcy Code.
The Debtor is a party to what it believes is an executory contract with
Stone Brothers Welding & Equipment Sales, entitled Independent Contractor
Agreement, dated July 3, 1992. The Debtor will determine at or before
confirmation whether it intends to assume or reject the executory contract.
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2. Filing of Claims Arising out of Rejection or Assumption
of Contracts.
In the event the rejection or assumption of an existing contract
effected pursuant to the above gives rise to a Claim not otherwise provided for
herein, the holder of such Claim may file such Claim within thirty (30) days
following the Confirmation Date or if the contract is not rejected by Debtor
prior to the Confirmation Date, within thirty (30) days after the rejection or
assumption which gives rise to the Claim. Such Claim shall, in addition to its
filing with the Bankruptcy Court, be served upon the undersigned attorneys for
the Debtor. Any objection to Claims filed pursuant to this provision shall be
governed by the procedures provided in Article XIV of the Plan. In the event a
claim for rejection damages is allowed, it shall be entitled to treatment
available to all Class 7 claimants.
3. Executory Contracts of Indemnification with Directors.
Debtor has executory contracts in effect with its past and current Board
of Directors and Officers, some of which it is accepting and some of which are
being rejected as follows:
Acceptance/Rejection
Name Position of Executory Contract
--------------------- ------------------ ---------------------
Jeffrey Antisdel Director/Officer Accept
Kenton Bowers Officer Reject
Peter Cannell Director Reject
Charles Cain Director Reject
Richard Cascarilla Director/Officer Accept
John Goold Director Reject
Jeffrey Hartman Director Accept
Lawrence Herth Director Accept
Pattinson Hayton, III Officer/Consultant Reject
Michael Kassouff Director Accept
Jeffrey Modesitt Director Accept
Stefan Tevis Director/Officer Reject
By rejecting the executory contracts set forth above, it is Debtor's
specific intent to rescind any express or implied obligation (if any) which it
has or may have to such individuals to
82
indemnify or to hold them harmless for damages or expenses which they may incur
as a result of claims of wrongdoing lodged against them from any source
whatsoever.
H. Means for Execution of the Plan
The Plan will be implemented utilizing the following resources:
1. Cash accrued from operations and Class A Common Stock will be
used to satisfy Claims of Classes 1 through 8 and Class 10.
2. The Debtor owns ten Ormats. Creditors in Classes 4, 5 and 7
shall be granted a secured interest in one Ormat Unit to secure
repayment of those obligations.
3. Promptly after the Confirmation Date, the Debtor shall take the
following action in the sequence presented:
a. File a notice with the Secretary of State for the State
of Delaware to the effect that the amendments) to NEC's
Articles of Incorporation as filed in January 1997, were
filed without requisite shareholder approval and are,
therefore, invalid and void ab initio;
b. File Amended and Restated Articles of Incorporation with
the Secretary of State for the State of Delaware which
Amended Articles of Incorporation shall (among other
things): (i) extinguish the existing Series A, Series B,
and Series C Preferred Shares and the Class B Common
Stock; (ii) create a new class of preferred stock to be
known as "Special Stock" which shall be entitled to
elect two (2) Directors to the Debtors Board of
Directors; (iii) provide that the affirmative vote of
65.0% of the issued and outstanding Class A Common Stock
is required to amend the Articles of Incorporation; and
(iv) change the name of the Debtor to WorldCall, Inc.
and thereafter
83
issue new stock certificates.
c. Adopt amended and restated By-Laws.
4. The Debtor shall acquire 100% of the issued and outstanding
common stock of VivaTel in exchange for $500.00. Subject to
Court approval, the Debtor has acquired Diego Tel for $500.00.
The number of shares of Class A Common Stock is predicted to be
equal to 35.0% of the issued and outstanding Class A Common
Stock.
5. Subsequent to the Declaration Date, but at least twenty days
prior to the Effective Date, the Debtor shall effect a reverse
stock split such that the number of shares of Class A Common
Stock outstanding shall be no less than 500,000 shares nor more
than 20,000,000 shares, the exact ratio of the reverse stock
split to be set by the Debtor's Board of Directors.
6. All Class A Common Stock issued to a Creditor pursuant to the
Plan, shall be issued pursuant to section 1145 of the Bankruptcy
Code and shall be issued without a restrictive legend if the
Creditor establishes that the Creditor is not an "underwriter'
as defined in section 1145(b) of the Bankruptcy Code. If the
Creditor or recipient is deemed to be an "underwriter' as
defined in Section 1145(b) of the Bankruptcy Code, the Class A
Common Stock will be issued pursuant to Section 4(2) of the
Security Act of 1933, Regulation D or Rule 144 of that Act and,
therefore, will be restricted. The Class A Common Stock to be
issued to the exchanging shareholder of Diego Tel shall be
restricted and subject to significant restraints on transfer as
set forth in the Plan and in the acquisition agreements.
84
I. Multiple Claims
If a claimant holds more than one Claim in any one class, all Claims of
the claimant in that class will be aggregated into one Claim and distribution
will be made with respect to each aggregated Claim. Furthermore, the Debtor will
be permitted to defer and accumulate distribution in amounts of less than $50
each. Once the Allowed Claim payment amount reaches $50, a distribution will be
made.
J. Post-confirmation Injunction and Automatic Stay.
The Confirmation Order will operate as an injunction against
discrimination against Debtor by governmental authorities because of the filing
of the Chapter 11 Case. The reorganized debtor retains all rights granted to it
pursuant to section 525 of the bankruptcy code. All pending lawsuits, with
certain exceptions, will be deemed dismissed and the automatic stay continued in
effect, and an injunction will be issued under sections 105 and 1141 of the
Bankruptcy Code discharging the Debtor and preventing the litigation of Claims
in any forum other than the Bankruptcy Court.
K. Prohibition Against Discriminatory Treatment.
As provided in Section 525 of the Bankruptcy Code, a governmental unit
may not deny, revoke, suspend, or refuse to renew any license or similar grant
to, condition such a grant to, or discriminate with respect to such a grant
against, Debtor or any of its subsidiaries, or any other person or entity with
whom Debtor has been associated, solely because of the existence of the Chapter
11 Case, any provisions in the Plan, or the legal effect of the Plan. The
Confirmation Order will contain an express injunction against any such
discrimination, effective except as otherwise limited by applicable law.
85
L. Provisions Covering Distributions
1. Payments and Distributions to be Made on the Effective
Date or the Payment Date.
Payments and Distributions to be made by the Debtor on the Effective
Date pursuant to the Plan shall be made on the Effective Date or as soon as
practicable thereafter, except as otherwise provided for in the Plan, or as may
be ordered by the Bankruptcy Court.
Payments and Distributions to be made by the Debtor of the Payment Date
pursuant to the Plan shall be made on the Payment Date or as soon as practicable
thereafter, except as otherwise provided for in the Plan, or as may be ordered
by the Bankruptcy Court.
2. Method of Payment.
Payments to be made by the Debtor pursuant to the Plan shall be made by
check drawn on a domestic bank or by wire transfer from a domestic bank.
3. Payment to be Made by Debtor.
Distributions to be made to Creditors and Equity Interest holders under
the Plan shall be made by Debtor.
4. Class A Common Stock.
Distributions of Class A Common Stock shall be made through Corporate
Stock Transfer Company or the then Transfer Agent for Debtor.
M. Provisions for Execution and Supervision of the Plan
1. Retention of Jurisdiction
The Bankruptcy Court shall retain and have exclusive jurisdiction over
the Chapter 11 case for the following purposes:
a. to determine any and all objections to the
allowance of Claims or Equity Interests;
86
b. to determine any and all pending applications
for the rejection or assumption of executory
contracts or unexpired leases to which the
Debtor is a party or with respect to which it
may be liable, and to hear and determine, and if
need be to liquidate, any and all Claims arising
therefrom;
c. to determine any and all applications, adversary
proceeding and contested or liquidated matters
that may be pending on the Confirmation Date,
except as provided in the Confirmation Order;
d. to consider any modifications to the Plan, any
defect or omission or reconcile any
inconsistency in any order of the Bankruptcy
Court, including the Confirmation Order, to the
extent authorized by the Bankruptcy Court;
e. to determine all controversies, suits and
disputes that may arise in connection with the
interpretation, enforcement or consummation of
the Plan, to include disputes between classes of
claimants under the Plan regarding allocations
or payment of Distributions hereunder;
f. to consider and act on the compromise and
settlement of any claim against or cause of
action by or against the Debtor's estate;
g. to issue such orders in aid of execution of the
Plan to the extent authorized by section 1142 of
the Bankruptcy Code; and
h. to determine such other matters which may be set
forth in the Confirmation Order or which may
arise in connection with the Plan
87
or the Confirmation Order,, including, but not
limited to, extending deadlines and time limits
provided in the Plan.
N. Provisions for Treatment of Disputed Claims
1. Authority to Object.
The Debtor and any party-in-interest shall have the authority to object
to and contest the allowance of any Claim filed with the Bankruptcy Court in
respect of any Claim listed as disputed, contingent or unliquidated on the
Debtor's schedules, except as to any Claim otherwise treated by the Plan or
previously allowed or disallowed by final order of the Bankruptcy Court.
2. Objections to Claims to be Filed Within Sixty Days After
Confirmation Date.
Unless otherwise ordered by the Court, after notice and a hearing,
objections to Claims and Equity Interests shall be made and filed by the Debtor
or by any party-in-interest and shall be served upon each holder of the Claim or
Equity Interest to which objections are made (and upon the Debtor's attorney if
one of the Debtors is not the objecting party) and filed with the Bankruptcy
Court as soon as practicable, but in no event later than 60 days subsequent to
the Confirmation Date.
3. Prosecution of Objections to Claims.
All legal fees and expenses of the Debtor incurred in the prosecution of
Claim objections and in the consummation of the Plan shall be paid first by the
Debtor as a Post-Confirmation Administrative Expense pursuant to Article 4.2 of
the Plan.
88
4. Final Order.
Except as may be otherwise agreed with respect to any Disputed Claim, no
payments or Distributions shall be made with respect to all or any portion of a
Disputed Claim unless and until all objections to such Disputed Claim have been
determined by a Final Order of the Bankruptcy Court. Payments and Distributions
to each holder of a Disputed Claim or Disputed Equity Interest to the extent
that it ultimately becomes an Allowed Claim or Allowed Equity Interest shall be
made in accordance with the provisions of the Plan with respect to the Class of
Creditors or Equity Interest to which the respective holder of an Allowed Claim
or Allowed Equity Interest belongs. Such payments and Distributions shall be
made as soon as practicable after the date that the order or judgment of the
Bankruptcy Court allowing such Claim or Equity Interest becomes a Final Order.
O. Restriction on Transfer of shares.
Unless otherwise set forth in this Article, all Class A Common Stock to
be issued by the Debtor shall be issued pursuant to section 1145 of the
Bankruptcy Code without registration pursuant to section 5 of the Securities Act
of 1933. The following Class A Common Stock shall be issued pursuant to Section
4(2) of the Securities Act of 1933, Regulation D or Rule 144 promulgated
thereunder, and therefore shall restricted from transfer:
1. All Class A Common Stock issued to acquire the Common
Stock Diego Tel.
2. The Class A common stock to be issued to the 16 Bahamian
corporations pursuant to the NEP settlement.
3. The Class A Common Stock issued to any person who is
deemed to be an "underwriter" for purposes of section
1145(b) of the Bankruptcy Code.
89
4. All Class A Common Stock which is restricted pursuant to
Section 22.2 of the Plan shall bear the following
restrictive legend:
THE SECURITIES REPRESENTED -BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO SECTION 5 OF THE SECURITIES ACT OF 1933, NOR HAVE THESE
SECURITIES BEEN REGISTERED PURSUANT TO ANY COMPARABLE STATE SECURITIES
ACT OR REGULATION. ACCORDINGLY, TRANSFER, SALE, PLEDGE, HYPOTHECATION OR
CONVEYANCE OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS PROHIBITED
UNLESS AND UNTIL (1) THE SHARES REPRESENTED HEREBY HAVE BEEN REGISTERED
PURSUANT TO SECTION 5 OF THE SECURITIES ACT OF 1933 AND, AS REQUIRED,
PURSUANT TO A SIMILAR STATE STATUTE OR REGULATION, OR (2) THE
SHAREHOLDER SUBSTANTIATES THAT THERE IS A VALID EXEMPTION FROM THE
REGISTRATION REQUIREMENT PROVIDED BY SECTION 5 OF THE SECURITIES ACT OF
1933 AND SUBSTANTIATES SUCH EXEMPTION BY MEANS OF A LEGAL OPINION
ACCEPTABLE TO POWERTEL USA, INC. AND ITS LEGAL COUNSEL. THE SHARES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED IN CONJUNCTION WITH A
PLAN OF REORGANIZATION CONFIRMED BY THE UNITED STATES BANKRUPTCY COURT
FOR NEVADA AND THIS RESTRICTION ON TRANSFER HAS BEEN INCLUDED AS PART OF
THE TERMS AND CONDITIONS OF THE CONFIRMED PLAN OF REORGANIZATION. FOR
ADDITIONAL INFORMATION CONCERNING THIS RESTRICTION, INQUIRIES SHOULD BE
DIRECTED TO:
Van P. Carter, Esq.
Walter & Haverfield P.L.L.
1300 Terminal Tower
Cleveland, Ohio 44113
(216) 781-1212
P. Set Offs.
Debtor may, but shall not be required, to set off against any Claim and
the distributions to the holder under the Plan, claims of any nature that Debtor
may have against the holder of such Claim. Allowance of a Claim or failure to
exercise any right of set off with respect to a claim does not constitutes a
waiver or release by Debtor Of any rights or Class that Debtor may have against
the holder of such Claim. Debtor's rights of set off may be limited in the
manner
90
provided for in the Plan if such rights are not exercised on or before the
Effective Date of the Plan. Debtor may exercise rights of set off with respect
to Claims for which it has payment responsibility.
Q. Title to Assets: Discharge of Liabilities.
Except as otherwise provided by the Plan, on the Confirmation Date,
title to all assets and properties dealt with by the Plan shall vest in Debtor
in accordance with section 1141 of the Bankruptcy Code, free and clear of all
Claims and Equity Interests; and the order confirming the Plan shall be a
judicial determination of discharge of the Debtor's liabilities except as
provided in the Plan.
R. Effect of Discharge on Rights Between Third Parties.
If the Plan is confirmed, the provisions of the Plan will bind the
Debtor and all Creditors and Equity Interest holders, whether or not they accept
the Plan. Confirmation will also discharge the Debtor from all debts that arose
before confirmation as of the Confirmation Date, including intercompany
obligations (if any) owing by the Debtor to an Affiliate, whether such Affiliate
is itself a debtor.
The classification and the manner of satisfying all Claims under the
Plan takes into consideration the existence of any guarantees by the Debtor Of
any obligation of any person and the fact that the Debtor may be a joint obligor
with another person or persons, with respect to the same obligation. The Plan
also takes into account any contentions by Creditors or holders of Equity
Interests that the Claims of other Creditors or other holders of Equity
Interests may be subordinated by contract or pursuant to the Articles of
Incorporation or ByLaws of the Debtor. All Claims against the Debtor based upon
any such guarantees will be discharged in the manner provided in the Plan. Each
Creditor and stockholder will receive the Distribution provided in
91
the Plan, which will not be subject to any Claim of another Creditor or
stockholder by reason of any claimed contractual right of subordination based
upon any defaults occurring prior to the Confirmation Date.
The Distributions provided for in the Plan will be in exchange for and
in complete satisfaction, discharge and release of all Claims and Equity
Interests, including any Claim for interest after the Petition Date. On the
Confirmation Date, all Creditors and existing Equity Interest holders shall be
precluded form asserting any Claim against the Debtor or its assets or
properties based upon any transaction or other activity of any kind that
occurred prior to the Confirmation Date; provided, however, that nothing
contained in the Plan will alter the legal, equitable and contractual right of
the holder of any Claim or Equity Interest specifically designated as being
unimpaired in the Plan, it being specifically intended that all such rights are
to remain unaltered by the Plan.
S. Filing of Additional Documents.
On or before the Effective Date, the Debtor shall file with the
Bankruptcy Court such agreements, indentures, supplemental indentures and other
documents as may be necessary or appropriate to effectuate and further evidence
the terms and conditions of the Plan.
T. Post Confirmation Acquisitions, Mergers and Stock Splits.
In order to fulfill its financial obligations to Creditors and to expand
its operations, it is anticipated that the Debtor will effect one or more
acquisitions or mergers subsequent to the Confirmation Date. For a two (2) year
period commencing with the Effective Date, Debtor will be permitted pursuant to
the Plan to effect acquisitions and mergers, stock splits and reverse stock
splits. based solely upon the affirmative vote of its Board of Directors and
without the necessity of requesting and receiving the consent of the Debtor
shareholders.
92
U. Class A Common Stock in Lieu of Cash.
Any Creditor entitled to receive Cash pursuant to the Plan may, by
mutual agreement of the Creditor and the Debtor, receive Class A Common Stock
with the number of shares to be issued and per share price to be agreed upon
between the Debtor and the Creditor.
V. Settlement of Claims on Interests.
Pursuant to section 1 1 23(b)(3)(A) of the Bankruptcy Code, upon
Confirmation of the Plan, the following settlements will be deemed to have been
ratified by the Bankruptcy Court and will be in full force and effect: (1) the
NEP Settlement, (2) Ownership Settlement Agreement, and (3) the settlements
entered into with respect to the claims set forth in Article III, Section G of
this Disclosure Statement.
W. Ratification of Agreements.
Upon Confirmation of the Plan, the Bankruptcy Court shall ratify the
Amended and Restated Agreement for the Exchange of Stock for the Acquisition of
DIEGO TEL and the Acquisition Agreement of VivaTel.
X. Contested Claims.
Except with respect to the Claims of Creditors whose Claims arise from
the rejection of an executory contract, which Claims must be filed no later than
(i) thirty days after the Confirmation Date, or (ii) if not rejected prior to
the Confirmation Date, thirty (30) days following the rejection or assumption
which gives rise to the Claim; the Debtor or any party-in-interest may object to
any Claims, within sixty (60) days after the Confirmation Date, by filing an
objection with the Bankruptcy Court and serving a copy on such claimant, in
which event the Claim shall be treated as a contested Claim under the Plans. If
and when a contested Claim is resolved by allowing the Claim in whole or in
part, the Debtor shall make distributions to the
93
holder of the Claim in accordance with the provisions of the Plans applicable to
the Claims of that class, or in accordance with the provisions pertaining to the
Disputed Claims Reserve Section 14.5 of the Plan.
1. Disclosure of Information.
The information in this Disclosure Statement, and the Exhibits therein
regarding the Debtor, its business operations, the value of its assets or the
value of any benefits offered pursuant to the Plan, is expressly confined to the
context of this Disclosure Statement, and Debtor specifically rejects use of any
such information outside of consideration of the Disclosure Statement.
2. Termination of Committees.
On the Confirmation Date, all Committee of Creditors, if any, appointed
by the Bankruptcy Court in the Chapter 11 Cases of the Debtor, pursuant to
section 1102 of the Bankruptcy Code, shall be terminated.
IX. DISCUSSION OF MATTERS OF CORPORATE GOVERNANCE
A. Officers and Directors of Reorganized Debtor
The Reorganized Debtor's officers and directors will be as follows:
Richard A. Cascarilla Director and President
Michael Kassouff Director and President
Jeffrey Hartman Director
B. Compensation for Directors.
Directors of Debtor will receive for attending duly called meetings of
the board of directors, plus reimbursement of actual out-of-pocket expenses
incurred in attending such meetings, whether telephonically or in person,
retroactive compensation for all services issued to the date of confirmation in
the form of stock options allowing for the purchase of 5,000 Class
94
A Common Stock per Director per month at $.10 per share. Following confirmation,
directors shall receive annual Cash compensation of $10,000 per year (paid
quarterly), plus actual out-of-pocket expenses so incurred, plus Stock options
to purchase 2,500 shares of Class A Common Stock per Director per quarter at
$.l0 per share.
C. Cash Compensation for Officers and Employees.
Officers and employees will be paid standard wages as is normal and
customary in the marketplace for equivalent services rendered. The Board of
Directors of Debtor may adopt bonus, performance, and incentive plans as the
Board deems necessary and appropriate, including stock option plans.
D. Provisions for Management
1. Directors.
If the Plan is confirmed, subject to the Bankruptcy Court's approval
under Bankruptcy Code section 1129(a)(5), the Debtor shall have as directors of
Debtor Messrs. Cascarilla and Kassouff. Mr. Herth will resign, to be replaced by
Mr. Jeffrey Hartman, a former Director of Debtor. These directors shall serve as
directors of Debtor after the Confirmation Date until removed or replaced by the
post-confirmation stockholders of Debtor. The tenure and manner of selection of
directors of Debtor shall be as provided in the Articles of Incorporation and By
Laws. A summary of the education, business, experience and professional
qualifications of Messrs. Cascarilla, Kassouff and Hartman is included as
Exhibit 6.
2. Officers.
If the Plan is confirmed, subject to the Bankruptcy Court's approval
under Bankruptcy Code section 1129(a)(5), the officers of Debtor, as identified
in the Disclosure Statement, shall be Mr. Cascarilla (President) and Mr.
Kassouff (Secretary-Treasurer). The Board of Directors
95
shall designate the officers of Debtor and shall specify the tenure of the
individuals holding those offices.
3. Ratification of Corporate Actions.
Debtor ratifies the election of Michael Kassouff as director and the
elections of any and all officers thereafter.
4. Employment Contracts.
Debtor will enter into employment contracts with its respective officers
which shall only be operative if the Plan is confirmed. Copies of the employment
contracts that will take effect immediately upon confirmation have been filed
with the Bankruptcy Court. The employment contracts shall contain sufficient
information to comply with Bankruptcy Code section 1129(a)(5)(B) as to
disclosure of compensation to be paid to insiders who are the subject of
contracts and are subject to the approval of the Bankruptcy Court and are
attached as Exhibit 7.
E. Capitalization.
As a result of the confirmation of the Plan, the Reorganized Debtor's
capitalization will be as follows:
CLASS A COMMON STOCK
Post-Confirmation and Post-Reverse Stock Split (but excluding any Disputed
Claimants who may be Entitled to Stock): assuming that the total number of
shares of Class A Common Stock is 10,000,000.
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ESTIMATED
NAME NUMBER OF SHARES PERCENTAGES
- ---------------------------------------------------------------------------------------
Mr. David Wallace* 3,500,000 35.00%
- ---------------------------------------------------------------------------------------
Parklane Mayfair, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Clermot and Annabelle, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Burke Douglas Holdings, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Clarendon Atlantic Holdings, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Macaulay Island Investments, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Young, Bayshore Investments, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Wilton Ashfield, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Greyshire House, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
August Lake Holdings, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Maitland Investments, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Berkeley Square Investments, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Whitestone Brooke Holdings, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Porterman Williams, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
North Oldenfield, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Blackstone Sterling Holdings, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Shepherd Market, Ltd.** 312,000 3.12%
- ---------------------------------------------------------------------------------------
Officer and Directors 20,000 0.20%
- ---------------------------------------------------------------------------------------
All Others 1,488,000 14.88%
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
TOTAL 10,000,000 100.00%
- ---------------------------------------------------------------------------------------
* Pursuant to Amended and Restated Agreement for Exchange of Stock with Diego
Tel assuming that all financial performance standards have been satisfied and
the maximum number of shares have been earned by Mr. Wallace.
** Pursuant to NEP Settlement
97
X. CERTAIN INCOME TAX CONSEQUENCES OF THE PLAN
A. General.
Certain significant federal income tax consequences of the Plan pursuant
to the Internal Revenue Code (the "Tax Code") are described below. The
discussion focuses on the net operating loss carryover ("NOL") rules and the
implications of the Plan upon the retention of a net operating loss in excess of
$4,500,000. In addition, there is discussion of the corporate alternative
minimum tax which may adversely effect corporations with NOLs and with
significant differences between income reported for tax purposes and income
reported for financial statement purposes.
Due to the complexity of the transactions contemplated by the Plan, the
differing facts and circumstances governing the Claims of Creditors and holders
of Equity Interests, differences in the nature of the Claims of the various
Creditors, their taxpayer status, residences, and methods of accounting
(including Creditors within the same Creditor Class) and prior actions taken by
Creditors with respect to their Claims, as well as the possibility that events
subsequent to the date hereof could change the federal tax consequences of the
transactions, the tax consequences described below are subject to significant
uncertainties.
CREDITORS AND STOCKHOLDERS ARE ADVISED TO CONSULT WITH THEIR INDIVIDUAL
TAX ADVISORS RESPECTING THE TAX CONSEQUENCES OF THE PLAN, INCLUDING STATE AND
LOCAL TAXES.
1. Net Operating Loss Carryovers.
For federal income tax purposes, Debtor has a substantial NOL carryover
that may be available to offset the future taxable income of the reorganized
company. These amounts are, however, subject to review and allowance upon audit
by the IRS. As of February 28, 1996, the
98
NOL carryovers estimated to be reported on Debtor's consolidated tax return
aggregated approximately $4,500,000. These NOL carryovers may be reduced as a
result of the reduction in the indebtedness of Debtor, but may remain
substantial in amount.
Pursuant to the Tax Reform Act of 1986, complex, substantial changes
were made to sections 382 and 383 of the Tax Code. Thereafter, the Internal
Revenue Service issued lengthy, complicated new temporary Treasury Regulations
implementing new section 382. The temporary regulations were subsequently
adopted on a permanent basis.
Under section 382, for reorganizations occurring after May 5, 1986,
resulting in a change of ownership of more than 50% of the stock owned in a loss
corporation, the amount of the loss corporation's taxable income after the
change that can be offset by existing NOLs cannot in any one year exceed an
amount equal to the value of the loss corporation multiplied by the long-term
exempt rate of return prescribed by the IRS.
In addition, no NOL or tax credit carry forwards will survive if the
continuity of business enterprise requirement is not met during the two-year
period beginning on the date of the change in ownership of the loss corporation.
Under this continuity requirement, the loss corporation is required to continue
its historic business or to use a significant portion of its assets in such a
business. If the loss corporation has more than one line of business, continuity
of business enterprise requires only that it continue a significant line of
business. Any NOL that remains unused after fifteen years from the date incurred
will expire.
The limitations of section 382 arise upon the occurrence of an
"ownership change." An ownership change occurs if, following any change in stock
ownership affecting the percentage of stock owned by a "5% shareholder' (as
defined below) during a three-year testing period there is a more than fifty
percentage point increase in the percentage ownership of the loss corporation
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held at the close of the testing period by 5% shareholders over the lowest
percentage holdings by such shareholders during the "testing period." An owner
shift or equity structure shift may effect an ownership change. An owner shift
is a change in stock ownership that affects a 5% shareholder. In general, under
the Regulations any issuance of stock is also an owner shift. An equity
structure shift is a tax reorganization under the Tax Code. An equity structure
shift is also generally an owner shift. The Temporary Treasury Regulations
essentially make no distinction between an owner shift and an equity structure
shift. The term '5% shareholder' means any person holding 5% or more in value of
the stock of the corporation at any time during the testing period. As discussed
below, transactions affecting stock ownership can result in segregating groups
of shareholders (individually owning less than 5% of the stock) into groups
treated as 5% shareholders, including groups that in fact own less than 5% of
the stock of the loss company.
In general, stock includes all Equity Interests that participate in the
earnings of the corporation, that vote, or that are convertible into common
stock. After November 5, 1992, unexercised options will not be treated as stock.
Special attribution and aggregation rules are provided in Section 382.
The total percentage of the stock of a corporation held by persons who are not
5% shareholders is aggregated and is taken into account as if held by a single
5% shareholder and as if changes in their aggregate ownership were changes in
the percentage holdings of an individual 5% shareholder. Certain family members
are also aggregated for purposes of determining ownership changes and percentage
ownership for this purpose. Certain transactions can result in the segregation
of such less than 5% shareholders into separate groups. Thus, the less than 5%
shareholders of each corporation, a party to a tax reorganization, are each
segregated and treated
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as a separate 5% shareholder. Likewise, each issuance of stock by a corporation
is segregated and the persons receiving such stock are segregated and treated as
a separate 5% shareholder for purposes of determining whether an ownership
change has occurred. The loss corporation may combine separate-less-than-5%-
shareholder for purposes of determining whether an ownership change has
occurred. The loss corporation may combine separate less-than-5%-shareholder
groups, each holding an aggregate of less than 5% of the loss corporation's
stock, first identified during any year into a single less-than-5%-shareholder
group. Stock owned by a corporation or other entity is attributed to its
shareholders; under certain circumstances stock attributed to such shareholders
is also aggregated and treated as if it were held by a separate 5% shareholder.
Stock ownership reporting rules are provided by the Regulations.
Implementation of the Plan and the transactions therein contemplated
could therefore result in a substantial percentage of the Reorganized Debtor
Common Stock being held by persons who receive such instruments in an owner
shift or equity structure shift and who in the aggregate are treated as one or
more separate groups deemed to be a 5% shareholder for purposes of new Section
382.
Section 382 also contains a special provision which provides that in the
case of an exchange of debt for stock in a case under the jurisdiction of a
Bankruptcy Court brought under Title 11 of the United States Code (relating to
bankruptcy) (a "Title 11 Case"), the limitations of section 382 will not apply
to any ownership change resulting from such a proceeding if Creditors and
shareholders immediately before the exchange own, as a result of such exchange,
50% of the stock of the loss corporation. To qualify for this exception, only
Claims held by persons who were Creditors as of a date eighteen months prior to
the filing of the petition under Title 11 or whose Claims arose in the ordinary
course of trade or business of the debtor (and
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were at all times beneficially owned by such persons) are taken into account.
However, the Title 11 exception may result in the reduction of NOLs by some
percentage of the debt discharge amount deemed satisfied by stock and by
interest paid or accrued on indebtedness since the beginning of the third tax
year prior to the exchange of such indebtedness for stock.
2. Alternative Minimum Tax
The Corporate Alternative Minimum Tax (AMT) applies to all C
corporations whose average gross receipts for the prior three years are in
excess of $5 million. Once AMT becomes applicable, the corporation is required
to compute its taxable income and its tax under two separate systems. The first
is the regular tax system. As stated above, the corporation has a regular tax
NOL in excess of $4 million. If this loss is not limited or expired under the
above discussion, any taxable income of the corporation in the future will be
offset dollar for dollar by this NOL until it either is all utilized or expires.
However, for AMT purposes, there is a separate calculation of the AMT
NOL. This AMT NOL is usually smaller than the regular tax NOL. The amount of the
AMT NOL available to the corporation is unknown at this time. When the
corporation's taxable income is calculated for AMT purposes, the amount subject
to tax is reduced by the available AMT NOL as limited under the same rules
applicable to the regular tax NOLs under Section 382 as discussed above.
However, assuming that there is sufficient AMT NOL available to offset
taxable income and it is not limited or expired, there are still limitations on
the use of the AMT NOL against AMT Taxable income. As such, even if there is no
regular tax payable in a give corporate tax year, there may be AMT payable.
Thus, notwithstanding anything discussed above, the corporation may be required
to pay federal income tax. The amount of the potential tax is unknown at this
time.
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THIS DOCUMENT SHALL NOT BE CONSTRUED AS PROVIDING TAX ADVICE TO
CREDITORS, SHAREHOLDERS OR OTHER READERS OF THIS DOCUMENT. ALL PARTIES ARE URGED
TO SEEK ADVICE FROM THEIR OWN TAX ADVISORS.
B. Acquisition of DIEGO TEL.
The acquisition of DIEGO TEL will occur by means of an exchange of (a)
Class A Common Stock for (b) 100.0% of the issued and outstanding Common Stock
of DIEGO TEL. It is the objective of the parties that this transaction qualify
as a tax free reorganization pursuant to Section 382 of the Internal Revenue
Code.
C. Creditors.
No opinion is expressed with regard to the tax treatment of any Creditor
who elects to receive Class A Common Stock pursuant to this Plan.
Creditors are encouraged to seek advice from there personal attorney,
accountant or tax advisor.
XI. MAJOR CONTINGENCIES AND RISK FACTORS
A. General Business Matters.
1. Approval of the NEP Settlement.
NEP is the Debtor's largest single Creditor. Perhaps more importantly,
NEP controls assets (i.e., CEC d/b/a Herth Printing and Business Supplies and
certain real property situated in Reno, Nevada) which had been a core component
of the Company's asset base and revenue stream prior to August 1996.
In the event that the Court and Creditors should refuse to ratify the
NEP Settlement, the Company would incur substantial legal fees and expenses in
order to pursue its claims against
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NEP, and there is no guarantee or assurance that the Company would prevail.
Moreover, in the event that the NEP Settlement is not ratified, it is probable
that the acquisition of Diego Tel and VivaTel would also be challenged.
Accordingly, in the opinion of the Debtor, ratification of the NEP
Settlement is a key component to the Plan of Reorganization and implementation
of the Debtor's business plan.
2. Acquisition of VivaTel and Diego Tel.
Although VivaTel and Diego Tel are newly organized companies, Diego Tel
is already negotiating potentially substantial contracts for the resale of long
distance telecommunications services. These contracts represent an opportunity
for immediate revenue to the Debtor. More importantly, based upon the events of
the past year, it is the opinion of management that expansion and modification
of the Debtor's business plan is necessary and appropriate in order for the
Debtor to become commercially viable on a long term basis. The opportunity to
acquire a foothold into the rapidly expanding telecommunications industry is
consistent with the opinion of the Board of Directors that Debtor should
diversify its business into business segments which are not interdependent. The
Board of Directors believes telecommunications to be one of the core components.
Accordingly, in the event that the VivaTel and DIEGO TEL acquisitions
are not approved by the Bankruptcy Court, the Company's Plan will be
significantly handicapped.-
3. General Business Risks and Contingencies.
Both VivaTel and Diego Tel are recently organized entities without a
previous business history. Debtors business must be considered in light of the
risks faced by early stage companies in the rapidly evolving international
telecommunications market. Early stage companies must respond to external
factors, such as competition and changing regulations,
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without the resources, infrastructure and broader business base of more
established companies. Early stage companies also must respond to these risks
while simultaneously developing systems, adding personnel and entering new
markets. As a result, these risks can have a much greater effect on early stage
companies. If it does not successfully address such risks, Debtor's business,
operating results and financial condition would be materially adversely
affected.
4. Management of Changing Business.
a) Increased Demands on Management and Need to
Continue to Improve Systems.
Debtor hopes to experience revenue from the telecommunication business
that it will acquire upon confirmation. In such event will expand the number of
its employees and the geographic scope of its operations. These factors will
result in increased responsibilities for management personnel and place
increased demands upon Debtor's operating and financial systems. Debtor expects
that its sale of long distance communication services into foreign countries
will lead to increased financial and administrative demands, such as increased
operational complexity associated with expanded network facilities,
administrative burdens associated with managing an increasing number of
relationships with foreign partners and expanded treasury functions to manage
foreign currency risks. Accounting systems and policies will be developed as
Debtor experiences significant growth, and Debtor will require personnel,
systems and policies to comply with the reporting requirements of a publicly
held company. Although Debtor plans to acquire a financial accounting system in
1998, there can be no assurance that Debtor's personnel, systems, procedures and
controls will be adequate to support Debtor's future operations. Difficulties
encountered in Debtor's development of an accounting system or the failure to
implement and improve Debtor's operation, financial and management systems as
needed to accommodate any expansion of Debtor's business could have a material
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adverse effect on Debtor's business, operating results and financial condition.
b) Risks of Expansion into Commercial Market.
Debtor intends to expand into the commercial market and such expansion
will increase the risk of bad debt exposure and lead to higher operating costs.
Debtor also may be required to update and improve its billing systems and
procedures and/or hire new management personnel to handle the demands of the
commercial market. There can be no assurance that Debtor will be able to
effectively manage the costs of and risks associated with expansion into the
commercial market.
5. Dependence on Key Personnel.
Debtor's success, if any, will depend to a significant degree upon the
efforts of senior management personnel and a group of employees with
longstanding industry relationships and technical knowledge of Debtor's
operations. None are bound by the terms of Non-Compete Agreements, which would
restrict Debtor's ability to offer domestic interexchange products and services
and solicit certain customers. Debtor's management team has limited experience
working together and there can be no assurance that they can successfully
integrate as a management team. Debtor believes that its future success will
depend in large part upon its continuing ability to attract and retain highly
skilled personnel. Competition for qualified, high-level telecommunications
personnel is intense and there can be no assurance that Debtor will be
successful in attracting and retaining such personnel. The loss of the services
of one or more of Debtor's key individuals, or the failure to attract and retain
other key personnel, could materially adversely affect Debtor's business,
operating results and financial condition. See Article IV, Section F.
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B. Energy Cogeneration Related Matters.
In order to rehabilitate and develop the reorganized Debtor's energy
cogeneration business, the reorganized Debtor must identify and negotiate joint
venture or partnership relationships with energy cogeneration companies which
have both working capital and marketing presence. There is no assurance to
guaranty that the reorganized Debtor will be successful in that regard. In the
event that the reorganized Debtor is unable to establish joint venture or
partnership relationships, the reorganized Debtor must generate substantial
working capital in order to reenter the energy cogeneration arena. If that
should be the situation, it is likely that the reorganized Debtor would elect to
liquidate its format units rather than to seek investor capital for that
purpose.
The energy cogeneration business is extremely competitive, and the
development of revenue from such operations must be viewed as a long term,
speculative venture.
C. Telecommunications Related Operating Results Subject to
Significant Fluctuations.
Debtor's telecommunications related operating results are difficult to
forecast with any degree of accuracy because a number of factors subject these
results to significant fluctuations.
1. Factors Influencing Operating Results, including
Revenues, Costs and Margins.
In projecting future revenue from the newly acquired telecommunications
business, the following factors must be considered:
a) Call volume fluctuations, particularly in
regions with relatively high per-minute rates;
b) The addition or loss of major customers, whether
through competition, merger, consolidation or
otherwise;
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c) The loss of economically beneficial routing
options for the termination of Debtor's traffic;
d) Financial difficulties of major customers;
e) Pricing pressure resulting from increased
competition; and
f) Technical difficulties with or failures of
portions of the network that would impact
Debtor's ability to provide service to or bill
its customers.
In projecting future cost of services and operating expenses, the
following factors must be considered:
a) Fluctuations in rates charged by carriers to
terminate Debtor's traffic;
b) The timing of capital expenditures and other
costs associated with acquiring or obtaining
other rights to switching and other transmission
facilities;
c) Changes in Debtor's sales incentive plans; and
d) Costs associated with changes in staffing levels
of sales, marketing, technical support and
administrative personnel.
In projecting Debtor's operating results, the following factors must be
considered:
a) Changes in routing due to variations in the
quality of transmission capability;
b) The amount of, and the accounting policy for,
return traffic under operating agreements;
c) Actions by domestic or foreign regulatory
entities;
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d) The level, timing and pace of Debtor's
expansion. in international and commercial
markets; and
e) General domestic and international economic and
political conditions.
Since Debtor plans to have long term arrangements for the purchase or resale of
long distance services, and since historically rates fluctuate significantly
over short periods of time, Debtor's gross margins are subject to significant
fluctuations over short periods of time. Debtor's gross margins also may be
negatively impacted in the longer term by competitive pricing pressures.
If one of Debtor's major customers informed Debtor that it was
experiencing financial difficulties and would be unable to pay in full, on a
timely basis, then Debtor intends to increase its reserves to account for the
potential inability to collect the account receivable from the customer. There
can be no assurance that Debtor will be able to obtain adequate recourse from
the customer's assets, if necessary, or that Debtor's reserves will be adequate.
Debtor's ability to collect the outstanding amounts would be adversely affected
to the extent that a customers financial condition deteriorates further or the
customer commences bankruptcy proceedings. In such an instance, Debtor's revenue
would grow slowly if a major customer reduced traffic because of financial
difficulties. Such events could have a material adverse affect on Debtor's
business, operating results or financial condition.
2. No Assurance of Growth in the Telecommunications
Business.
Although Debtor expects certain significant revenue from its
telecommunications business, early results should not be considered indicative
of future revenue growth or operating results. If revenue levels fall below
expectations, net income is likely to be disproportionately adversely affected
because a proportionately smaller amount of Debtor's operating expenses will
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vary with its revenues. This effect is likely to increase as a greater
percentage of Debtor's cost of services are associated with telecommunications
facilities. There can be no assurance that Debtor will be able to achieve or
maintain profitability on a quarterly or annual basis.
Due to all of the foregoing factors, it is likely that in some future
quarter Debtor's operating results will be below the expectations of public
market analysts and investors. In such event, the price of Debtor's Class A
Common Stock could be materially adversely affected.
3. Risks of International Telecommunications Business.
Debtor will generate substantially all its revenues by providing
international telecommunications services to its customers on a wholesale basis.
The international nature of Debtor's operations involves certain risks, such as
changes in U.S. and foreign government regulations and telecommunications
standards, dependence on foreign partners, tariffs, taxes and other trade
barriers, the potential for nationalization and economic downturns and political
instability in foreign countries. In addition, Debtor's business could be
adversely affected by a reversal in the current trend toward deregulation of
telecommunications carriers.
4. Risk of Dependence on Foreign Partners.
Debtor will rely on foreign partners to terminate its traffic in foreign
countries and to assist in installing transmission facilities and network
switches, complying with local regulations, obtaining required licenses, and
assisting with customer and vendor relationships. Debtor may have limited
recourse if its foreign partners do not perform under their contractual
arrangements with Debtor. Debtor's arrangements with foreign partners may expose
Debtor to legal, regulatory or economic risks. One foreign partner will be a
Mexican company owned or controlled by Mr. David Wallace.
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5. Risks Associated with Foreign Government Control and
Highly Regulated Markets.
Governments of many countries exercise substantial influence over
various aspects of the telecommunications market. In some cases, the government
owns or controls companies that may become competitors of Debtor or companies
(such as national telephone companies) upon which Debtor and its foreign
partners may depend for required interconnections to local telephone networks
and other services. Accordingly, government actions could have a material
adverse effect on Debtor's operations. In highly regulated countries in which
Debtor will not be dealing directly with the dominant local exchange carrier,
the dominant carrier may have the ability to terminate service to Debtor or its
foreign partner and, if this occurs, Debtor may have limited or no recourse. In
countries where competition is not yet fully established and Debtor will be
dealing with an alternative carrier, foreign laws may prohibit or impede the
entry of such new carriers in the market. In situations in which the Debtor will
have a foreign-partner, there may be an increased risk to the Debtor in the
event that the foreign partner fails to comply with applicable foreign law.
6. Risks Associated with International Settlement Rates,
International Traffic and Foreign Currency Fluctuations.
Debtor's revenues and cost of long distance services may be sensitive to
changes in international settlement rates, imbalances in the ratios between
outgoing and incoming traffic and foreign currency fluctuations. International
rates charged to customers are likely to fluctuate for a variety of reasons,
including increased competition between existing long distance providers, new
entrants into the market and the consummation of joint ventures among large
international long distance providers that facilitate targeted pricing and cost
reductions. There can be no assurance that Debtor will be able to meet projected
traffic volume or operating
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costs to offset any possible rate decreases. In addition, Debtor expects that a
portion of Debtors net revenue and expenses may be denominated in currencies
other than U.S. dollars, and changes in exchange rates may have a significant
effect on Debtors results of operations. As Debtor continues to pursue a
strategy of entering into operating agreements where it is economically
advantageous to do so, Debtor's results of operations will be subject to the
risks of changes in international settlement rates and foreign currency
fluctuations.
7. Foreign Corrupt Practices Act.
Due to its acquisition of DIEGO TEL, Debtor may become subject to the
Foreign Corrupt Practices Act (FCPA), which generally prohibits U.S. companies
and their intermediaries from bribing foreign officials for the purpose of
obtaining or keeping business
8. Potential Effects of Government Regulation.
Debtors business will be subject to various Federal laws, regulations,
agency actions and court decisions. Debtors international facilities-based and
resale services are subject to regulation by the Federal Communications
Commission (the "FCC"). The FCC requires authorization prior to leasing
capacity, acquiring international facilities, and/or initiating international
service. Prior FCC approval is also required to transfer control of an
authorized carrier. Debtor is also subject to the FCC rules that regulate the
manner in which international services may be provided, including, for instance,
the circumstances under which carriers may provide international switched
services by using private lines or route traffic through third countries.
9. The FCC's Private Line Resale Policy.
The FCC's private line resale policy prohibits a carrier from reselling
international private leased circuits to provide switched services to a country
unless the FCC has found that the
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country affords U.S. carriers equivalent opportunities to engage in similar
activities in that country. Debtor may enter into arrangements with foreign
carriers may involve the transmission of switched services for termination in a
country that has not been found by the FCC to offer equivalent resale
opportunities. There can be no assurance that the FCC, upon viewing these
alternate carrier arrangements, would permit these arrangements under its
private line resale policy. If the FCC finds that these arrangements conflict
with its policy, among other measures, it may issue a cease and desist order or
impose fines on Debtor, which could have a material adverse effect on Debtor's
business, operating results and financial condition. It is also possible that
the regulatory agency of the foreign government would find that foreign law does
not permit the operation of alternate carriers or that the alternate carriers
have not met foreign law requirements for such operations. Such a finding could
have a material adverse effect on Debtor's business, operating results and
financial condition.
10. The FCC's International Settlements Policy.
Debtor is also required to conduct its international business in
compliance with the FCC's international settlements policy (the "ISP"). The ISP
establishes the permissible arrangements for U.S.-based carriers and their
foreign counterparts to settle the cost of terminating each other's traffic over
their respective networks.
11. Recent and Potential FCC Actions.
Regulatory action that has been and may be taken in the future by the FCC may
enhance the intense competition faced by Debtor. The FCC has enacted certain
changes in its rules designed to permit more flexibility in its ISP as a method
of achieving lower cost-based accounting rates as more facilities-based
competition is permitted in foreign markets. Specifically, the FCC has decided
to allow U.S. carriers, subject to certain competitive safeguards, to propose
methods to
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pay for international call termination that deviate from traditional bilateral
accounting rates and the ISP. The FCC has also proposed to establish lower
ceilings ("benchmarks") for the rates that U.S. carriers will pay foreign
carriers for the termination of international services. In separate proceedings,
the FCC is considering equivalency determinations for Australia, Chile, Denmark,
Finland, Hong Kong and Mexico. While these rule changes may provide more
flexibility to Debtor to respond more rapidly to changes in the global
telecommunications market, it will also provide similar flexibility to Debtor's
competitors.
12. Foreign Regulations.
Debtor may also be subject to regulation in foreign countries in
connection with certain of its business activities. For example, Debtor's use of
transit, international simple resale ("ISR") or other routing arrangements may
be affected by laws or regulations in either the transited or terminating
foreign jurisdiction. Foreign countries, either independently or jointly as
members of the ITU, may have adopted or may adopt laws or regulatory
requirements for which compliance would be difficult or expensive, that could
force Debtor to choose less cost-effective routing alternatives and that could
adversely affect Debtor's business, operating results and financial condition.
To the extent that it seeks to provide telecommunications services in other
non-U.S. markets, Debtor is subject to the developing laws and regulations
governing the competitive provision of telecommunications services in those
markets. Debtor currently plans to provide a limited range of services in the
Far East and Mexico, as permitted by regulatory conditions in those markets, and
to expand its operations as these markets implement scheduled liberalization to
permit competition in the full range of telecommunications services in the next
several years. The nature, extent and timing of the opportunity for Debtor to
compete in these markets will be determined, in part, by the actions taken by
the governments in these countries
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to implement competition and the response of incumbent carriers to these
efforts. There can be no assurance that these countries will implement
competition in the near future, or at all, or that Debtor will be able to take
advantage of any such liberalization in a timely manner.
13. Regulation of Target Customers.
Debtor's targeted customers may also be subject to actions taken by
domestic or foreign regulatory authorities that may affect the ability of
customers to deliver traffic to Debtor. Those actions could materially adversely
affect the volume of traffic received from a major customer, which could have a
material adverse effect on Debtor's business, financial condition and results of
operations.
14. Dependence on Availability of Transmission Capacity.
For fiscal 1998, Debtor predicts substantially all of its revenue to be
derived from the sale of international long distance services terminated through
resale arrangements with other long distance providers. There can be no
assurance that predicted resale arrangements will be available to Debtor on a
cost-effective basis or at all. Most transmission capacity that Debtor will be
using will be obtained on a variable, per minute basis, subjecting Debtor to the
possibility of unanticipated price increases and service cancellations. Debtor
will also require high voice quality transmission capacity, which may not always
be available at cost-effective rates. If Debtor is not able to enter into
cost-effective resale arrangements with its primary vendors, or is unable to
locate suitable replacement vendors that offer sufficient, high quality
alternative capacity, Debtor's business, operating results and financial
condition could be materially adversely affected. For instance, to the extent
that Debtor's variable costs increase, Debtor may experience reduced or, in
certain circumstances, negative margins for some services. As its traffic volume
increases on particular routes, Debtor expects to decrease its
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reliance on variable usage arrangements and enter into fixed monthly or
longer-term leasing or ownership arrangements, subject to obtaining any
requisite authorization. To the extent that Debtor does so, and incorrectly
projects traffic volume in a particular geographic area, Debtor would experience
higher fixed costs without a related increase in revenue. Debtor intends to
invest in developing its own global transmission and switching facilities, which
is a capital intensive and time-consuming process. There can be no assurance
that Debtor will successfully complete development of its global network in a
timely manner and within budget.
15. Risks Associated with Complex Switching and Information
Systems Hardware and Software.
Debtor's information systems and switching equipment are expensive to
purchase, complex to install and maintain, and subject to hardware defects and
software bugs. Debtor may experience technical difficulties with its hardware or
software which could adversely affect Debtor's ability to provide service to its
customers, manage its network, collect billing information, or perform other
vital functions. Such events could have a material adverse affect on Debtor's
business, operating results or financial condition.
16. Significant Competition.
The international telecommunications industry is intensely competitive
and subject to rapid change. Debtors competitors in the international wholesale
switched long distance market include large, facilities-based multinational
corporations and PTTS, smaller facilities-based providers in the U.S. and
overseas that have emerged as a result of deregulation, switched-based resellers
of international long distance services and international joint ventures and
alliances among such companies. International wholesale switched long distance
providers compete on the basis of price, customer service, transmission quality,
breadth of service offerings and value-added services. Debtor believes that
competition will continue to increase, placing downward
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pressure on prices. Such pressure could adversely affect Debtors gross margins
if Debtor is not able to reduce its costs commensurate with such price
reductions.
17. Competition from Domestic and International Companies
and Alliances.
The U.S.-based international telecommunications services market is
dominated by American Telephone & Telegraph Co. ("AT&T"), MCI Communications
Corp. ("MCI") and Sprint Communications Company L.P. ("Sprint"). Other
significant competitors include WorldCom, Inc., Pacific Gateway Exchange, Inc.,
TresCom International, Inc. and other U.S. based and foreign long distance
providers, many of which have considerably greater financial and other resources
and more extensive domestic and international communications networks than
Debtor. Debtor anticipates that it will encounter additional substantial
competition as a result of the formation of global alliances among large long
distance telecommunications providers. Many of Debtor's current competitors are
also Debtor's potential customers. Debtor's business would be materially
adversely affected to the extent that a significant number of such potential
customers limit or refuse to do business with Debtor for competitive or other
reasons.
18. Competition from New Technologies.
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings and
increasing satellite transmission capacity for services similar to those
provided by Debtor. Such technologies include satellite-based systems, such as
the proposed Iridium and GlobalStar systems, utilization of the Internet for
international voice and data communications and digital wireless communication
systems such as personal communications services ("PCS"). Debtor is unable to
predict which of many possible future product and service offerings will be
important to maintain its competitive
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position or what expenditures will be required to develop and provide such
products and services.
19. Increased Competition as a Result of a Changing
Regulatory Environment.
The FCC recently granted AT&T's petitions to be classified as a
non-dominant carrier in the domestic interstate and international markets, which
has allowed AT&T to obtain relaxed pricing restrictions and relief from other
regulatory constraints, including reduced tariff notice requirements. These
reduced regulatory requirements could make it easy for AT&T to compete with
Debtor. In addition, the Telecommunications Act of 1996 (the "Telecommunications
Act"), which substantially revises the Communications Act of 1934 (the
"Communications Act"), permits and is designed to promote additional competition
in the intrastate, interstate and international telecommunications markets by
both U.S.-based and foreign companies, including the Regional Bell Operating
Companies ("RBOCs"). As a result of these and other factors, there can be no
assurance that Debtor will compete favorably in the future.
20. Dependence on Other Long Distance Providers and Customer
Concentration.
Debtor's primary business as a wholesale long distance provider makes it
highly dependent upon traffic delivered to Debtor by other long distance
providers pursuant to arrangements that can generally be terminated by the
provider on short notice. Assuming that the Debtors customer develops a customer
base, Debtor could lose significant customer traffic for many reasons, including
the entrance into the market of significant new competitors with lower rates
than Debtor, downward pressure on the overall costs of transmitting
international calls, transmission quality problems, changes in U.S. or foreign
regulations, or unexpected increases in Debtor's cost structure as a result of
expenses related to installing a global network or otherwise. Any significant
loss of customer traffic would have a material adverse effect on
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Debtors business, operating results and financial condition.
Debtor's customer concentration could also amplify the risk of
non-payment by customers. Debtor's largest customers are anticipated to account
for a significant amount of Debtors gross accounts receivable. If one of
Debtor's major customers informed Debtor that it was experiencing financial
difficulties and would be unable to pay in full, on a timely basis, Debtor would
convert a portion of the account receivable into a note from the customer.
Debtor would increase its reserves to account for the potential inability to
collect on the note or the accounts receivable from this customer. There can be
no assurance that the note or the accounts receivable would be paid, that Debtor
would be able to obtain adequate recourse from the note, if necessary, or that
Debtor's reserves will be adequate. Debtors ability to collect these outstanding
amounts would be adversely affected to the extent that this customer's financial
condition deteriorates further or the customer commences bankruptcy proceedings.
While Debtor intends to perform ongoing credit evaluations of its customers, it
generally does not require collateral to support accounts receivable from its
customers, and there can be no assurance that reserves will be adequate in
future periods. The inability of Debtor to collect significant accounts
receivable in any given period could have a material adverse effect on Debtor's
Cash flow and financial condition.
21. Capital Expenditures: Potential Need for Additional
Financing.
Development of Debtor's network facilities will require a significant
investment in equipment and facilities. If Debtor believes that its assets,
combined with other sources of liquidity, are not sufficient to fund its capital
requirements for the next twelve (12) months, Debtor will be required to obtain
additional financing depending on factors such as the rate and extent of
Debtor's international expansion, increased investment in ownership rights in
fiber
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optic cable, and increased sales and marketing expenses to support international
wholesale and commercial operations. Issuance of additional equity securities
would result in dilution to stockholders. There can be no assurance that
additional financing will be available on terms acceptable to Debtor, or at all.
Debtor's inability to fund its capital requirements would have a material
adverse effect on Debtor's business, operating results and financial condition.
22. Effects of Natural Disasters and Other Catastrophic
Events.
Debtor's business is susceptible to natural disasters such as
earthquakes, as well as other catastrophic events such as fire, terrorism and
war. While Debtor has taken a number of steps such as building redundant systems
for power supply to the switching equipment, to prevent its network from being
affected by natural disasters, fire and the like, there can be no assurance that
any such systems will prevent Debtor's switches from becoming disabled in the
event of an earthquake, power outage or otherwise. The failure of Debtor's
network, or a significant decrease in telephone traffic resulting from effects
of a natural or man-made disaster, could have a material adverse effect on
Debtor's relationship with its customers, Debtor's business, operating results
and financial condition.
D. Other Matters.
1. Securities and Exchange Commission.
As of the filing of the Plan, the Company is not current with respect to
reports which it is required to file with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934. The delinquency in filing is
attributable to actions taken by the former Board of Directors, the former
President of the Company (Mr. Pattinson Hayton III), and various third parties
who were affiliated with the Board of Directors and Mr. Hayton.
The Company is currently unable to comply with the reporting
requirements established
120
by the SEC because the Company does not have audited financial statements. It is
the Company's intention, prior to the Effective Date, to engage Kafoury,
Armstrong and Company as its independent auditors for the purpose of preparing
audited financial statements. Kafoury and Armstrong served as the Company's
auditors for the period 1993 through approximately September 1996, at which time
the firm resigned due to disputes with the then management and Board of
Directors.
In the event that the Company is unable to secure audited financial
statements, there will be substantial difficulty in complying with the reporting
requirements. In that event, the market value of the Company's stock may
decline.
2. NASD.
The Company's Class A Common Stock was previously classified as a
"SmallCap" stock eligible for trading on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"). The National Association of
Securities Dealers, Inc. ("NASD") subsequently delisted the Class A Common Stock
when the Company failed to file its required reports with the Securities and
Exchange Commission and when the market value of the Company's Common Shares
failed to meet the minimum listing criteria established by the NASD.
Currently, the Company's Common Stock is traded on an ad hoc basis in
the over-the-counter market; however, there is no active market for the
Company's stock.
The ability of the Company to establish and maintain a market demand for
its stock is directly dependent upon approval of the Plan (as submitted)
together with the preparation of audited financial statements and compliance
with the reporting obligations of the Company pursuant to the Securities and
Exchange Act of 1934. It is estimated that the costs associated
121
with this effort will range from $40,000 to $100,000.
In the event that none of these events fail to occur, there will be an
adverse impact upon the market value of the Company's stock.
3. Market for Class A Common Stock.
Debtor's common stock is currently not traded in the NASDAQ Small Cap
Market, having been de-listed from such exchange. However, the Debtor's Class A
Common Stock does currently trade on the NASD Electronic Bulletin Board for
Over-The-Counter or "Pink Sheet" stocks. It is not anticipated that the Class A
Common Stock issued pursuant to the Plan will be immediately listed for trading
on any exchange. The inability of Debtor's ability to qualify for re-listing on
the NASD or an a national stock exchange could adversely affect marketability of
the Debtor's Class A Common Stock and otherwise impair its ability to raise new
capital.
4. No Dividends: Dilution
It is not anticipated that Debtor will pay any Cash dividends on its New
Class A Common Stock for the foreseeable future. However, the Plan does
contemplate distributions of securities undertaken in connection with one or
more merger transactions of either the Debtor or existing or newly formed
subsidiaries.
XII. LIQUIDATION ANALYSIS
Section 1129(a)(7) of the Bankruptcy Code requires, in pertinent part,
that the Debtor determine the amount of proceeds available for distribution to
Creditors in the event of a liquidation of the Debtor. This analysis is
conducted in order that Creditors may determine whether the proposed Plan is
likely to result in distributions in excess of the amount that would be received
in the event that the Debtor were to be liquidated.
In this context, Debtor's assets (in the event of a liquidation) would
be limited to (1) Cash
122
on hand, and (2) the energy co-generation equipment previously acquired by
Debtor.
In other words, the common stock of CEC, VivaTel, and Diego Tel would
not be taken into consideration because these assets would not be owned by
Debtor in the event that the Plan is not confirmed and the Bankruptcy Court were
to order a liquidation of the Debtor.
As of May 30, 1998, Debtor's Cash on hand totaled approximately $22,000.
Based upon an appraisal secured in 1996, the energy co-generation equipment
owned by Debtor had an appraised fair market value as of approximately
$5,700,000, less accumulated depreciation and changes in the equipment.
For purposes of conducting the liquidation analysis, Debtor has computed
its Allowed liabilities to total $11,326,500 as follows:
Allowed Claims Disputed
-------------- ----------
Class 1 $ 200,000 0
Class 2 $ 0 $ 24,000
Class 3 $ 26,000 0
Class 4 0 $ 550,000
Class 5 $ 0 0
Class 6 $ 30,000 0
Class 7 $1,000,000 $3,500,000
Class 8 $6,000,000 0
Class 10 $ 0 0
Total $7,326,000 $4,200,000*
* Deemed to be Class 9 Claims.
With respect to the energy co-generation equipment, although this
equipment has an
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appraised value of $5,700,000, in the opinion of the Board of Directors of
Debtor and its management, in the event of a liquidation of Debtor, it is
unlikely that a third party would purchase the energy co-generation equipment at
its appraised value. In the opinion of Debtor's Board of Directors and
management, the Company's energy co-generation equipment, if sold at auction on
a liquidation basis, would likely generate less than $4,000,000 and may require
a substantial lead time to affect the transaction. The Board of Directors and
management have taken into consideration, at arriving at this figure, the facts
that (1) the energy co-generation equipment is currently in storage and,
therefore, a prospective buyer would have difficulty in confirming that the
equipment will function as designed, (2) the energy co-generation equipment is
currently stored in remote locations and not readily accessible to prospective
buyers, (3) there is limited application for the equipment in the commercial
environment and, therefore, the number of prospective purchasers is limited, (4)
if sold in a liquidating transaction, it is likely that purchasers would seek to
offer lower prices than would occur under other circumstances because there is
no surviving business entity against which recourse may be asserted. In other
words, the equipment would be purchased "AS IS" and "WHERE IS."
The opinions expressed above are subjective in nature. There is no
empirical mechanism by which Debtor may determine the actual purchase price
which would be paid by a third party. While the Board of Directors and
management believe that the 1996 appraisal (which is consistent with the
appraisals in a previously obtained in 1993, 1994 and 1995) represent a
reasonable estimate of the fair market value of the equipment if sold on an
arm's length basis to a ready, willing, and able buyer who is not motivated by
factors other than affective utilization of the equipment, there is no assurance
or guaranty that the equipment would generate a minimum of $4,000,000 if sold in
a liquidating transaction.
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Assuming, however, for the purposes of this analysis that the energy
cogeneration were to generate $4 million (net of transaction costs), Debtor
would have available approximately $3,700,000 to be distributed among creditors
whose claims total approximately $7,326,500. (Note: this is allowed claims only
and presumes 0.0% of the disputed claims are valid. If 100.0% of the disputed
claims were to be allowed, the allowed claims creditors would total
approximately $11,526,000.
(In this event a liquidation would result in the payment of
approximately 49.0% of the amount of each claim).
In contrast, the proposed plan affords creditors the opportunity to
secure (a) cash, (b) stock or (c) a combination of cash and stock. Depending
upon the combination which is elected, the creditor will receive an amount in
excess of the distribution which would occur in the event of liquidation, as set
forth in the following chart, which compares the distribution to a creditor
holding a claim in the amount of $10,000.00:
CLAIM = $10,000.00
Liquidation Plan
Option A Option B1 Option B2 Option C
--------- ----------- ---------- --------
One time
cash payment $4,9000.00 $1,200.00 $ 2,000.00 $2,000.00 0
Cash 0 $ 8,000.00 0 0
Class A Stock 0 1,600.00 9,600.00 20,000
Total $4,900.00 $1,200.00 $10,000.00 $2,000.00 0
+ +
1,600 shares 9,600 shares 20,000 shares
125
Every general unsecured creditor holding an allowed claim has the right
to elect, pursuant to the Plan the payment option the creditor feels to be in
the creditor's best interest. As the above chart illustrates, if the creditor
elects Option B, Plan 1 the creditor will receive an amount in excess of the
cash distribution to be effected in the event of a liquidation. In contrast, if
the creditor elects Option C, the creditor will receive significantly less cash,
and in lieu thereof, will receive Class A Common Stock. There is no assurance of
guaranty that the Class A Common Stock has or will ever have any economic value.
At this time, the Debtor's board of directors places a de minimis value upon the
Class A Common Stock, and therefore, a Creditor who elects to receive Class A
Common Stock in lieu of or as partial payment for the Creditor's allowed claim,
is assuming a substantial risk as the Class A Common Stock may never have value.
If, on the other hand, the Class A Common Stock were to achieve value in the
marketplace, it is possible that the Class A Common Stock could have a value
substantially in excess of the amount of cash to be distributed under Option A,
Option B1, or Option B2 of the Plan.
All Creditors are treated equally. Every Creditor has the right to
select the payment plan which the Creditor believes to be in the individual
Creditor's best interest.
The proposed Plan would result in a significantly higher distribution to
the Debtor.
For this reason, the Board of Directors and management of Debtor believe
that the proposed Plan is in the best interests of all Creditors and encourage
its acceptance.
XIII. VOTING PROCEDURES AND REQUIREMENTS
A. Ballots and Voting Deadline.
A ballot to be used for voting to accept or reject the Plan is enclosed
with this Disclosure
126
Statement and provided to Creditors and Equity Interest holders who are entitled
to vote. A Creditor or Equity Interest holder voting must (i) carefully review
the ballot and the instructions printed thereon, (ii) vote to accept or reject
the Plan, (iii) with respect to Creditors in Class 7 of the Plan, indicate under
which payment alternative you elect to receive in the event that the Plan is
confirmed by the Court, and (iv) return the ballot to the address indicated
thereon by the deadline in order to enable the ballot to be considered for
voting purposes.
The record date for determining which holders of Class A Common Stock
are entitled to vote on the Plan is the date on which the Bankruptcy Court
approves the Disclosure Statement.
DO NOT RETURN YOUR STOCK CERTIFICATE WITH YOUR BALLOT.
Bank and broker nominees will transmit a ballot, together with a copy of
this Disclosure Statement, to each beneficial owner of Class A Common Stock of
Debtor held in the name of such nominees. Instructions for returning ballots
will also be sent to beneficial owners by nominees. If your Class A Common Stock
is held in the name of a brokerage firm or bank, please return your ballot in
the envelope provided by that institution.
Debtor intends to make pre-solicitation inquiry to nominees in order to
determine (i) the number of beneficial owners of Debtor securities, and (ii) the
number of copies of the Disclosure Statement necessary to supply record or
nominee holders of the solicitation materials in sufficient time to make an
informed decision.
The Bankruptcy Court has directed that, in order to be counted for
voting purposes, ballots for the acceptance or rejection of the Plan must be
received by the Debtor no later than 5:00 p.m. (PST) on August 24, 1998 at the
following address:
127
PowerTel, USA, Inc.
c/o Belding Harris & Petroni
Stephen R. Harris
417 W. Plumb Ln.
Reno, NV 89509
Counsel for Debtor
TO BE COUNTED, YOUR BALLOT MUST BE RECEIVED BY 5.00 P.M., PACIFIC
STANDARD TIME ON AUGUST 24,1998.
B. Creditors and Shareholders Entitled to Vote.
Any Creditor of Debtor whose Claim is "impaired" under the Plan is
entitled to vote if either (i) the Claim has been scheduled by the Debtor (and
such Claim is not scheduled as disputed, contingent or unliquidated), or (ii) it
has filed a Proof of Claim on or before the last date set by the Bankruptcy
Court for such filings. Any Claim as to which an objection has been filed (and
such objection is still pending) is not entitled to vote, unless the Bankruptcy
Court temporarily allows the Claim in an amount which it deems proper for the
purpose of accepting or rejecting the Plan, such authorization to be made upon
motion by a Creditor whose Claim has been the subject of an objection. Such
motions must be heard and determined by the Bankruptcy Court prior to the date
established by the Court to confirm the Plan. In addition, a Creditor's vote may
be disregarded if the Bankruptcy Court determines that the Creditor's acceptance
or rejection of the Plan was not solicited or procured in good faith or in
accordance with the provisions of the Bankruptcy Code.
C. Definition of Impairment.
Section 1124 of the Bankruptcy Code specifies certain terms and
conditions pursuant to which a class of Claims or Equity Interests are deemed to
be "impaired" under a plan of reorganization.
128
D. Classes Impaired Under the Plan.
(i) Creditors holding Claims in Classes 4, 5, 7 and 8 and Equity
Interest holders in Class 10 are deemed to be "impaired" for purposes of section
1124 of the Bankruptcy Code and, therefore, are eligible to vote on acceptance
or rejection of the Plan.
(ii) Voting Shareholders are also eligible to vote.
E. Identification of Claims and Equity Interest Not Impaired by the
Plan.
1. Unimpaired Classes.
Claims of classes 1, 2, 3 and 6 are not impaired under the Plan.
2. Controversy Concerning Impairment.
In the event of a controversy as to whether any Creditors or holders of
Equity Interest or class of Creditors or class of holders of Equity Interest are
impaired under the Plan, the Bankruptcy Court shall, after notice and a hearing,
determine such controversy.
F. Information on Voting and Ballots
While ballots are being forwarded to all Creditors, unimpaired Creditors
under the Plan are conclusively deemed to have accepted their treatment under
the Plan and votes by those Creditors will not be considered by the Bankruptcy
Court.
G. Vote Required for Class Acceptance.
The Bankruptcy Code defines acceptance of a plan of reorganization by a
class of creditors to be the acceptance by holders of two-thirds (2/3) in dollar
amount and a majority in the number of Claims of that class which actually casts
ballots for acceptance or rejection of the plan of reorganization. In other
words, acceptance takes place only if the plan is approved by two-thirds (2/3)
an amount and a majority in number of the Creditors actually voting. DEBTOR
URGES YOU TO VOTE IN FAVOR OF ITS PLAN WHICH, IN THE OPINION OF ITS
129
BOARD OF DIRECTORS AND MANAGEMENT, REPRESENTS THE BEST OPPORTUNITY FOR THE
CREDITORS AND EQUITY INTEREST HOLDERS TO RECEIVE COMPENSATION.
H. Confirmation of the Plan
Under the Bankruptcy Code, the following steps must be taken to confirm
the Plan:
1. Confirmation Hearing.
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a hearing on confirmation of the Plan (the "Confirmation
Hearing"). Section 1128(b) provides that any party-in-interest may object to the
confirmation of the Plan.
By order of the Bankruptcy Court dated May 21, 1998, the Confirmation
Hearing has been scheduled for August 25, 1998 at 10:00 a.m. in Court Room
United States Federal Building, 300 Booth Street, Reno, Nevada. The Confirmation
Hearing may be adjourned from time to time by the Bankruptcy Court without
further notice except for an announcement made at the Confirmation Hearing or
any adjournment thereof. Any objection to the confirmation must be made in
writing and filed with the Bankruptcy Court with proof of service and served
upon the following parties on or before August 11, 1998:
PowerTel USA, Inc.
c/o Walter & Haverfield P. L. L.
1300 Terminal Tower
Cleveland, Ohio 44113
Attention: Van P. Carter, Esq., Counsel for Debtor
UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED, IT WILL
NOT BE CONSIDERED BY THE BANKRUPTCY COURT.
130
2. Requirements for Confirmation of the Plan.
At the Confirmation Hearing, the Bankruptcy Court shall determine
whether the requirements of section 1129 of the Bankruptcy Code have been
satisfied, in which event the Bankruptcy Court shall enter an order confirming
the Plan.
The Debtor believes that the Plan satisfies all of the statutory
requirements of Chapter 11 of the Bankruptcy Code, that the Debtor has complied
or will have complied with all of the requirements of Chapter 11 and that the
proposal set forth in the Plan is made in good faith.
The Debtor contends that holders of all Claims impaired under the Plan
will receive payments under the Plan having a present value as of the
Confirmation Date in amounts not less than the amounts likely to be received if
the Debtor was to be liquidated in a Chapter 7 proceeding pursuant to the
Bankruptcy Code. Included in Section X. of this Disclosure Statement is a
summary of the amounts estimated to be realized by the Creditors of Debtor in
the event of its liquidation pursuant to Chapter 7.
At the Confirmation Hearing, the Bankruptcy Court will determine whether
Creditors would receive greater Distributions pursuant to the Plan than would be
distributed in a liquidation pursuant to Chapter 7.
3. Cramdown.
In the event that any impaired class of Claims in the Plan does not
accept the Plan, the Bankruptcy Court may still confirm the Plan at the request
of the Debtor if, as to each impaired class which has not accepted the Plan, the
Plan "does not discriminate unfairly" and is "fair and equitable." A plan of
reorganization does not discriminate unfairly within the meaning of the
Bankruptcy Code if no class receives more than it is legally entitled to receive
for its claims or equity interest. The term "fair and equitable" has different
meanings for secured and unsecured
131
claims and equity interests.
With respect to a secured claim, the term "fair and equitable" means
either: (a) the impaired secured creditor retains its liens to the extent of its
allowed claim and receives deferred cash payments at least equal in amount to
the allowed amount of its claim with a present value as of the effective date at
least equal to the value of such creditor's interest in the property securing
its liens; (ii) property subject to the lien of the impaired secured creditor is
sold free and clear of that lien, with that lien attaching to the proceeds of
the sale, and such lien proceeds must be treated in accordance with clauses (i)
and (iii) hereof; or (iii) the impaired secured creditor realizes the
"indubitable equivalent" of its claim under a plan of reorganization.
With respect to an unsecured claim, the term "fair and equitable" means
either: (i) each impaired unsecured creditor receives or retains property of a
value equal to the amount of its allowed claim; or (ii) the holders of claims in
interest that are junior to the claims of the dissenting class will not receive
any property under, a plan of reorganization.
With respect to a claim of equity interest, the term "fair and
equitable" means either: (i) each impaired equity interest receives or retains
on account of such interest property of a value equal to the greatest of the
allowed amount of any fixed liquidation preference to which such holder is
entitled, any fixed redemption price to which such holder is entitled, or the
value of such interest; or (ii) the holder of any interest that is junior to the
interest of such class will not receive or retain under the plan on account of
such junior interest any property.
In the event one or more classes of impaired claims of the Plan rejects
the Plan, the Bankruptcy Court will determine at the Confirmation Hearing
whether the Plan is fair and equitable and does not discriminate unfairly
against any rejecting impaired class of claims.
132
XIV. CONCLUSION
For the foregoing reasons, the Board of Directors of Debtor recommends
adoption of the Plan as submitted.
Respectfully submitted,
/s/ Stephen R. Harris
-----------------------------------------
STEPHEN R. HARRIS, ESQ.
BELDING AND HARRIS
Nevada Bar No. 001463
417 W. Plumb Lane
Reno, NV 89509
133
SCHEDULE OF EXHIBITS
Exhibit 1 - Ballot (to be provided)
Exhibit 2 - First Amended and Restated Setlement and Release Agreement
Exhibit 3 - Balance Sheet dated May 31, 1998
Exhibit 4 - Amended and Restated Agreement for Exchange of Stock
Exhibit 5 - Budget Report by Month: May 1, 1998 through December 31, 1998
Exhibit 6 - Summary of Directors (to be provided)
Exhibit 7 - Employment Contracts
134
Stephen R. Harris, Esq.
BELDING & HARRIS, LTD.
417 West Plumb Lane
Reno, NV 89509
Telephone: (702) 786-7600
Attorneys for Debtor
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEVADA
IN RE: CASE NO. 97-30265-BMG
CHAPTER 11
PowerTel USA, INC., formerly known as
NEVADA ENERGY, INC., also formerly known BALLOT FOR ACCEPTING OR
as MUNSON GEOTHERMAL, INC., REJECTING DEBTOR'S FIRST AMENDED
PLAN OF REORGANIZATION
Debtor.
HEARING DATE:
_______________________________________/ HEARING TIME:
The undersigned acknowledges receipt of the Plan of Reorganization
("Plan") filed July 1998, and votes as follows:
[Check One Box]
Class of Creditor: ______ Accepts (_______) Rejects (_______)
Amount of Claim: $__________________
Name of Creditor: __________________ Address: __________________________
__________________________
By: __________________________
Title: __________________________
CLASS 6 CLAIMANTS ONLY
The undersigned, an unsecured creditor of PowerTel USA, Inc., in the
unpaid principal amount of $_____________,
[ ] Accepts
[ ] Rejects
the treatment for Class 6 claimants set forth in the Plan proposed by
Debtor PowerTel USA, Inc.
OR
CLASS 6 ALTERNATIVE TREATMENT ELECTION
The undersigned, an unsecured creditor of PowerTel USA, Inc. in the
unpaid principal amount of $_____________, elects
[ ] Cash
[ ] Stock
135
CLASS 7 CLAIMANTS ONLY
The undersigned, an unsecured creditor of PowerTel USA, Inc., in the
unpaid principal amount of $____________,
[ ] Accepts
[ ] Rejects
the treatment for Class 7 claimants set forth in the Plan proposed by
Debtor PowerTel USA, Inc.
OR
CLASS 7 ALTERNATIVE TREATMENT ELECTION
If you hold a Class 7 Allowed Unsecured Claim and you vote to support
the First Amended Plan of Reorganization, you must make an election on
how your claim will be treated.
OPTION A: My Allowed Unsecured Claim exceeds $1,200.
[ ] I elect to accept $1,200 one the Effective Date in full
satisfaction of my Class 7 claim.
OPTION B: My Allowed Unsecured Claim exceeds $1,200.
[ ] I elect to accept a combination of Cash and Stock for my
Allowed Unsecured Claim.
[ ] I elect to accept Option B Plan 1
[ ] I elect to accept Option B Plan 2
OPTION C: My Allowed Unsecured Claim exceeds $1,200.
[ ] I elect to receive all stock for my Allowed Unsecured Claim.
NOTE: IN THE EVENT THAT THE HOLDER OF A CLASS 7 ALLOWED UNSECURED CLAIM
FAILS TO ELECT OPTION A, B OR C, IT WILL BE DEEMED TO HAVE ELECTED OPTION C.
The First Amended Plan of Reorganization referred to in this Ballot can
be confirmed by the Court only if two-thirds in amount and more than one-half in
number of creditors in each class of claims or interests voting on the Plan
accept the Plan, or, in the event of a rejection, the Court finds that the Plan
nonetheless conforms to the requirements of the law. See 11 U.S.C. Section
1129(a) and (b).
This Ballot must be returned on or before ____________, 1998 to:
Stephen R. Harris, Esq.
417 West Plumb Lane
Reno, NV 89509
DATED this _____ day of _________________, 1998
BELDING & HARRIS, LTD.
______________________________________
Stephen R. Harris, Esq.
Attorneys for Debtor
136
Stephen R. Harris, Esq.
BELDING & HARRIS, LTD.
417 West Plumb Lane
Reno, NV 89509
Telephone: (702) 786-7600
Attorneys for Debtor
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEVADA
IN RE: CASE NO. 97-30265-BMG
CHAPTER 11
PowerTel USA, INC., formerly known as
NEVADA ENERGY, INC., also formerly known AMENDED ERRATA TO BALLOT
as MUNSON GEOTHERMAL, INC., AND TO DEBTOR'S SECOND
AMENDED DISCLOSURE STATEMENT
Debtor. PURSUANT TO 11 U.S.C.SECTION 1125
HEARING DATE: 8/25/98
_______________________________________/ HEARING TIME: 10:00 A.M.
PowerTel USA, Inc. hereby files this Errata to its Second Amended
Disclosure Statement Pursuant To 11 U.S.C. Section 1125 ("Disclosure
Statement").
Section IV D at page 30 is amended to include:
Working in conjunction with David Wallace, management identified a
specific strategy for the penetration of international telecommunication
services, and commenced to implement that strategy through the
acquisition of two companies, VivaTel and DiegoTel, both of which were
established by David Wallace. VivaTel was formed in 1997 of the purpose
of establishing a business in the international long distance service
with a primary emphasis on wholesale purchases and sales. VivaTel had in
place a $270,000 letter of credit to secure a contract with a wholesale
vendor of international long distance services. The letters of credit
were returned to the funding source in 1998 and the contract was
mutually rescinded. DiegoTel offered the opportunity to expand into the
wholesale international long distance telecommunications business. The
specific business plan of DiegoTel is set forth in Section VI. DiegoTel
is purchasing on a wholesale basis, telecommunication services from Viva
Servicios. Viva Servicios is purchasing telecommunication services from
Tier One and Tier Two carriers as well as other international carriers
on a best available price basis.
Section XI C 4. at page 88 should be amended to include:
One foreign partner is a Mexican company owned or controlled by David
Wallace.
Exhibit 3 is amended to include the following information regarding the
liabilities of PowerTel as a February, 1997 (exclusive of costs of
administration), which are being addressed by the plan of reorganization:
137
Class 1 Administrative Expenses $200,000 (est.)
Class 2 Wages 0
Class 3 Taxes (Munson Geo) 26,000
Class 4 Priority Taxes 16,000 (est.)
Class 5 Secured 0
Class 6 Unsecured Claims less than $1200 3,800
Class 7 Unsecured Claims greater than 1200 640,000
Class 8 NEP 0
Class 9 Disputed 303,000
Class 10 Equity Stock
------------
$988,000
In the event that you decide, as a result of these amendments, to change
your ballot, please contact Stephen R. Harris, Esq., at (702) 786-7600 on or
before August 24, 1998.
DATED this ____ day of _____________, 1998.
BELDING & HARRIS, LTD.
By: ________________________________
Stephen R. Harris, Esq.
Attorneys for PowerTel USA, Inc.
138
FIRST AMENDED AND RESTATED SETTLEMENT AND RELEASE AGREEMENT
This First Amended and Restated Settlement and Release Agreement
("Amended Agreement") is entered into by and among (1) PowerTel USA, Inc.
("PowerTel") a Delaware Corporation whose principal place of business is
situated in East Lansing, Michigan and formerly known as Munson Geothermal, Inc.
and also formerly known as Nevada Energy Company, Inc. ("NEC") (collectively
"Company"), (2) Nevada Energy Partners I, a Nevada Limited Partnership ("NEP"),
by Nevada Electric Power Company, its general partner, (3) Nevada Electric Power
Company, a Nevada corporation with its principal place of business situated in
Reno, Nevada ("NEPC"), and (4) the following sixteen (16) Corporations: Wilton
Ashfield, Ltd., Greyshire House, Ltd., August Lake Holdings, Ltd., Whitestone
Brooke Holdings, Ltd., Porterman Williams, Ltd., North Oldenfield, Ltd.,
Shepherd Market, Ltd., Parklane Mayfair, Ltd., Clermont & Annabel, Ltd.,
Berkeley Square Investments, Ltd., Blackstone Sterling Holdings, Ltd., Burke
Douglas Holdings, Ltd., Clarendon Atlantic Holdings, Ltd., Macaulay Island
Investments, Ltd., Young Bayshore Investments, Ltd., and Maitland Investments,
Ltd., (collectively referred to as "the Corporations"). "The Parties" referred
to in this Agreement refer to PowerTel, NEP, NEPC and the Corporations. This
Agreement is executed as of the day and year set forth below but is deemed to be
effective retroactive as of December 1, 1997 (the "Settlement Date").
RECITALS:
WHEREAS, the Parties to this Agreement have negotiated and executed an
Agreement (the "Initial Contract") addressing the subject of this Amended
Agreement but subsequent to the execution of the Initial Contract the Parties
have concluded that the Initial Contract did not reflect the intent of the
Parties;
WHEREAS, the Parties intend to amend and modify the Initial Contract by
this Amended Agreement and, therefore, declare the Initial Contract to be null
and void ab initio and further declare that this Amended Agreement to be the
only binding, enforceable contract between the parties with respect to the
subject matters set forth herein;
WHEREAS, prior to August 16, 1996, NEP owned 100.0% of the issued Class
B Common Stock of NEC; which Class B Common Stock was convertible into shares of
Class A Common Stock of NEC in an amount equal to 50.0% of the issued and
outstanding Class A Common Stock; and
WHEREAS, NEC and NEP entered into an Agreement dated August 16, 1996
(the "1996 Agreement") a copy of which is attached hereto as Exhibit 1; and
WHEREAS, pursuant to the terms of the 1996 Agreement various
transactions occurred between NEP and the Company, between NEP and NEPC and
thereafter between NEPC and/or NEP and the Corporations; and
139
WHEREAS, in reliance upon the 1996 Agreement, NEP agreed to sell and
did in fact sell to the Corporations all of the Class A Common Stock of NEC
which was owned beneficially by NEP: and
WHEREAS, NEC allegedly refused to honor the terms of the 1996 Agreement
thereby precluding NEP from delivering the Class A Common Stock to the
Corporations; and
WHEREAS, on or about November 19, 1996 NEP beneficially on behalf of
the Corporations commenced litigation as Plaintiff against Company seeking
specific performance of the 1996 Agreement and alleging damages in excess of Six
Million Dollars ($6,000,000), such litigation being identified as Nevada Energy
Partners I vs. PowerTel USA, Inc. and being Case No. CV 96-07487, Second
Judicial District Court of the State of Nevada in and for the County of Washoe
(the "NEP Litigation"); and
WHEREAS, Company denies all liability in the NEP Litigation and intends
to vigorously contest NEP's claims if and when said litigation proceeds; and
WHEREAS, on or about February 13, 1997 multiple creditors of PowerTel
filed an involuntary petition for reorganization pursuant to Chapter 11 of the
United States Bankruptcy Code (the "Code") such application being filed pursuant
to Section 303 of the Code, and such case being styled In Re. PowerTel USA,
Inc.; United States Bankruptcy Court, District of Nevada, Case No. 97-30265-BMG;
and
WHEREAS, the filing of Case No. 97-30265-BMG automatically stayed
further prosecution of the NEP Litigation; and
WHEREAS, NEP filed a Proof of Claim in the Chapter 11 case; and
WHEREAS, the Corporations are the beneficiaries of the NEP Proof of
Claim and, therefore, are deemed to be creditors of PowerTel; and
WHEREAS, PowerTel has removed the NEP Litigation to the United States
Bankruptcy Court; and
WHEREAS, subsequent to the execution of the 1996 Agreement, NEC
conveyed to NEP 100.0% of the issued and outstanding Common Stock of Combustion
Energy Company ("CEC"), a Nevada corporation with its principal place of
business situated in Reno, Nevada together with title to a parcel of real
property also situated in Reno, Nevada (collectively the "1996 Assets").
Thereafter, NEP transferred the 1996 Assets to NEPC in two separate
transactions; and
WHEREAS, PowerTel has given notice to NEP, NEPC and the Corporations of
its intent to commence a proceeding pursuant to Sections 547 and 548 of the Code
for the purpose of voiding the 1996 Agreement and all transactions arising
therefrom between NEP, NEPC and the Corporations; and
140
WHEREAS, NEPC and NEP have denied that Company has the right to rescind
the 1996 Agreement under any terms or conditions including, but not limited to,
alleged violations of Sections 547 and 548 of the Code; and
WHEREAS, the Parties to this Amended Agreement stipulate and
acknowledge that the prosecution of the multiple civil and administrative
proceedings recited above will be expensive, time consuming and difficult to
resolve and there is no assurance or guarantee that any party will prevail at
trial and, in the event of a favorable judgment, there is no assurance or
guarantee that the judgment will be sustained on appeal; and
WHEREAS, the Parties to this Amended Agreement desire to achieve a
final, complete resolution of all of their disputes and controversies by and
among them.
NOW THEREFORE, in consideration with the mutual covenants and
conditions set forth in this Agreement and other good and valuable
consideration, the receipt and sufficiency which is hereby acknowledged, the
Parties to this Amended Agreement, intending to be legally bound, do hereby
agree as follows:
1. The Recitals set forth above are true and correct and are incorporated
herein as if fully rewritten.
2. This Amended Agreement is subject to ratification by the United States
Bankruptcy Court for the District of Nevada by virtue of the pending
Chapter 11 Reorganization involving PowerTel in Case Number
97-30265-BMG. All Parties to this Amended Agreement hereby consent to
the authority and subject matter jurisdiction of the United States
Bankruptcy Court for all purposes, including ratification of this
Amended Agreement.
3. This Amended Agreement, when ratified by the United States Bankruptcy
Court, shall constitute a full, final and complete resolution of any and
all disputes by or among any one or more or all of the Parties hereto of
whatever cause or nature, including but not limited to any waiver for
damages of any kind, nature or amount, contingent or liquidated and each
party does hereby forever release, discharge, and waive each and every
cause of action which it has or may have against any other party as of
the Settlement date of this Agreement, except that Company retains and
does not waive or release any claim or cause of action, if any, which it
has or may have against NEPC arising out of actions performed by NEPC in
its capacity as the General Partners of NEP. NEPC represents and
warrants that the Corporations are the only entities who have any
equitable or beneficial rights in or to the Class A or Class B Common
Stock of NEC owned or received by NEP as of the Settlement Date.
4. PowerTel, NEP and NEPC acknowledge that the Corporations are domiciled
outside the United States and, in recognition of this, PowerTel, NEP and
NEPC, stipulate that this Amended Agreement will be executed by Mr.
Jeffrey Antisdel on their
141
behalf. Mr. Antisdel represents and warrants to Company that (i) he has
the legal power and authority to execute this Amended Agreement on
behalf of each of the Corporations, and (ii) each of the Corporations
will ratify this Agreement by executing the Memorandum described in
Section 5.d of this Amended Agreement on or before July 15, 1998 (the
"Final Execution Date"). In the event that each and every one of the
Corporations have not ratified this Agreement by the Final Execution
Date, Company has the option of either (a) declaring this Amended
Agreement to be null and void, or (b) enforcing this Amended Agreement
as to all signatories. In order to expedite execution of this Amended
Agreement, PowerTel, NEP and NEPC stipulate that (i) this Amended
Agreement may be executed in multiple counterparts, and (ii) the receipt
of a facsimile signature page executed by any one of the Corporations
shall be deemed to be an original signature.
NEPC agrees to indemnify and hold Company harmless from any and all
damages and expenses (including legal fees) incurred by PowerTel in the
event that any of the Corporations refuse to execute this Agreement.
5. In consideration of the mutual releases as set forth herein and the
consideration as set forth in the Recitals, the Parties to this Amended
Agreement do hereby agree as follows:
1. The 1996 Agreement attached hereto as Exhibit 1 is hereby deemed
to be amended and restated in its entirety, except as set forth
in this Amended Agreement and, therefore, remains legally
binding upon all parties thereto. Notwithstanding the foregoing,
NEPC and NEP shall reconvey to PowerTel (i) 100% of the issued
and outstanding Common Stock of Combustion Energy Company, a
Nevada corporation, and (ii) title to a parcel of real property
situated at 403 Fourth Street, Reno, NV. 1.
2. The Company and NEPC do hereby modify, amend and revise the
Agreement of Limited Partnership of Nevada Energy Partners I, a
Nevada limited partnership, retroactively to January 1, 1995 to
provide that for the period January 1, 1995 through August 15,
1996 (i) any and all distributions of cash and property are to
be allocated 60.0% to the limited partner and 40.0% to the
general partner, and (ii) the allocations of profits and loses
to capital accounts shall be 99.0% of all profits and loses
accredited and charged to the capital account of the limited
partner and 1.0% of all profits and loses are charged and
credited to the capital account of the general partner. The
Parties stipulate that, commencing January 1, 1995 through
August 15, 1996, NEPC is and shall be the sole general partner
of NEP and the Company shall be the sole and exclusive limited
partner of NEP. As of August 16, 1996, the Company specifically
relinquishes, waives and forever abandons any claim or interest
which it has or may have in or to any partnership interest of
NEP. NEPC and the Company stipulate and acknowledge that,
subsequent to January 1, 1995, cash distributions were made to
NEPC and the Company pursuant to the 60/40 allocation set forth
above. In addition, NEPC and the Company stipulate that on or
about August 16, 1996 (after withdrawal of NEC from NEP), NEP
distributed to NEPC, as its general partner, Class B Common
Stock of the Company totaling 4,437,473
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shares which, thereafter NEPC sold to the corporations on a
prorata basis. NEPC and the Company also stipulate that, as of
August 16, 1996, NEP relinquished any and all rights which it
had pursuant to the Plan of Reorganization involving Munson
Geothermal, Inc. to receive additional Class A Common Stock and,
thereby, waived and forever relinquished its right to receive
additional Class B Common Stock in the amount of 8,808,485
shares.
3. The Company does specifically that on or about August 16, 1996
NEPC converted the Class B Common to Class A Common and, further
recognizes that NEPC sold to the Corporations the Class A Common
Stock owned by NEPC as set forth above. The Company does hereby
agree that NEPC shall retain any and all consideration paid or
to be paid by the Corporations. In order to effect a permanent,
common final and complete resolution of any and all disputes
among the parties to this Agreement, the Company stipulates that
the Class B Common Stock distributed to NEPC as of August 16,
1996 was convertible into Class A Common Stock at a ratio equal
to 50.0% of the issued and outstanding Class A Common Stock as
of August 16, 1996. Accordingly, the Company stipulates that the
Corporations, by virtue of their purchase of the Class A Common
Stock, are entitled to own Class A Common Stock. The Company
further stipulates that, ten days after the Effective Date of
the Plan of Reorganization, the Company shall adjust (i.e.,
increase or decrease) the number of shares of Class A Common
Stock to be distributed to the Corporations such that the
Corporations shall own 50.0% of the issued and outstanding Class
A Common Stock as of the close of business ten days after the
Effective Date of the Plan of Reorganization.
4. NEPC, as the General Partner of NEP shall wind up the affairs of
the partnership with all deliberate speed including but not
limited to the preparation and filing of all requisite tax
returns. The General Partner shall not charge the Limited
Partner for the expenses of winding up the Partnership and the
Limited Partner waives any right of reimbursement for any
distribution to the General Partner prior to the date of this
Agreement.
6. In the event that the United States Bankruptcy Court fails to ratify
this Agreement, this Agreement shall be voidable by any Party upon
prompt notice to Company and NEPC. If the Agreement is voided, then any
Property conveyed pursuant to this Agreement shall be returned to the
grantor from whom or which it was received.
7. Company shall have seventy-five (75) days from the Confirmation Date of
the Plan of Reorganization to conduct any "due diligence,"
investigation, inquiry and/or review ("Review") which it deems to be
necessary of appropriate concerning any statement of fact, warranty,
representation, consent and/or condition ("Represented Fact") made or
given to Company by any other party to this Amended Agreement and upon
which PowerTel has relied upon in the execution of this Amended
Agreement. If on the basis of the Review, PowerTel in its sole and
absolute discretion concludes that any Represented Fact is inaccurate,
false, misleading or
143
deceptive, PowerTel has the right to revoke this Amended Agreement upon
providing all other written notice of such termination and the basis
therefor.
8. The Parties to this Amended Agreement stipulate and acknowledge that a
variety of supplemental documents may be necessary in order to
effectuate the objectives anticipated by this Amended Agreement or to
obtain ratification hereof by the United States Bankruptcy Court, and
every party to this Amended Agreement does irrevocably commit to act in
good faith to implement this Amended Agreement and to execute any
additional documents necessary or appropriate to achieve the objective
of this Amended Agreement and/or ratification hereof.
9. This Amended Agreement shall be governed by the laws of the State of
Nevada, without regard to its conflict of laws provision. Every party to
this Amended Agreement consents to the exclusive jurisdiction of the
United States Bankruptcy Court for the District of Nevada with regard to
the enforcement, interpretation, or any other issue or claim arising as
a result of this Amended Agreement.
10. It is the intention to the Parties to this Amended Agreement that the
1996 Agreement shall be amended and restated. Accordingly, to the extent
that any party to this Amended Agreement has any contractual rights,
causes of action, claims or other legal or equitable rights or remedies
(collectively "Rights") which existed prior to the 1996 Agreement and
were extinguished, waived, released or modified thereby, such Rights
shall be deemed to be fully and completely restored and each party to
this Amended Agreement does hereby agree that the Statute of
Limitations, if any, which would otherwise operate as a bar to the
prosecution of any cause of action or claim of any nature to enforce
such Rights is hereby tolled and each party does irrevocably waive and
agrees not to assert for a twelve (12) month term from the Settlement
Date of this Amended Agreement the Statute of Limitations as a defense
to the prosecution of any cause of action or claim of any nature to
enforce such Rights which is restored by virtue of this Agreement.
11. Each and every section of this Agreement shall survive execution,
delivery and performance of this Amended Agreement.
12. The "1996 Agreement," the form of the Memorandum attached hereto and the
Memorandums as executed by each of the Corporations are incorporated by
reference and are deemed to constitute material components of this
Amended Agreement:
13. Exhibits 1 and 2 are hereby incorporated herein by reference.
14. Unless otherwise directly set forth in this Amended Agreement, any
contract, agreement, memorandum of understanding or other legally
binding and enforceable agreement by or among the Parties to this
Amended Agreement shall remain in full force and effect and is not
amended, modified, superseded or otherwise affected by this Amended
Agreement.
144
IN WITNESS WHEREOF, this The Parties have executed this Amended
Agreement as of the day and year set forth with their signatures.
NEVADA ENERGY PARTNERS I,
a Nevada Limited Partnership
By: Nevada Electric Power Company
Its: General Partner
Date : 6-25-98 By: /s/ Jeffrey Antisdel
------------------- --------------------------------
Jeffrey Antisdel, Its President
NEVADA ELECTRIC POWER COMPANY
Date : 6-25-98 By: /s/ Jeffrey Antisdel
------------------- ---------------------------------
Jeffrey Antisdel, Its President
POWERTEL USA, INC.
Date : 6-25-98 By: /s/ Richard A. Cascarilla
------------------- ---------------------------------
Richard Cascarilla, Its President
"THE CORPORATIONS"
Date : 6-25-98 By: /s/ Jeffrey Antisdel
------------------- ---------------------------------
Jeffrey Antisdel
145
EXHIBIT 1
---------
AGREEMENT
THIS AGREEMENT, ("Agreement"), is entered into between Nevada Energy
Company, Inc., a Delaware corporation, ("NEC"), and Nevada Energy Partners I,
Limited Partnership, a Nevada Limited Partnership, ("NEP"), both having offices
at 401 East 4th Street, Reno, Nevada, USA, 89512.
RECITALS:
---------
A. Nevada Energy Partners I, Limited Partnership, ("NEP"), is a Nevada
partnership with one corporate limited partner and a corporate general partner.
B. Nevada Energy Company, Inc., ("NEC"), is the sole limited partner of
NEP, and owns 60% of the partnership interest in NEP.
C. Nevada Electric Power Company, Inc., ("NEPC"), is the general
partner of NEP, and owns the remaining 40% of the partnership interest of NEP.
D. As of July 25, 1996, the partnership NEP, currently owns 4,437,473
shares of Class B Common Stock of NEC, ("Class B Stock"), which represents all
the issued and outstanding shares of Class B Common Stock of NEC.
E. The owners of the Class B Stock of NEC have voting rights and
liquidation rights in the assets of NEC without the right to participate in
earnings or cash dividends, except on sale, liquidation or merger. In addition,
such owners have the right to pro rata issuance of one share of Class B Common
Stock for each share of Class A Common Stock, ("Class A Stock"), issued and
outstanding. The consideration for the issuance may be subject to a
determination by the board of directors of NEC.
F. As of July 25, 1996, there are 12,203,247 shares of Class A Common
Stock of NEC issued and outstanding.
G. Based upon the number of NEC's issued Class A Common shares, NEP has
the right to acquire an additional 8,865,774 shares of Class B Common Stock.
H. NEC desires to redeem the Class B Stock in exchange for Class A
Stock.
I. NEC currently owns 6,000 shares of common stock of Combustion Energy
Company, which represents all of the issued and outstanding common shares of
Combustion Energy Company, a Nevada Corporation, ("CEC").
146
J. NEP is a plaintiff and a counter-defendant in litigation in the
Second District Court in Washoe County, State of Nevada, in case CV92-04609,
Dept. No. 1, ("Litigation").
K. For the past four years, NEC and NEPC have shared in the costs and
expenses of NEP, including without limitation, the costs and expenses of the
Litigation on a 60/40 basis respectively.
L. NEC does not wish to participate any further in the Litigation or
further business with NEP.
M. NEC wishes to withdraw from NEP.
N. NEP wishes to acquire the stock CEC.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, NEP and NEC, agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the terms set forth below
shall have the following meanings:
a. Agreement shall mean this agreement.
b. Class A Stock shall mean the Class A common shares of NEC.
c. Class B Stock shall mean the Class B common shares of NEC, all
of which are owned by NEP.
d. Herth Printing shall refer to the business known as Herth
Printing and Business Supplies, Inc., which was merged into
Combustion Energy Company, a Nevada Corporation, a wholly owned
subsidiary of NEC, in December 1994.
e. Knowledge means actual knowledge after reasonable investigation.
f. Law shall mean any statute, regulation, rule, judgment,
ordinance, order, decree, stipulation, injunction, charge, or
other restrictions of any federal, state or local government,
governmental agency, or court.
g. Liability means any liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and
whether due or to become due), including any liability for
taxes.
h. Litigation shall refer to the lawsuit filed in the Second
Judicial District Court of the State of Nevada, County of
Washoe, Case No. CV92-04609, Dept. No. 1, between NEP, as
plaintiff, and Hot Springs Power Company, a Nevada corporation,
Randy S. Goldenhersh and George W. Holbrook, Jr., as defendants
and counter-plaintiff, and NEP as counter-defendant.
i. Material Adverse Effect means an adverse effect of fifty
thousand dollars or more upon the business, operations,
properties, assets or condition of NEP.
j. NEC shall refer to Nevada Energy Company, Inc., a Delaware
corporation.
147
k. NEP shall refer to Nevada Energy Partners I, Limited
Partnership, a Nevada Limited Partnership.
l. NEPC shall refer to Nevada Electric Power Company, a Nevada
corporation, and General Partner of NEP.
m. Securities Act means the Securities Act of 1933, as amended.
n. Securities Exchange Act means the Securities Exchange Act of
1934.
o. Security Interest means any mortgage, pledge, security
interest, encumbrance, charge or other lien, other than
i. construction, mechanic's materialmen's, and similar
liens,
ii. liens for taxes not yet due and payable,
iii. liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar
legislation,
iv. liens arising in connection with sales of foreign
receivables,
v. purchase money liens and liens securing rental payments
under capital lease arrangements, and,
vi. other liens arising in the ordinary course of business
and not incurred in connection with the borrowing of
money.
2. BASIC TRANSACTION
a. NEC shall exchange all of NEP's Class B Common Stock for an
equal number of NEC Class A Common Stock. The effective date
of the exchange shall be September 1, 1996.
b. NEC shall withdraw as a limited partner from NEP.
c. In general, NEPC, as general partner, will release NEC, as
limited partner, from NEP, the partnership. NEC will waive all
rights to any assets, litigation rights or other attributes of
the partnership.
d. In general, NEPC, as general partner, will agree to indemnify
NEC for any present and future litigation expenses,
obligations or damages arising out of the Litigation.
e. NEP will release any claims that NEP may have for additional
shares of Class B Stock pursuant to Amended Certificate of
incorporation under the Order of the Bankruptcy Court dated
November 20, 1990.
f. NEC shall transfer to NEP all of the shares of CEC.
g. This Agreement and other related documents shall be held in
escrow, ("Release Escrow"), pending the completion of the post
closing events.
3. EXCHANGE OF CLASS B SHARES FOR CLASS A SHARES. NEC desires to retire
all of the Class B shares as follows:
a. NEP as the owners of the Class B Stock of NEC have voting
rights and liquidation rights in the assets of NEC without the
right to participate in earnings or cash dividends, except on
sale, liquidation or merger. In addition, NEP has the right to
pro rata issuance of one share of Class B Common Stock for
each share of Class A Common Stock issued and outstanding. The
consideration for the issuance may be subject to a
determination by the board of directors of NEC.
148
b. NEP has the right to an additional 8,808,485 shares of Class
B Common Stock of NEC.
c. NEP herewith exchanges 4,437,473 shares of Class B Common
Stock of NEC, which represents all the issued and outstanding
shares of Class B Common Stock of NEC for 4,437,473 shares of
Class A Common Stock of NEC which shall be free trading
without restrictions.
d. NEP herewith forbears forever from any and all claims for an
additional 8,808,485 shares of Class B Common Stock of NEC.
4. WITHDRAWAL OF NEC FROM NEP. NEC no longer desires to participate in the
partnership NEP and withdraws as follows:
a. NEC has participated in the Litigation since its inception.
The counter-plaintiffs claim damages in excess of one million
($1,000,000.00) dollars and further damages to be proved
against NEC.
b. NEC has contributed from time to time its pro rata share of
attorney fees, legal costs and expenses.
c. There appears to be no possibility of settlement or resolution
of the Litigation in the near future.
d. NEP was a partner with Hot Springs Power Company, a Nevada
corporation in Nevada Geothermal Power Partners, a Nevada
Limited Partnership. The Litigation arises out of the
partnership relationship. The plaintiff and counter-defendant
is NEP. The defendant and counter-plaintiff is Hot
Springs Power Company.
e. Nevada Geothermal Power Partners has ceased doing business and
has wound up its affairs. The only remaining relationship
between the partners is the Litigation.
f. NEC hereby withdraws as a limited partner in NEP and waives
further accounting except as necessary to prepare its federal
tax returns. The effective date of the withdrawal shall be
September 1, 1996.
5. RELEASE OF NEC FROM THE LITIGATION AND FURTHER OBLIGATIONS OF NEP.
NEPC, as general partner of NEP, hereby releases NEC from all further
partnership obligations and duties.
a. Pursuant to the partnership agreement, NEC was obligated to
contribute to the attorneys' fees, legal costs and expenses of
any litigation arising out of the partnership relationship.
b. Concurrent with the withdrawal of NEC as a limited partner,
NEP releases NEC from any further contributions for attorneys'
fees, legal costs or expenses with respect to the Litigation.
NEP agrees to indemnify NEC for any damages arising out of the
Litigation. NEC shall have the right to have its own
co-counsel at its own expense.
c. NEPC, as general partner of NEP, will hereby guaranty the
payment of attorneys' fees, legal costs and expenses by NEC
for counsel under NEP's guidance and employ who will defend
NEC's interests.
149
d. NEC agrees to cooperate in the prosecution and defense of the
Litigation and to the extent possible, NEC waives its attorney
client privilege in favor of NEP.
6. NEP RELEASES ALL CLAIMS UNDER THE ORDER OF THE BANKRUPTCY COURT. As
the sole recipient of Class B shares under order from the Bankruptcy Court,
NEP waives any claims it may have for additional shares of Class B Stock without
consideration as follows:
a. Rights and Restrictions. The rights and restrictions of the
Class B Stock are as follows:
i. Federal Bankruptcy Court's Plan of Reorganization. On
November 20, 1990, the Bankruptcy Court of Nevada, by Order,
required the amendment of the Certificate of Incorporation. The
Order provided at page 25, "Class B Common Stock will have full
voting rights but will have no participation in dividends. The
terms of the Class B Common shares will also provide that, upon
the issuance of any share, or fraction thereof, of Class A
Common Stock, the owners of Class B Common Stock will
contemporaneously have issued to them, on a pro rata basis, a
number of shares of Class B Common Stock which is the same as
the number of Class A Common shares then being issued.
ii. Amendment of the Certificate of Incorporation. NEC (then
Munson Geothermal, Inc.) amended its Certificate of
Incorporation on November 20, 1990 (filed on December 3, 1990)
and submitted a new paragraph defining NEC's capital, paragraph
4-A. The new paragraph governed the description of all capital
stock. The new paragraph authorized Class A Common Stock and
Class B Common Stock. All Common Stock has a par value of $.001
per share. All common stockholders (either Class A or Class B)
received one vote for each whole share of stock. The Certificate
authorized that Class A and Class B Common Stock would not
participate in the earnings of the corporation through
dividends. A Class B Common Stockholder would only receive funds
from NEC by statute upon the sale, merger, or liquidation in the
form of a liquidating distribution.
iii. Voting Rights of the Class B Stock. Class B Stock shares do
not receive dividends but would participate in distribution of
proceeds if the NEC sells, merges or liquidates. Class B Stock
shares are entitled to vote. Because the Class B Stock shares
are entitled to fifty percent (50%) of the Common Stock, the
Class B Stock shares are entitled to 50% of the votes.
iv. Class B Stock and NEP. The Plan of Reorganization provided
that immediately after the reorganization that NEP would own
100% of the Class B Stock. According to the Plan of
Reorganization, any holder of Class B Stock through NEP at the
time of the reorganization was entitled to an additional share
of Class B Stock for each share of Class A Stock issued.
v. Conflict between the Plan of Reorganization and the
Certificate regarding Issuance of Class B Stock. The Certificate
provided that upon the issuance of any share of Class A Common
Stock, NEC shall issue a pro rata amount of Class B Common Stock
to Class B Stock holders. Only present shareholders of Class B
Stock shares would be eligible to receive additional Class B
Stock shares. Further, paragraph 4-D states, "such shares of
Class B Common Stock shall be issued for such
150
CONSIDERATION as may be determined from time to time by the
Board of Directors". (Emphasis added.) The Plan of
Reorganization DOES NOT provide for payment of "consideration"
in exchange for newly issued shares of Class B Stock.
b. Concurrent with the exchange of shares, NEP forever waives and
gives up any rights for additional Class B Stock without payment
of consideration as provided in the Order of the Bankruptcy
Court dated November 20, 1990.
7. NEP TRANSFERS THE SHARES OF CEC. NEC herewith transfers to NEP all of
NEC's six thousand (6,000) shares of CEC as follows:
a. NEC merged its wholly owned subsidiary, CEC, with a business
known as Herth Printing and Business Supplies in 1994.
b. The business of CEC is not compatible with the general business
plan of NEC.
c. The shares of CEC are not registered as described in
section 8.d.
d. In consideration of the obligations assumed by NEP under this
agreement, NEC herewith transfers and assigns all rights,
title and interest to the shares and assets of CEC to NEP. The
effective date of the transfer shall be September 1, 1996.
8. REPRESENTATIONS AND WARRANTIES OF NEP. NEP represents and warrants to
NEC that the statements contained in this Section 8.d. are correct and
complete as of the date of this Agreement.
a. Organization of NEP. NEP is a limited partnership duly
organized, validly existing and in good standing under the
Laws of the State of Nevada and is in good standing and
qualified to do business under the laws of each jurisdiction
in which the nature of the business or the ownership or
leasing of its properties requires such qualification. NEP has
full power and authority to carry on the business in which it
is engaged and to own and use the properties owned, leased and
used by it.
b. Authorization of Transaction. NEP has full power under its
partnership agreement and authority to execute and deliver
this agreement and to perform its obligations hereunder.
Without limiting the generality of the foregoing, the General
Partner of NEP has fully authorized the execution, delivery
and performance of this Agreement by NEP. This Agreement
constitutes the valid and legally binding obligations of NEP,
enforceable in accordance with its terms and conditions,
subject to the effect of i. bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
rights and remedies of creditors generally, and ii. general
principles of equity.
c. Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions
contemplated hereby will (i) violate or (ii) conflict with,
result in a breach of, constitute a default under, result in
the require any notice of any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement
or mortgage for borrowed money, instrument or indebtedness,
Security Interest, or other arrangement to which NEP is a
party of by which it is bound or to which any of its assets is
subject,
151
or result in the imposition of any Security Interest upon any
of its assets. NEP need not give any notice to, make any
filing with, or obtain any authorization, consent or approval
of any government or governmental agency to consummate the
transactions contemplated by this Agreement.
d. Acknowledgment of Unregistered Stock. In connection with this
Agreement, NEP represents and warrants, which representations
and warranties shall survive the transfer of CEC's shares to
NEP pursuant to this Agreement, as follows:
i. NEP is aware that no market may exist for the resale of
the CEC stock received under this Agreement.
ii. NEP is obtaining the shares for investment and not
for the further distribution of CEC stock.
iii. NEP is aware of any and all restrictions imposed on the
further distribution of the CEC stock, including, but not
limited to, any restrictive legends appearing on the
certificate(s).
e. Disclosure. The representations and warranties contained in
this Section 8.e. do not contain any untrue statements of a
material fact or omit to state any material fact necessary
in order to make the statements and information contained in
this Section 8.d. not misleading.
9. REPRESENTATIONS AND WARRANTIES OF NEC. NEC represents and warrants to
NEP that the statements contained in this Section 9 are correct and complete
as of the date of this Agreement.
a. Organization of NEC. NEC is a Company Incorporated in
Delaware duly organized, validly existing and in good
standing under the Laws of Delaware, and is in good standing
and qualified to do business under the laws of each
jurisdiction in which the nature of its business or the
ownership or leasing of its properties requires such
qualification. NEC has full power and authority to carry on
the business in which it is engaged and to own and use the
properties owned, leased and used by it.
b. Authorization of Transaction. NEC has full power under its
organization agreement and authority to execute and deliver
this Agreement and to perform its obligations hereunder.
Without limiting the generality of the foregoing, the
Directors of NEC have fully authorized the execution, delivery
and performances of this Agreement by NEC. This Agreement
constitutes the valid and legally binding obligation of NEC,
enforceable in accordance with its terms and conditions,
subject to the effect of;
i. bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the rights and remedies of
creditors generally, and ii. general principles of equity.
c. Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions
contemplated hereby will (i) violate or (ii) conflict with,
result in a breach of, constitute a default under, result in
the require any notice of any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement
or mortgage for borrowed money,
152
instrument or indebtedness, Security Interest, or other
arrangement to which NEC is a party of by which it is bound or
to which any of its assets is subject, or result in the
imposition of any Security Interest upon any of its assets.
NEC need not give any notice to, make any filing with, or
obtain any authorization, consent or approval of any
government or governmental agency to consummate the
transactions contemplated by this Agreement.
d. Disclosure of Unregistered Securities. NEC hereby discloses
the following information to NEP in connection with the offer
and sale of CEC stock by NEP,
i. The CEC stock have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and were
acquired by NEC pursuant to a registration exemption contained
in Section 4(2) of the Securities Act and/or Securities and
Exchange Commission Rule 506, promulgated thereunder.
ii. The CEC stock have the status of securities acquired under
Section 4(2) of the Securities Act and cannot be resold
without registration under the Securities Act or the
availability of an exemption from registration.
iii. A legend has been, or will be, placed on each certificate
or other document evidencing the CEC stock in substantially
the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE RESOLD UNLESS REGISTERED
UNDER THE ACT OR UNLESS AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
iv. Prior to this transaction, stop transfer instructions to
the appropriate officers of NEC had been placed in NECs
records with respect to the CEC stock so as to restrict the
resale, pledge, hypothecation, or other transfer thereof.
v. The CEC stock have not been registered under the Nevada
Securities Act, set forth in the Nevada Revised Statutes, as
amended (the "Nevada Act"), and were acquired by NEC pursuant
to a exemption.
vi. NEC reasonably believes that NEP is obtaining the shares
for investment and has no information to the contrary.
e. Disclosure. The representations and warranties contained in
this Section 9.e do not contain any untrue statements of a
material fact or omit to state any material fact necessary in
order to make the statements and information contained in this
Section 9 not misleading.
10. CONDITIONS TO RELEASE OF THE ESCROW. This Agreement and all f the documents
related to this Agreement shall be held in escrow referred to as the Release
Escrow which shall be released upon the satisfaction of following conditions.
a. NEP and NEC shall have executed and delivered an escrow
agreement to and for the Release Escrow agent.
b. All actions to be taken by NEC in connection with consummation
of the transactions contemplated hereby and all
certifications, opinions, instruments, and other documents
required to effect the transactions contemplated hereby
153
will be reasonably satisfactory in form and substance to the
General Partner of NEP who shall not unreasonably withhold
approval of the transactions contemplated by this Agreement.
c. NEC shall have received from counsel to NEP an opinion
addressed to NEC stating the legal organization of NEP and
that NEP has the authority to enter into this Agreement.
d. All actions to be taken by NEP in connection with consummation
of the transactions contemplated hereby and all
certifications, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the
Directors of NEC who shall not unreasonably withhold approval
of the transactions contemplated by this Agreement.
e. NEP shall have received from counsel to NEC an opinion
addressed to NEP stating the legal organization of NEC and
that NEC has the authority to enter in this Agreement.
f. NEC shall have executed and delivered any additional agreement
or agreements necessary to withdrawing or liquidating its
interests in NEP in favor of NEP.
g. NEPC shall have executed and delivered a guaranty of all
payment of liability, including attorneys' fees, costs and
expenses, in favor of NEC regarding the Litigation.
h. NEP shall have executed and transferred all of the Class B
Stock to NEC.
i. NEC shall have issued free trading Class A Stock with
restrictions of any kind to NEP or its assigns.
j. NEC shall have executed and transferred all the common shares
of CEC to NEP.
k. In general, the obligation of NEP to consummate the
transactions to be performed by it after this agreement is
executed is subject to satisfaction that the representations
and warranties set forth in Section 9 above shall be true and
correct in all material respects at and as of the date of
execution of this Agreement and:
i. NEC shall have preformed and complied with all of its
covenants hereunder in all material respects at and as of the
date of execution of this Agreement;
ii. The Board of Directors of NEC shall have approved the
transactions contemplated by this Agreement;
iii. All actions to be taken by NEC in connection with
consummation of the transactions contemplated hereby and all
instruments and other documents required to effect the
transactions contemplated hereby will be reasonably
satisfactory in form and substance to NEP.
11. MISCELLANEOUS.
a. Notices. All notices or other communications required or
permitted hereunder, including notice of intent to arbitrate,
shall be in writing and shall be deemed to have been duly
given if delivered in person or sent by overnight delivery,
confirmed telecopy or prepaid first class registered or
certified mail, return receipt requested, to the following
addresses:
154
If to NEP, to: with courtesy copies to:
Nevada Energy Partners I, L.L.P. David L. Wallace, Esq.
401 East Fourth Street 2055 Wood Street, Suite 220
Reno, Nevada 89512 Sarasota, Florida, USA 34237-7929
Telephone: (702) 786-7979 Telephone: (941) 364-9598
Facsimile: (702) 786-7989 Facsimile: (941) 364-9599
If to NEC, to: with courtesy copies to:
Roderick H. McCloy, Esq.
Roderick H. McCloy Law Corporation
Jones McCloy Peterson
1700 Three Bentail Centre
P.O. Box 49117
595 Burrard Street
Vancouver, B.C. V7X 1G4
Telephone: (604) 882-1851
Facsimile: (604) 682-7329
Any such notices shall be effective when delivered in person or sent by
telecopy, one business day after being sent by overnight deliver or three
business days after being be registered or certified mail. Any of the foregoing
addressed may be changed by giving notice of such change in the foregoing
manner, except that notices for changes of address shall be effective only upon
receipt.
b. Further Assurances. At any time, and from time to time, each
party will execute additional instruments and take such action
as may be reasonably requested by the other party to confirm
or perfect title to any property transferred hereunder or
otherwise to carry out the intent and purposes of this
Agreement.
c. Costs and Expenses. Each party hereto agrees to pay its own
costs and expenses, including legal, accounting, consultant,
and advisor fees, incurred in negotiation this Agreement and
consummating the transactions described herein.
d. Time. Time is of the essence.
e. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the
subject matter hereof.
f. Amendment. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in
writing signed by the party against whom enforcement of any
such amendment, supplement or modification is sought.
155
g. Assignment. NEC may not assign this Agreement to any
affiliated entity or nominee or to any party hereto without
the prior written consent of the NEP
h. Choice of Law. This Agreement will be interpreted, construed
and enforced in accordance with the laws of the State of
Nevada, without regard to conflicts of law.
i. Dispute Arbitration. NEC and NEP intend to provide a speedy
and informal method for resolving all disputes and other
matters in question arising out of, or relating to, this
Agreement, which involves interstate commerce and is subject
to the Federal Arbitration Code. All disputes and other
matters in question, of any kind, between NEC and NEP arising
out of, or relating to this Agreement, shall be decided by
binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then
in effect. The decision of the arbitrator shall be binding.
The arbitrator is specifically granted authority and directed
to award reasonable attorneys' fees, expenses and costs to the
successful party. A court of competent jurisdiction may be
used to enforce, but not to appeal or challenge, the
arbitrators' decision including the award of attorneys' fees,
expenses and costs. If it becomes necessary to enforce the
arbitrators' decision at either the trial or appellate level,
a reasonable attorney fee for the enforcement of the
arbitrators' decision shall become an additional item of
damages. Any suit between NEC and NEP must be brought in
Washoe County, Nevada. NEC consents to personal jurisdiction
in Nevada.
j. Construction. NEC and NEP and their respective legal counsel
participated in the preparation of this Agreement, therefore,
this Agreement shall be construed neither against nor in favor
of any of the parties hereto, but rather in accordance with
the fair meaning thereof.
k. Effect of Waiver. The failure of any party at any time or
times to require performance of any provision of this
Agreement will in no manner affect the right to enforce the
same. The waiver by any party or any breach of any provision
of this Agreement will not be construed to be a waiver, by any
such party of any succeeding breach of that provision or a
waiver by such party or any breach of any other provision.
l. Severability. The invalidity, illegality or unenforceability
of any provision of this Agreement, which will remain in full
force and effect, nor will the invalidity, illegality or
unenforceability of a portion of any provision of this
Agreement affect the balance of such provision. In the event
that any one or more of the provisions contained in this
Agreement or any portion thereof shall for any reasons be held
to be invalid, illegal or unenforceable in any respect, this
Agreement shall be reformed, construed and enforced as if such
invalid, illegal or unenforceable provision had never been
contained herein.
m. Binding Nature. This Agreement, including the requirement to
arbitrate, will be binding upon and will enure to the benefit
of any successors of the parties hereto.
n. Counterparts. This Agreement is intended to be executed in
more than one counterpart, including facsimile counterparts.
Each counterpart shall be
156
deemed an original on all of which shall constitute one and
the same instrument.
IN WITNESS WHEREOF, NEP and NEC have executed this Agreement.
Nevada Energy Company, Inc., a
Delaware corporation
August 16, 1996 By: Charles A. Cain
- ------------------------------ ----------------------------------
Date Charles A. Cain
Its: Director
----------------------------------
August 16, 1996 By: Peter J. Cannell
- ------------------------------ ----------------------------------
Date Peter J. Cannell
Its: Director
----------------------------------
Nevada Energy Partners, I, a Nevada
Limited Partnership, by Nevada Electric
Power Company, General Partner
August 16, 1996 By: David L. Wallace
- ------------------------------ ----------------------------------
Date David L. Wallace
Its: Attorney In Fact
----------------------------------
Power of Attorney attached.
157
EXHIBIT 2
---------
M E M O R A N D U M
TO: PowerTel USA, Inc., A Delaware, USA, corporation
(Referred to as "PowerTel")
FROM: XXXXXXXXX, XXX., a Company Limited by Shares under the International
Business Companies Act of 1989, Commonwealth of the Bahamas (Referred
to as AXXXXXXX"), with mailing address at XXXXXXXXXXXXX.
RE: Receipt of Class A Common Stock Pursuant to the Plan of Reorganization
of PowerTel
PowerTel USA, Inc. ("PowerTel") and XXXXXXX have entered into a First
Amended and Restated Settlement and Release Agreement effective as of December
1, 1997 (the "Agreement"), which Agreement was subsequently incorporated into
and made a part of a Plan of Reorganization (the "Plan") filed by PowerTel with
the United States Bankruptcy Court for the District of Nevada in a Chapter 11
proceeding identified as Case No 97-30265-BMG.
Pursuant to the Plan, XXXXXXX is to receive Class A Common Shares (the
"Shares") to be issued by PowerTel pursuant to Section 1145 of the United States
Bankruptcy Code. In consideration of the issuance of the Shares, XXXXXXX
represents and warrants to PowerTel and to the Court that XXXXXXX is not an
Aunderwriter@ as that term is defined in Section 1145(b) of the Bankruptcy Code.
XXXXXXX also acknowledges that the Shares which it will receive have not been
registered with the United States Securities and Exchange Commission pursuant to
Section 5 of the Securities Act of 1933 in reliance upon the exemption from
registration provided in Section 1145(a) of the Bankruptcy Code. XXXXXXX also
confirms that it has been advised that PowerTel has consented to the issuance of
the Shares based upon PowerTel=s understanding that XXXXXXX is experienced in
financial matters, has access to advisors who are experienced in evaluating
investments and is ready, willing and able to assume the risk of acquiring a
speculative, high risk investment, such as the Shares.
XXXXXXX also confirms that it has received and reviewed the FIRST
AMENDED DISCLOSURE STATEMENT PURSUANT TO 11 U.S.C. '1125 filed by PowerTel and
has been afforded an opportunity to make inquiry into the affairs of PowerTel,
including an opportunity to confer with the Directors and Officers of PowerTel.
XXXXXXX has been advised that, for the preceding three calendar years, PowerTel
has made various filings with the Securities and Exchange Commission (including
but not limited to annual reports on Form 10-KSB, quarterly reports on Form
10-QSB and at least one registration statement on Form S-8). XXXXXXX
acknowledges that a copy of these filings is available upon request or may be
procured from the United States Securities and Exchange Commission, Washington,
D.C.
XXXXXXX acknowledges that PowerTel has not made any representation or
warranty that (i) its Plan will be implemented successfully, (ii) there will be
a market for the Shares or (if there is a market) that the per Share price will
be maintained within any specific bid/ask range, or (iii) PowerTel will be
financially solvent or that its pro forma financial projections will materialize
as anticipated.
XXXXXXX is aware that there are various Federal and State statutes,
rules and regulations in the United States governing the offer and sale of
securities. XXXXXXX is also aware that the Securities Exchange Act of 1934
imposes duties and responsibilities upon certain shareholders, officers and
directors. XXXXXXX represents that it shall comply with all applicable statutes,
rules and regulations.
Except as set forth in the Agreement and the Plan, XXXXXXX acknowledges
that there is no agreement, contract or understanding (either oral or written)
by and between XXXXXXX and PowerTel. XXXXXXXXX further acknowledges the
authority and ratifies the signature of Jeffrey Antisdel on the First Amended
and Restated Settlement and Release Agreement on behalf of XXXXXXXXXXXXXXX.
XXXXXXX acknowledges that both PowerTel and the United States
Bankruptcy Court will rely upon this Memorandum in issuing the Shares.
In Witness Whereof, XXXXXXXXX, XXX., has given its Common Seal this
date.
GIVEN UNDER THE COMMON SEAL XXXXXXXXX, XXX., a Company Limited by Shares
of XXXXXXXXX, XXX. under the International Business Companies
Act of 1989, Commonwealth of the Bahamas
Date: ____________________
Per:________________________________
Managing Director
158
POWERTEL
BALANCE SHEET
MAY 31, 1998
Assets
Current Assets:
Cash $ 21,333.85
--------------
Accounts Receivable $
--------------
Allowance for Doubtful Accounts $
--------------
Accounts Receivable (Net) $
--------------
Inventory $
--------------
Prepaid Expenses $
--------------
Total Current Assets $ 21,333.85
--------------
Property and Equipment (Fair Market Value)
Real Property $
--------------
Machinery and Equipment $ 5,700,000.00
--------------
Furniture and Fixtures $
--------------
Office Equipment $
--------------
Leasehold Improvements $
--------------
Vehicles $
--------------
Other _____________ $
_____________ --------------
$
--------------
Total Property and Equipment $ 5,700,000.00
--------------
Investments:
Herth Printing and Business Supply
Stock (at Book Value) $ 374,875.00
--------------
Total Assets: $ 6,096,208.85
--------------
159
WILLIAM J. CRANDALL, CHARTERED
CERTIFIED PUBLIC ACCOUNTANTS
1885 SOUTH ARLINGTON, SUITE 105
RENO, NEVADA 89509
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
RENO, NEVADA
WE HAVE COMPILED THE ACCOMPANYING SPECIAL-PURPOSE STATEMENT OF ASSETS AND
LIABILITIES OF HERTH PRINTING AND BUSINESS SUPPLY (A DIVISION OF COMBUSTION
ENERGY CO.) AS OF MAY 31, 1998 AND THE RELATED SPECIAL-PURPOSE STATEMENTS OF
REVENUES AND EXPENSES, AND CASH FLOWS FOR THE ONE MONTH AND THREE MONTHS THEN
ENDED IN ACCORDANCE WITH STATEMENTS ON STANDARDS FOR ACCOUNTING AND REVIEW
SERVICES ISSUED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS.
A COMPILATION IS LIMITED TO PRESENTING IN THE FORM OF FINANCIAL STATEMENTS
INFORMATION THAT IS THE REPRESENTATION OF MANAGEMENT. WE HAVE NOT AUDITED OR
REVIEWED THE FINANCIAL STATEMENTS AND, ACCORDINGLY, DO NOT EXPRESS AN OPINION OR
ANY OTHER FORM OF ASSURANCE ON THEM.
THE ACCOMPANYING SPECIAL-PURPOSE STATEMENTS WERE PREPARED FOR THE PURPOSE OF
PRESENTING THE BRANCH OPERATION CF HERTH PRINTING AND BUSINESS SUPPLY (A
DIVISION OF COMBUSTION ENERGY CO.) WITHOUT ALL DISCLOSURES AND FOOTNOTES, AND
ARE NOT INTENDED TO BE A PRESENTATION IN CONFORMITY WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.
THIS REPORT IS INTENDED SOLELY FOR THE INFORMATION AND USE OF THE BOARD OF
DIRECTORS AND MANAGEMENT OF COMBUSTION ENERGY COMPANY, AND SHOULD NOT BE USED
FOR ANY OTHER PURPOSE.
JUNE 9, 1998
160
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
FINANCIAL STATEMENTS
FOR ONE MONTH AND THREE MONTHS ENDED
MAY 31, 1998
(WITH ACCOUNTANTS' COMPILATION REPORT)
161
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF CASH FLOWS
ONE MONTH AND THREE MONTHS ENDED
MAY 31, 1998
(SEE ACCOUNTANTS' COMPILATION REPORT)
CURRENT YEAR TO
MONTH DATE
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS (3,972) (9,345)
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
DEPRECIATION 5,770 17,318
DECREASE IN RECEIVABLES 9,401 16,482
(INCREASE) DECREASE IN INVENTORY (348) 1,345
(DECREASE) IN ACCOUNTS PAYABLE (325) (13,069)
(DECREASE) IN ACCRUED LIABILITIES (1,465) (3,616)
INCREASE IN CUSTOMER DEPOSITS 0 17,968
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,061 27,093
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES PAYMENTS
ON LONG TERM DEBT (2,337) (6,953)
------- -------
NET CASH (USED) BY FINANCING ACTIVITIES (2,337) (6,953)
------- -------
NET INCREASE
IN CASH & EQUIVALENTS 6,724 20,140
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 77,790 64,374
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD 84,514 84,514
======= =======
162
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF REVENUES AND EXPENSES
ONE MONTH AND THREE MONTHS ENDED
MAY 31, 1998
(SEE ACCOUNTANTS' COMPILATION REPORT)
CURRENT YEAR TO
MONTH PERCENT DATE PERCENT
------- ------- ------- -------
OPERATING EXPENSES
(CONTINUED)
FREIGHT OUT 326 0.49 907 0.43
INSURANCE 797 1.19 2,534 1.20
INTEREST 1,881 2.80 5,701 2.71
JANITORIAL 0 0.00 180 0.09
LAUNDRY AND LINEN 168 0.25 394 0.19
LEGAL AND ACCOUNTING 740 1.10 4,165 1.98
MAINTENANCE & REPAIR 1,147 1.71 6,415 3.05
OFFICE EXPENSE 77 0.11 405 0.19
OFFICE AND ADMINISTRATIVE 2,052 3.06 5,138 2.44
SECURITY 0 0.00 105 0.05
TAXES AND LICENSES 211 0.31 211 0.10
TAXES-PAYROLL 2,981 4.41 10,442 4.98
TELEPHONE 279 0.42 542 0.26
UTILITIES 1,224 1.82 2,522 1.20
------- ------- ------- -------
12,034 17.92 39,995 19.02
------- ------- ------- -------
EXPENSES OVER REVENUES (3,972) 5.92 (9,345) 4.44
163
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF REVENUES AND EXPENSES
ONE MONTH AND THREE MONTHS ENDED
MAY 31, 1998
(SEE ACCOUNTANTS' COMPILATION REPORT)
CURRENT YEAR TO
MONTH PERCENT DATE PERCENT
--------- --------- --------- ---------
SALES
SALES-OFFICE SUPPLIES 1,384 2.06 5,141 2.44
SALES-PRINTING 67,615 100.71 209,022 99.38
SALES RETURNS AND ALLOW. (1,890) 2.82 (3,976) 1.89
OTHER INCOME 31 0.05 132 0.06
--------- --------- --------- ---------
67,140 100.00 210,319 100.00
--------- --------- --------- ---------
COST OF SALES
BEGINNING INVENTORY 11,029 12,722
PURCHASES 26,415 82,292
LABOR SALARIES 12,122 37,853
SALES SALARIES 11,425 36,161
SUPPLIES & FREIGHT 3,716 4,765
DEPRECIATION 5,748 17,253
ENDING INVENTORY (11,377) (11,377)
--------- ---------
59,078 87.99 179,669 85.43
--------- --------- --------- ---------
GROSS PROFIT 8,062 12.01 30,650 14.57
--------- --------- --------- ---------
OPERATING EXPENSES
ADVERTISING 0 0.00 32 0.02
AUTOMOBILE 56 0.08 144 0.07
CASH VARIANCE 9 0.01 9 0.00
DEPRECIATION 22 0.03 55 0.03
DUES AND SUBSCRIPTIONS 84 0.13 84 0.04
164
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE 14,874
CUSTOMER DEPOSITS 18,343
CONTRACT - CURRENT PORTION 29,582
ACCRUED PAYROLL COSTS 5,746
ACCRUED PROFESSIONAL FEES 22,000
ACCRUED SALES TAX 2,323
--------
TOTAL CURRENT LIABILITIES 92,848
--------
LONG TERM DEBT
NET OF CURRENT PORTION 199,668
--------
HOME OFFICE EQUITY 384,220
CURRENT PERIOD REVENUE OVER EXPENSES (9,345)
--------
374,875
--------
667,391
========
165
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998
(SEE ACCOUNTANTS' COMPILATION REPORT)
ASSETS
CURRENT ASSETS
CASH 84,514
ACCOUNTS RECEIVABLE 100,199
INVENTORY 11,377
PREPAID EXPENSES 12,500
-------
TOTAL CURRENT ASSETS 208,590
-------
OTHER ASSETS
DEPOSITS 2,754
-------
PROPERTY AND EQUIPMENT
FURNITURE AND FIXTURES 17,433
MACHINERY AND EQUIPMENT 455,938
VEHICLES 4,700
BUILDING 253,156
LAND 70,000
-------
801,227
LESS ACCUMULATED DEPRECIATION 345,180
-------
TOTAL PROPERTY AND EQUIPMENT 456,047
-------
667,391
=======
166
POWERTEL USA, INC.
Forecasted Statements of Income
for years ended
February 28, 1999, February 29, 2000
and February 28, 2001
(With Accountants' Compilation Report)
167
WILLIAM J. CRANDALL CHARTERED
Certified Public Accountants
William J. Crandall, C.P.A.
INCLINE VILLAGE RENO
761 Northwood Blvd. 1885 So. Arlington Ave., Ste. 105
Incline Village, Nevada 89451 Reno, Nevada 89509
Telephone 702-831-1787 Telephone 702-324-1787
FAX 702-831-3357 FAX 702-324-1791
Board of Directors
Powertel USA, Inc.
East Lansing, Michigan
We have compiled the accompanying forecasted statements of income of Powertel
USA, Inc. for the fiscal years ending February 28, 1999, February 29, 2000,
and February 28, 2001, in accordance with standards established by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of a forecast information
that is the representation of management and does not include evaluation of
the support for the assumptions underlying the forecast. We have not examined
the forecast and, accordingly, do not express an opinion or any other form of
assurance on the accompanying statements or assumptions. Furthermore, there
will usually be differences between the forecasted and actual results because
events and circumstances frequently do not occur as expected, and those
differences may be material. We have no responsibility to update this report
for events and circumstances occurring after the date of this report.
June 24, 1998
168
2
POWERTEL USA, INC.
Forecasted Statements of Income
Years Ended February 28, 1999,
February 29, 2000 and February 28, 2001
(With Accountants' Compilation Report)
February 28, February 29, February 28,
1999 2000 2001
------------ ------------ ------------
Sales $ 11,572,600 $ 30,547,300 $ 33,542,700
Sales returns (1,100) (1,150) (1,200)
Other income 105,800 198,800 218,600
------------ ------------ ------------
11,677,300 30,744,950 33,760,100
------------ ------------ ------------
Cost of sales
Materials 364,400 375,300 386,600
Service 8,750,000 23,760,000 26,136,000
Equipment lease 136,000 224,400 246,800
Trunk line lease 60,000 99,000 108,900
Switching service 8,000 13,200 14,600
Carrier line 20,000 33,000 36,300
Wages 426,400 580,900 616,800
------------ ------------ ------------
9,764,800 25,085,800 27,546,000
------------ ------------ ------------
Gross profit 1,912,500 5,659,150 6,214,100
------------ ------------ ------------
General and administrative
Advertising 100 100 100
Automobile 3,500 5,600 6,100
Bank charges 250 300 300
Depreciation 69,200 47,700 49,100
Dues and publications 300 300 300
Freight and shipping 5,900 6,100 6,300
Insurance 16,800 20,300 21,500
Interest 22,100 18,800 19,400
Janitorial and laundry 2,000 2,100 2,200
Legal and accounting 16,600 17,600 18,200
Maintenance and repair 18,800 19,400 20,000
Office costs 2,800 2,900 3,000
Office wages 51,600 87,200 94,600
Rent 40,000 66,000 72,600
Taxes and licenses 14,400 21,700 23,400
Taxes - payroll 52,900 77,300 82,400
Telephone 28,300 44,500 48,800
Utilities 18,900 24,900 26,700
Other 24,000 26,400 29,000
------------ ------------ ------------
388,450 489,200 524,000
------------ ------------ ------------
Income before provision for
federal income tax 1,524,050 5,169,950 5,690,100
Federal income tax 235,950 1,934,600
------------ ------------ ------------
Net income $ 1,524,050 $ 4,934,000 $ 3,755,500
============ ============ ============
See accompanying summary of significant forecast assumptions.
169
3
POWERTEL USA, INC.
Note to Forecasted Statements
February 28, 1999, February 29, 2000 and
February 28, 2001
.(See Accountants, Compilation Report)
1. Summary of Significant Forecast Assumptions
The financial forecast presents, to the best of management's knowledge
and belief, the Company's expected results of operations. Accordingly,
the forecast reflects management's judgement as of June 24, 1998, the
date of this forecast, of the expected conditions and its expected
course of action. The assumptions disclosed herein are those that
management believes are significant to the forecast. There will usually
be differences between the forecasted and actual results, because events
and circumstances frequently do not occur as expected, and those
differences may be material.
Sales
Management developed sales forecasts from expected long distance line
use and available capacity, and known sales of its printing division
already in operation. Increases in sales year to year were estimated
using rates of increase of 10% and 3% for the long distance service and
printing sales respectively. Long distance service will be between
Southern California and Mexico.
Cost of Sales
Materials cost represents those items used in printing operation
including print brokerage and are forecasted using inventory costs and
past experience.
Service cost is the charge paid by the Company for long distance
service, which is 80% of sales amount.
Equipment lease, trunk line lease, switching service and carrier line
are costs directly associated with providing long distance phone service
and each is a fixed monthly amount by contract.
Wages are combined for both long distance service and printing
operation. The long distance services wages are for sales personnel only
which is not expected to be a material cost. Wages for the printing
operation includes both sales and production personnel and is forecasted
based on past experience.
170
4
POWERTEL USA, INC.
Note to Forecasted Statements
February 28, 1999, February 29, 2000 and
February 28, 2001
(See Accountants' Compilation Report)
Note I (continued)
General and Administrative Expenses
General and administrative expenses are forecasted to be consistent
and relatively low from year to year. Office wages and payroll
taxes, rent, and telephone service account for the majority of long
distance service general and administrative costs. These are
estimated from known and estimated costs. Costs of the printing
operation are forecasted from past experience.
Income Taxes
Forecasted income taxes are based on statutory rates in effect at
the date of this forecast, after subtraction from operating income
of available net operating loss carryforwards.
2. Summary of Significant Accounting Policies
The financial forecast has been prepared on the basis of generally
accepted accounting principles expected to be used in the financial
statements covering the forecast periods.
Depreciation
Fixed assets are recorded at cost in the period acquired.
Depreciation is calculated using the declining balance method over
estimated useful lives of the assets.
171
AMENDED AND RESTATED
--------------------
AGREEMENT FOR EXCHANGE OF STOCK
-------------------------------
This amended and restated agreement ("AGREEMENT") is entered into this
date and is effective as of February 12, 1998 by and among (i) POWERTEL USA,
INC., a corporation incorporated under the laws of Delaware with its principal
place of business situated in East Lansing, Michigan ("POWERTEL"), (ii) DIEGO
TEL, INC. a Nevada corporation with its principal place of business situated in
Sarasota, Florida ("DIEGOTEL"), and (iii) DAVID L. WALLACE, an individual
residing in Sarasota, Florida ("WALLACE"), who owns 100% of the issued and
outstanding Common Stock of DIEGOTEL.
RECITALS
--------
WHEREAS, WALLACE is the owner of 100% the issued and outstanding shares
of DIEGOTEL; and
WHEREAS, DIEGOTEL is engaged in the business of purchasing and
reselling long distance telecommunication services and related activities
("BUSINESS"); and
WHEREAS, WALLACE desires to exchange with POWERTEL common stock of
POWERTEL in exchange for 100% of the common stock of the DIEGOTEL and POWERTEL
desires to exchange stock as noted above; and
WHEREAS, for federal income tax purposes, it is intended that this
transaction shall qualify as a "reorganization" within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended; and
WHEREAS, DIEGOTEL desires to guarantee the obligations of WALLACE
pursuant to this AGREEMENT; and
WHEREAS, this AGREEMENT is specifically contingent upon confirmation by
the Bankruptcy Court of the Plan of Reorganization to be filed by POWERTEL with
the Bankruptcy Court (the "CONFIRMATION"),
WHEREAS, the Parties to this Agreement have previously executed a
document entitled "Agreement for Exchange of Stock" executed February 12, 1997,
(the "Initial Agreement"); and
WHEREAS, the Parties have decided to amend and restate the Initial
Agreement in order to incorporate certain supplemental terms and modifications.
NOW, THEREFORE, in consideration of the foregoing, the payment of
$100,000.00 to POWERTEL by WALLACE in the form of a promissory note and the
exchange of stock pursuant
172
to this AGREEMENT and the representations, warranties, covenants, and mutual
promises contained herein, the parties hereto, intending to be legally bound, do
agree as follows:
SECTION 1.
----------
EXCHANGE OF SHARES OF STOCK
---------------------------
1.1 EXCHANGE. At CLOSING as defined in Section 9 of this AGREEMENT,
WALLACE shall tender to POWERTEL 100% of the issued and outstanding shares of
common stock of DIEGOTEL ("SHARES") and a Promissory Note in the amount of
$100,000.00 in consideration of the tender by POWERTEL of the Class A Common
Stock of POWERTEL as provided in this AGREEMENT.
1.2 CONVEYANCE OF TITLE. The conveyance of title to the SHARES shall be
effective as of the CLOSING by the delivery of the stock certificates therefor
at the CONFIRMATION duly endorsed for transfer to POWERTEL.
1.3 EXCLUSIVE NATURE OF AGREEMENT. This AGREEMENT shall preclude and
restrict WALLACE from entertaining other offers of sale or exchange of the
SHARES.
SECTION 2.
----------
CONSIDERATION AND POST-CONFIRMATION ADJUSTMENT
----------------------------------------------
2.1 ADJUSTMENT. In consideration of the tender to POWERTEL of 100% of
the issued and outstanding common stock of DIEGOTEL, POWERTEL shall forthwith
tender to the escrow agent an amount of the issued and outstanding Class A
Common Stock of POWERTEL such that the escrow agent will hold Thirty-Five (35%)
percent of the issued and outstanding Class A Common Stock of POWERTEL. In the
event that POWERTEL, as a result of its Plan of Reorganization or any
settlements of any claims (except those of the disputed class) issues additional
Class A Common Stock or effects a reverse stock split at any time before the
tenth day following the Effective Date of the Plan of Reorganization, then the
number of shares of Class A Common Stock issued to the escrow agent shall be
adjusted to Thirty-Five 35.0% of the issued and outstanding Class A Common Stock
of POWERTEL subsequent to implementation of the Plan of Reorganization and
distribution to WALLACE on a pro rata basis.
2.2 ESCROW OF POWERTEL CLASS A COMMON STOCK AND POST CONFIRMATION
ADJUSTMENT OF PURCHASE PRICE. Because WALLACE has made certain representations
to POWERTEL respecting the business affairs of DIEGOTEL and its future financial
performance WALLACE agrees as follows:
a) The Class A Common Stock of POWERTEL to be issued pursuant to
Section 2.1 of this AGREEMENT shall be held in escrow as provided in Section
2.2(d) for up to a thirty month term after the Distribution Date in POWERTEL'S
Plan.
173
b) The Class A Common Stock held in escrow shall be restricted
stock pursuant to the Securities Act of 1933 and shall be separated into 10
equal allotments, each of which shall be referred to as a 10 percent allotment.
The escrow agent shall release a 10 percent allotment at the end of the month in
which POWERTEL receives telecommunications revenue in excess of $100,000. The
escrow agent shall release an additional 10 percent allotment for each
additional incremental increase of $100,000 of telecommunications revenue more
than the month before. The 10 percent allotments shall be distributed to WALLACE
at no more than monthly intervals. To receive all ten allotments, POWERTEL must
receive telecommunications revenue in excess of 4.5 million dollars within
thirty months after the Distribution Date in POWERTEL'S Plan.
c) If shares remain in the escrow at the end of thirty months, than
the escrow shall release the remaining shares within 30 days. In no event shall
the escrow agent return the unissued shares to POWERTEL if the
telecommunications revenue exceeds 4.5 million dollars. If the total
telecommunications revenue is less that 4.5 million dollars then the remaining
shares shall be distributed on a pro rata basis among WALLACE and POWERTEL based
upon a formula for distribution set forth in Section 2.2.
d) All stock and transfer ledgers to be exchanged pursuant to this
AGREEMENT shall be held in escrow by Walter & Haverfield, P.L.L. of Cleveland,
Ohio, (the "Escrow Agent"), legal counsel to POWERTEL. In the event that either
(a) the Bankruptcy Court refuses to ratify this AGREEMENT, (b) the Plan of
Reorganization is not confirmed, or (c) POWERTEL elects to terminate this
AGREEMENT, this AGREEMENT shall be deemed to be null and void and the Escrow
Agent shall return the stock to the grantor from whom it was received, otherwise
the stock shall be exchanged and distributed by the Escrow Agent pursuant to the
terms of this AGREEMENT.
e) During the period of time that the stock is held in escrow,
POWERTEL shall have full power to vote all shares in escrow.
SECTION 3.
----------
REPRESENTATIONS AND WARRANTIES OF WALLACE
-----------------------------------------
Unless otherwise set forth in writing to POWERTEL, WALLACE represents
and warrants to the best of his knowledge as follows:
3.1 CORPORATE STATUS. DIEGOTEL is duly organized, validly existing, and
in good standing under the laws of the state of Nevada and has the power and
authority to own its properties and to conduct its business as now being
conducted. DIEGOTEL does not have any subsidiaries and does not own any stock in
any other corporation or have any investments in any partnerships or joint
ventures.
3.2 CAPITALIZATION. The authorized stock of DIEGOTEL consists solely of
25,000 shares of common stock with par value of $0.001 per share of which only
the SHARES are issued and
174
outstanding. The SHARES constitute all of the issued and outstanding shares of
stock of DIEGOTEL. The SHARES are validly issued, fully paid and non-assessable.
3.3 OWNERSHIP OF SHARES. WALLACE is the owner of the 25,000 of SHARES
and in the aggregate owns 100% of the issued and outstanding SHARES of DIEGOTEL.
WALLACE has title to the SHARES free and clear of any and all liens and
encumbrances.
3.4 CONSENT OF THIRD PARTIES. This AGREEMENT is legally binding upon
WALLACE and the consummation of the transactions contemplated hereby in
accordance with the terms hereof does not require the consent of any third
party.
3.5 FINANCIAL STATEMENTS AND PRO FORM FINANCIAL PROJECTIONS. If
requested by POWERTEL, within sixty (60) days of the date of this AGREEMENT,
WALLACE shall cause DIEGOTEL to prepare balance sheets, income statements and
related schedules and footnotes for DIEGOTEL'S fiscal period commencing in 1997
with the date of incorporation and continuing through December 31, 1997
("FINANCIAL STATEMENT") which FINANCIAL STATEMENT shall accurately and fairly
reflect the financial condition of DIEGOTEL as of the dates indicated thereon,
and the results of the operations of DIEGOTEL for the respective fiscal periods
then ended. In addition to the foregoing, to the best of WALLACE'S knowledge,
the pro forma financial projections for DIEGOTEL previously provided to POWERTEL
and WALLACE accurately and fairly reflect the current and future financial
condition of DIEGOTEL as of the dates indicated thereon, and the results of the
operations of DIEGOTEL for the respective fiscal periods then ended, subject to
the assumptions and representations set forth therein.
3.6 ABSENCE OF CERTAIN CHANGES. The business operations of DIEGOTEL
have been conducted prudently and in the ordinary course of business and there
has been no material change in the financial condition, results of operations,
business, business prospects, capitalization or any increase in the compensation
of DIEGOTEL'S employees, if any.
3.7 LIABILITIES. To the best of WALLACE'S knowledge (i) as of the date
of the last FINANCIAL STATEMENT, DIEGOTEL did not have any liabilities, whether
absolute, accrued, contingent or otherwise, that are not disclosed in the
FINANCIAL STATEMENT attached hereto, and (ii) there was no basis upon which any
person could assert a liability against DIEGOTEL which was not disclosed on the
last FINANCIAL STATEMENT. Since the date of the last FINANCIAL STATEMENT,
DIEGOTEL has not incurred any liabilities not in the ordinary course of
business, and to the best of WALLACE'S knowledge there is presently no basis
upon which a person could assert such a liability, nor has any person asserted
the existence of such a liability.
3.8 TAX MATTERS. DIEGOTEL'S federal, state and local tax returns for
1997 have not been filed or audited. There are no pending tax examinations of,
or tax claims asserted against, DIEGOTEL and there are no known bases for any
such claims. DIEGOTEL has not granted any extension of any limitation period
applicable to tax claims which extension is still in effect and has not filed a
consent under Section 341(f) of the Internal Revenue Code of 1986. DIEGOTEL has
never filed an election to be taxed as a small business corporation pursuant to
IRC sec. 1361.
175
DIEGOTEL is and has not been a member of a "control group" as defined in IRC
sec.1563 or an affiliated group as defined in IRC sec.1504.
3.9 TITLE TO PROPERTY. DIEGOTEL has good and marketable title to all of
its assets free and clear of all liens and encumbrances. DIEGOTEL'S use of
intangibles has not and will not infringe the rights of any other person. The
rights, properties and other assets presently owned, leased or licensed by
DIEGOTEL and described in this AGREEMENT include all rights, properties and
other assets necessary to permit DIEGOTEL to conduct its business in the same
manner as its business has been conducted.
3.10 RECEIVABLES. All of the receivables of DIEGOTEL are reflected on
the books of DIEGOTEL and are considered to be collectible or have been
collected as of the CLOSING.
3.11 INVENTORIES. The inventories of DIEGOTEL, if any, are of a quality
and quantity to be usable and salable in the ordinary course of DIEGOTEL'S
business.
3.12 CONDITION OF TANGIBLE PROPERTY. The equipment, and other tangible
property of DIEGOTEL are, to the best of WALLACE'S knowledge, in good condition
and repair, and are adequate for the uses to which such property is put in the
conduct of the BUSINESS. WALLACE has no knowledge of any defects in any of such
tangible property.
3.13 CONDEMNATION. No property owned or leased by DIEGOTEL is subject
to any governmental decree or order, or to the best of WALLACE'S knowledge,
threatened or proposed order to be sold or taken by any public authority.
3.14 SCHEDULE OF CONTRACTS. Upon request for POWERTEL, WALLACE shall
prepare a complete list of all contracts of any type, other than insurance
policies, to which DIEGOTEL is a party. All contracts to which DIEGOTEL is a
party are in full force and effect and DIEGOTEL and the other parties thereto
have performed all of the obligations required to be performed by them
thereunder and are not in default thereof. Neither the execution of this
AGREEMENT, nor the consummation of the transactions contemplated hereby, will
constitute a default under any of such contracts as to which the sale of the
shares contemplated by this AGREEMENT may or does constitute a default. None of
such contracts will result in a loss to DIEGOTEL upon the completion thereof and
none of the purchase commitments which are the subject thereof are in excess of
the normal requirements of the BUSINESS or establish a price in excess of that
customarily charged for the items which are the subject thereof. Full and
complete copies of all such contracts will be supplied to POWERTEL upon request.
3.15 EMPLOYMENT MATTERS. Upon request from POWERTEL, WALLACE shall
prepare a complete schedule of the compensation paid to all employees of
DIEGOTEL.
3.16 LABOR RELATIONS. To the best of WALLACE'S knowledge, DIEGOTEL has
complied with all laws, rules, and regulations relating to the employment of
labor and has no labor troubles in the sense that there are no strikes,
lockouts, work stoppages, or slow downs, pending or threatened against DIEGOTEL.
176
3.17 LEGAL PROCEEDINGS. There are no legal or administrative
proceedings of any nature pending or, to the best of WALLACE'S knowledge,
threatened against or affecting DIEGOTEL. DIEGOTEL is not in default of any
judgment, writ, injunction, or order of any court or governmental agency.
3.18 COMPLIANCE WITH LAWS. DIEGOTEL has not received any notice from
any governmental entity asserting a violation by DIEGOTEL of any laws,
regulations, or governmental pronouncements of any type, including, without
limitation, zoning ordinances, and (i) there are no known claims or
investigations involving asserted violations thereof, and (ii) DIEGOTEL has duly
complied with all statutes, regulations and governmental pronouncements of all
types (including, without limitation, zoning ordinances) and has acquired all
licenses and permits required for the operation of its business.
3.19 LACK OF MARKET FOR POWERTEL SHARES. WALLACE represents that he has
had direct, continuing and first-hand experience with the business and operation
of POWERTEL and its financial condition and affairs. WALLACE acknowledges that
(i) POWERTEL is currently functioning as Debtor-in-Possession pursuant to
Chapter 11 of the United States Bankruptcy Code, (ii) there is little, if any,
market for POWERTEL's Class A Common Stock and there may never be any market for
such securities, (iii) the Class A Common Stock is deemed to be "high risk" and
"speculative," (iv) there is no assurance or guarantee that the Class A Common
Stock will ever have any economic value, and (v) the securities issued to
WALLACE will be restricted for not less than one year.
3.20 BANK ACCOUNTS. Upon request from POWERTEL, WALLACE shall prepare a
complete and accurate list of each bank or financial institution with which
DIEGOTEL has an account (including the account numbers) or safety deposit box
and the names of the persons authorized to draw thereon or have access thereto.
3.21 DISCLOSURE. WALLACE has disclosed to POWERTEL all facts material
to the business, assets, operations, financial condition, and prospects of
DIEGOTEL.
3.22 RELATED PARTIES' LOANS. Upon request from POWERTEL, WALLACE shall
prepare a list of all loans to or from DIEGOTEL.
3.23 DELIVERIES BY WALLACE. In connection with the proposed sale of the
SHARES, WALLACE will deliver to POWERTEL the corporate documents at
CONFIRMATION.
3.24 SECURITIES EXEMPTION. WALLACE's sophisticated and knowledgeable
individual who is an "accredited investor" as defined in Rule 501 of Regulation
D of the Securities Act of 1933. WALLACE has had an opportunity to conduct an
independent investigation into the affairs of DIEGOTEL. WALLACE represents that
he is acquiring the SHARES for his personal investment and not with an intention
to re-sell or distribute the SHARES to third parties who are not parties to the
AGREEMENT. WALLACE stipulates that the purchase of the SHARES is a speculative
transaction and that WALLACE is prepared to incur risk of loss of its
investment. WALLACE also stipulates that the sale of the SHARES pursuant to the
AGREEMENT has been effected pursuant
177
to the provisions of Regulation D and Section 4(2) of the Securities Act of 1933
and comparable provisions of applicable state securities laws. WALLACE agrees to
file any documents reasonably required by POWERTEL to comply with applicable
securities laws.
SECTION 4.
----------
REPRESENTATIONS AND WARRANTIES OF POWERTEL
------------------------------------------
POWERTEL, represents and warrants as follows:
4.1 CONSENT OF THIRD PARTIES. Subject only to ratification of this
AGREEMENT by the United States Bankruptcy Court, this AGREEMENT is legally
binding upon POWERTEL and POWERTEL'S consummation of the transactions
contemplated hereby does not require the consent of any third party except for
approval by the Bankruptcy Court as referenced in Section 6.5.
4.2 SECURITIES EXEMPTION. POWERTEL is a sophisticated and knowledgeable
individual who is an "accredited investor" as defined in Rule 501 of Regulation
D of the Securities Act of 1933. POWERTEL has had an opportunity to conduct an
independent investigation into the affairs of DIEGOTEL. POWERTEL represents that
it is acquiring the SHARES for its personal investment and not with an intention
to re-sell or distribute the SHARES to third parties who are not parties to the
AGREEMENT. POWERTEL stipulates that the purchase of the SHARES is a speculative
transaction and that POWERTEL is prepared to incur risk of loss of its
investment. POWERTEL also stipulates that the sale of the SHARES pursuant to the
AGREEMENT has been effected pursuant to the provisions of Regulation D and
Section 4(2) of the Securities Act of 1933 and comparable provisions of
applicable state securities laws. POWERTEL agrees to file any documents
reasonably required by WALLACE to comply with applicable securities laws.
4.3 FINANCIAL STATEMENT AND PRO FORM FINANCIAL PROJECTIONS. Upon
request by WALLACE, POWERTEL will provide WALLACE with a copy of its FINANCIAL
STATEMENT as filed with the United States Bankruptcy Court. POWERTEL hereby
authorizes WALLACE (at WALLACE'S expense) to secure a credit report on POWERTEL.
POWERTEL represents that the final statements identified above fairly and
accurately reflect POWERTEL'S financial condition and that there are no adverse
facts not described to WALLACE in writing regarding POWERTEL'S financial
affairs.
SECTION 5.
----------
COVENANTS OF WALLACE
--------------------
Unless POWERTEL waives such performance in writing, WALLACE covenants
as follows:
5.1 CONVEYANCE OF TITLE TO SHARES. Pursuant to Section 2.2(d), at
CONFIRMATION (as defined in Section 9.1 hereinafter), WALLACE will convey good
and marketable title to the SHARES to POWERTEL free and clear of all security
interests, claims, liens, proxies, charges, or other encumbrances.
178
5.2 WALLACE'S CONFIRMATION CERTIFICATE. WALLACE shall execute and
deliver to POWERTEL at the CONFIRMATION a certificate which shall certify that,
except as otherwise specifically provided therein: (a) all of the
representations and warranties made by WALLACE in this AGREEMENT are true and
accurate in all respects as of the CONFIRMATION with the same force and effect
as though made at such time; and (b) WALLACE have fully performed and/or
complied with all of his covenants and other obligations under this AGREEMENT
required to be performed and/or complied with by them as of the CONFIRMATION.
WALLACE shall describe in such certificate the circumstances concerning any
incorrect or inaccurate representations or warranties identified therein.
5.3 CONDUCT OF BUSINESS. To and through the date of CONFIRMATION,
subject to Section 5.8 hereof, DIEGOTEL shall conduct its business prudently and
in the ordinary course consistent with past practice.
5.4 NO AMENDMENTS. To and through the date of CONFIRMATION, no change
or amendment shall be made to the Articles of Incorporation of DIEGOTEL.
5.5 NO CAPITAL CHANGES. To and through the date of CONFIRMATION,
DIEGOTEL shall not issue or grant options, warrants, or rights to purchase or to
subscribe to any of its stock or any securities or obligations convertible into
its stock or make any other changes in its capital structure.
5.6 NO DIVIDENDS OR REDEMPTIONS. To and through the date of
CONFIRMATION, DIEGOTEL shall not declare or pay any dividend or other
distribution in respect of its stock or purchase any of its stock.
5.7 FORBEARANCE BY CORPORATION. To and through the date of
CONFIRMATION, except as otherwise specifically provided for or required herein,
DIEGOTEL shall not do, or agree to do, any of the following:
a) Mortgage, pledge, or otherwise encumber any of its
assets;
b) Incur liabilities in an aggregate amount greater than
$250,000 without the express written consent of
POWERTEL other than in the ordinary course of
business or pay any liability other than current
liabilities and current maturities of existing long
term debt;
c) Sell or transfer any of its assets other than sales
of inventory in the ordinary course of business;
d) Sell any of the inventory of DIEGOTEL other than in
the ordinary course of business;
e) Cancel, release, or assign any obligations owed to
DIEGOTEL or any claims held by it;
179
f) Increase in any manner the compensation of any of
DIEGOTEL'S employees (including an increase in fringe
benefits or the provision of fringe benefits to
employees not previously entitled thereto) or pay or
agree to pay any pension or retirement allowance not
required by any existing plan or agreement to any
employees, or enter into any new pension, retirement,
or profit sharing plan or agreement or employment
agreement;
g) Hire or terminate any employee, except for just
cause;
h) Loan money or assets to any person; or
i) Adopt any new method of accounting;
5.8 ACCESS. To and through the date of CONFIRMATION, WALLACE shall
grant POWERTEL and its agents full access to all personnel records, assets,
records and documents of DIEGOTEL and shall furnish such financial and operating
information as POWERTEL may reasonably request. WALLACE shall provide, upon
POWERTEL'S request, verification of DIEGOTEL'S receivables and liabilities.
5.9 FILING OF TAX RETURNS. To and through the date of CONFIRMATION, any
tax returns required to be filed by DIEGOTEL on or prior to the CONFIRMATION
shall be submitted to POWERTEL for review.
SECTION 6.
----------
CONDITIONS PRECEDENT TO OBLIGATIONS OF POWERTEL
-----------------------------------------------
The obligations of POWERTEL to be performed hereunder shall be subject
to the satisfaction (or waiver by POWERTEL) on or before the CONFIRMATION of
each of the following conditions, absent which, at POWERTEL'S election, both
parties shall be relieved of any further obligation to one another and any funds
or securities deposited or paid by either party shall be returned to the party
so depositing or paying compensation:
6.1 REPRESENTATIONS AND WARRANTIES TRUE AND ACCURATE AS OF
CONFIRMATION. The representations and warranties of WALLACE contained herein
shall be true and accurate in all respects as of the CONFIRMATION with the same
force and effect as though made at such time.
6.2 PERFORMANCE OF OBLIGATIONS OF WALLACE. WALLACE shall have
completely performed all of his covenants and obligations hereunder.
6.3 EXCHANGE OF ASSETS. WALLACE and POWERTEL shall exchange all
securities in the amount and manner specified herein.
6.4 MATERIAL ADVERSE FACTS. POWERTEL shall not have discovered nor
shall there have occurred after the date hereof, any events, facts or
circumstances which reflect in any material
180
adverse way on the financial condition, assets, liabilities, business, or
prospects of DIEGOTEL, in the event that POWERTEL discovers any such fact, event
or circumstance at any time prior to the Effective Date of the Plan of
Reorganization, POWERTEL, at its sole election, may declare this AGREEMENT to be
null and void. WALLACE may cause DIEGOTEL to pay out to WALLACE all cash, the
cash value of life insurance policies, and funds in bank accounts to satisfy
compensation and debt obligations owed to WALLACE by DIEGOTEL, and POWERTEL
consents thereto.
6.5 FORM OF DOCUMENTS. All certificates, opinions, and other documents
to be delivered by WALLACE to POWERTEL hereunder shall be in form and substance
satisfactory to POWERTEL.
6.6 RATIFICATION OF THE AGREEMENT AND CONFIRMATION OF THE PLAN OF
REORGANIZATION. POWERTEL is currently functioning as a Debtor-in-Possession
pursuant to Section 1107 of the United States Bankruptcy Code. The obligations
of POWERTEL to be performed pursuant to this AGREEMENT are specifically
contingent upon ratification of this AGREEMENT by the United States Bankruptcy
Court for the District of Nevada. In the event that the Bankruptcy Court
refuses, for any reason, to ratify this AGREEMENT, the AGREEMENT shall be null
and void and have no legal binding effect upon POWERTEL or WALLACE. In addition
to the foregoing, this AGREEMENT is specifically contingent upon confirmation by
the Bankruptcy Court of the Plan of Reorganization to be filed by POWERTEL with
the Bankruptcy Court, and in the event that the Bankruptcy Court refuses, for
any reason, to confirm the Plan of Reorganization as submitted by POWERTEL, this
AGREEMENT shall be null and void and have no further effect or impact upon
POWERTEL or WALLACE. WALLACE specifically and explicitly assumes the risk that
either (a) the Bankruptcy Court may refuse to ratify this AGREEMENT, or (b) the
Bankruptcy Court may refuse to confirm the Plan of Reorganization as submitted
by POWERTEL.
SECTION 7.
----------
COVENANTS OF POWERTEL
---------------------
From the date hereof to and including the CONFIRMATION, POWERTEL
covenants as follows (unless otherwise agreed in writing by WALLACE):
7.1 POWERTEL'S CONFIRMATION CERTIFICATE. POWERTEL shall execute and
deliver to WALLACE a certificate which shall certify that, except as otherwise
specifically provided therein: (a) all of the representations and warranties
made by POWERTEL in this AGREEMENT are true and accurate in all respects as of
the CONFIRMATION with the same force and effect as though made at such time; (b)
POWERTEL has performed and/or complied with all of its covenants and other
obligations under this AGREEMENT required to be performed and/or complied with
by it as of the CONFIRMATION; and (c) a statement showing the calculation used
by POWERTEL in determining that the escrow agent has received an amount equal to
Thirty-Five (35%) percent of the issued and outstanding Class A Common Stock of
POWERTEL subsequent to implementation of the Plan of Reorganization. From the
date hereof until the date of CONFIRMATION, POWERTEL shall notify WALLACE
immediately in writing if any of the representations and warranties made herein
should become untrue or inaccurate.
181
SECTION 8.
----------
CONDITIONS PRECEDENT TO OBLIGATIONS OF WALLACE
----------------------------------------------
The obligations of WALLACE to be performed hereunder shall be subject
to the satisfaction (or waiver by WALLACE) on or before the CONFIRMATION of each
of the following conditions:
8.1 REPRESENTATIONS AND WARRANTIES TRUE AND ACCURATE AS OF
CONFIRMATION. The representations and warranties of WALLACE contained herein
shall be true and accurate in all respects as of the CONFIRMATION with the same
force and effect as though made at such time.
8.2 FORM OF DOCUMENTS AND PLAN OF REORGANIZATION. All certificates and
other documents to be delivered by POWERTEL to WALLACE hereunder shall be in
form and substance satisfactory to WALLACE. If the Plan of Reorganization as
confirmed by the Bankruptcy Court as referred to in Section 6.5, does not
conform or alters in any way this AGREEMENT, then this AGREEMENT shall be null
and void and have no further effect or impact upon POWERTEL or WALLACE. POWERTEL
specifically and explicitly assumes the risk that either (a) the Bankruptcy
Court may refuse to ratify this AGREEMENT, (b) the Bankruptcy Court may refuse
to confirm the Plan of Reorganization as submitted by POWERTEL, or (c) WALLACE
may determine that the Plan of Reorganization does not conform or alters this
AGREEMENT within ten days of receipt of a copy of the Plan or any amendments.
SECTION 9.
----------
CLOSING AND CONFIRMATION
------------------------
9.1 DATE. The CLOSING is deemed the date of CONFIRMATION. The
CONFIRMATION is date the Bankruptcy Court confirms the Plan.
9.2 OBLIGATIONS OF WALLACE. Within ten days of this AGREEMENT, WALLACE
and POWERTEL shall deliver, or cause to be delivered, to Escrow Agent the
following:
a) The certificates for the SHARES duly endorsed for
transfer to POWERTEL by WALLACE,
b) The certificates for the Class A Common Stock
deposited with the escrow agent shall be issued in
the name of POWERTEL and reissued to WALLACE at time
of distribution,
c) The corporate records, minute book and stock record
book of DIEGOTEL.
d) The Promissory Note from WALLACE to POWERTEL in the
amount of $100,000 at 9% per year interest with
payments to commence six months after the date of
DISTRIBUTION and to be paid over thirty monthly
182
payments and in no event will the final shares be
distributed until the Note is paid in full.
9.3 ADDITIONAL ACTIONS. Each of the parties, individually and/or in
their corporate capacities, hereby agrees to execute and deliver all such
additional documents and take all actions necessary or appropriate to consummate
any and all of the transactions contemplated hereby.
SECTION 10.
-----------
INDEMNIFICATION AND POST CLOSING ADJUSTMENT IN PURCHASE PRICE
-------------------------------------------------------------
10.1 INDEMNIFICATION BY WALLACE. WALLACE agrees to indemnify and hold
POWERTEL and DIEGOTEL harmless from any liabilities or losses (including
attorneys' fees and all costs of defense) which are not otherwise covered by any
policy of insurance to which the DIEGOTEL was, or is, a party, resulting from:
a) The falsity or inaccuracy of any representations or warranties
made herein by WALLACE;
b) The failure of WALLACE to completely perform any of its
covenants or other obligations hereunder; or
c) Any liability or loss incurred or suffered by DIEGOTEL or
POWERTEL after the CLOSING which relates or is attributable to intentional acts
or omissions of WALLACE prior to the CONFIRMATION.
10.2 INDEMNIFICATION BY POWERTEL. POWERTEL agrees to indemnify and hold
WALLACE harmless from any liabilities or losses resulting from:
a) The falsity or inaccuracy of any representations or warranties
made herein by POWERTEL;
b) The failure of POWERTEL to completely perform any of his
covenants or other obligations hereunder; or
c) Any liability or loss incurred or suffered by WALLACE after the
CLOSING which relates or is attributable to acts or omissions of POWERTEL prior
to the CONFIRMATION.
10.3 DEFENSE. If an indemnified party or parties hereunder should
receive notice of any claim or proceeding against it or them made by a third
party that might result in an indemnification claim hereunder, the indemnified
party or parties shall promptly give the indemnifying party or parties written
notice of such claim or proceeding and shall permit the indemnifying party or
parties at their option, to conduct or participate in the defense of such claim
or proceeding by counsel of the indemnifying party's or parties' own choosing
and at their own expense. If the indemnifying party or parties accept the tender
of the defense of such claim, they shall be deemed to have accepted for
183
their account any and all liability resulting from or relating to such claim. If
the indemnifying party or parties decline to conduct the defense of such claim
or proceeding, the indemnified party or parties shall assume the defense thereof
and may settle the same without the consent of the indemnifying party or
parties.
SECTION 11.
-----------
MISCELLANEOUS PROVISIONS
------------------------
11.1 SURVIVAL OF CLOSING. The provisions of Sections 2, 3, 4, 5.14,
5.15, 7, 10 and 11 shall survive the CLOSING and CONFIRMATION.
11.2 NOTICES. Any notices required or permitted hereby shall be deemed
given when sent by one party to the other, and to its counsel, in writing by
registered or certified U.S. mail, postage prepaid, addressed as follows:
WALLACE: David L. Wallace
5545 Shadow Lawn Drive
Sarasota, FL 34242
POWERTEL: POWERTEL USA, Inc.
c/o Mr. Richard Cascarilla, President
321 West Lake Lansing Rd., Suite 100
East Lansing, NH 48823
POWERTEL'S COUNSEL: Van P. Carter, Esq.
Walter & Haverfield
1300 Terminal Tower
Cleveland, Ohio 44113
DIEGO TEL: DIEGOTEL, Inc.
c/o David Wallace
5545 Shadow Lawn Drive
Sarasota, FL 34242
The above addresses may be changed from time to time by giving notice thereof in
the manner provided herein.
11.3 SUCCESSORS AND ASSIGNS. None of the parties hereto may assign
their rights or delegate their duties hereunder without the prior written
consent of all parties to this AGREEMENT, which consent will not be unreasonably
withheld. This AGREEMENT shall be binding upon and inure to the benefit of the
heirs, executors, administrators, and successors of the parties hereto.
184
11.4 INTEGRATED AGREEMENT. This instrument and the exhibits attached
hereto constitute the complete and exclusive agreement of the parties. The terms
of this AGREEMENT may not be modified except in a writing signed by all of the
parties hereto.
11.5 RISK OF LOSS. Risk of loss of, or damage or destruction to, the
assets of DIEGOTEL shall be borne by WALLACE until the CONFIRMATION. In the
event of material damage or destruction to such property, WALLACE shall promptly
notify POWERTEL. POWERTEL shall thereupon have the right, at its option, to
elect to terminate this AGREEMENT without liability or to proceed to the
CONFIRMATION and accept any insurance proceeds received by DIEGOTEL as a result
of such damage or destruction. "Material damage" shall mean such damage as
prevents the CORPORATION from effectively conducting its business.
11.6 GOVERNING LAW. The rights and obligations of the parties hereunder
and the interpretation of this AGREEMENT shall be governed by the laws of the
state of Nevada (other than those relating to conflicts of laws).
11.7 NO FINDER'S FEES OR BROKERAGE COMMISSIONS. Each of the parties
hereto represents that it dealt with no brokers or finders with respect to the
sale of the SHARES hereunder and that there are no brokerage commissions,
finder's fees, or similar payments owed as a result thereof.
11.8 COUNTERPARTS. This AGREEMENT may be executed in two or more
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall constitute one and the same instrument. The receipt of a
telefax copy of any executed page shall be accepted as the original.
11.9 WAIVERS. Waiver of the benefit of any provision hereof must be in
writing to be effective. The waiver by any party of a breach of any provision of
this AGREEMENT shall not operate or be construed as a waiver of any subsequent
breach. No action taken pursuant to this AGREEMENT, including without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants, or other obligations contained herein.
11.10 BOOKS AND RECORDS AND TAX RETURNS. POWERTEL will during regular
business hours provide WALLACE with reasonable access to WALLACE'S financial and
accounting books and records which relate to the period prior to the
CONFIRMATION, provided, however, that WALLACE shall have similar access at if
audits of WALLACE'S individual federal, state or local income tax returns
necessitate access to DIEGOTEL'S records or in the event POWERTEL defaults in
the timely payment of any amounts due to WALLACE hereunder. For purposes hereof,
access to books and records shall include the right to make copies thereof. In
addition, neither DIEGOTEL nor POWERTEL shall file any federal, state or local
tax return or form for the fiscal year ending February 28, 1997 unless and until
such return is reviewed and approved by WALLACE.
11.11 INTERPRETATION. Except where otherwise required by the context,
words of any gender used herein shall be deemed to include any and all genders
and the singular and plural shall be interchangeable.
185
11.12 NO THIRD PARTY BENEFICIARIES. Nothing herein expressed or implied
is intended to confer or shall be construed as conferring upon or giving to any
person other than the parties hereto and DIEGOTEL any rights or benefits under
or by reason of this AGREEMENT.
11.13 INCORPORATION BY REFERENCE. Each Exhibit referenced in this
AGREEMENT is hereby incorporated by reference and deemed to be a material
component of this AGREEMENT as if fully set forth therein.
11.14 COMMITMENT TO ASSIST IN POST CLOSING MATTERS. The Parties to this
AGREEMENT acknowledge that it may be necessary to amend this AGREEMENT and/or to
execute additional documents in order to implement the understanding which has
been reached, and each Party to this AGREEMENT commits to cooperate and use
its/his best efforts in order that the objectives of this AGREEMENT may be
achieved.
11.16 ACCURACY OF RECITALS. The Recitals set forth above are true and
correct and are hereby incorporated herein by reference.
11.17 ENTIRE AGREEMENT. This AGREEMENT constitutes the entire agreement
by and among the Parties with respect to the exchange of shares and all other
agreements, oral or written shall be deemed to be null and void.
To evidence their consent to the foregoing, the parties executed this
instrument on the dates set opposite their signatures below.
POWERTEL USA, INC.
Dated: April 22, 1998 By: /s/ Richard A. Cascarilla
----------------------- ----------------------------------------
Its: President, Richard A. Cascarilla
DIEGO TEL, INC.
Dated: April 22, 1998 By: /s/ David L. Wallace
----------------------- -----------------------------------------
Its: President, David L. Wallace
Dated: April 22, 1998 By: /s/ David L. Wallace
----------------------- ---------------------------------------
David L. Wallace
186
ADDENDUM TO AMENDED AND RESTATED AGREEMENT
------------------------------------------
FOR EXCHANGE OF STOCK
---------------------
THIS ADDENDUM TO AMENDED AND RESTATED AGREEMENT FOR EXCHANGE OF STOCK
(the "Addendum") is intended to and does by execution hereof amend, modify, and
alter the Amended and Restated Agreement for Exchange of Stock between David
Wallace and POWERTEL USA, Inc. dated April 22,1998 as follows:
Section 2.1 entitled "Adjustment' is hereby deleted in its entirety and
the new Section 2.1 will read:
2.1 ADJUSTMENT.
In consideration of the tender to POWERTEL of 100% of the issued and
outstanding common stock of DIEGO TEL, POWERTEL shall forthwith tender to the
Escrow Agent an amount of the issued and outstanding, Class A Common Stock of
POWERTEL such that the Escrow Agent will hold Thirty-Five Percent (35%) of the
issued and outstanding Class A Common Stock of POWERTEL. In the event that
POWERTEL, as a result of its Plan of Reorganization or any settlements of any
claims (except those of the disputed class) issues additional Class A Common
Stock or effects a reverse stock split at any time before the tenth day
following the Effective Date of the Plan of Reorganization, then the number of
shares of Class A Common Stock issued to the Escrow Agent shall be adjusted to
Thirty-Five Percent (35%) of the issued and outstanding Class A Common Stock of
POWERTEL subsequent to implementation of the Plan of Reorganization and
distributed to WALLACE in accordance with Section 2.2(b) of this Agreement.
187
Section 2.2(b) is hereby deleted in its entirety and new Section 2.2(b)
will read:
The Class A Common Stock held in escrow shall be restricted stock
pursuant to the Securities Act of 1933 and shall be separated into ten (10)
equal allotments, each of which shall be referred to as a 10 percent allotment.
The Escrow Agent shall release a 10 percent allotment at the end of the month in
which POWERTEL receives "Telecommunications Revenue," which for purposes of this
Agreement means the cash receipts actually received by POWERTEL, in excess of
$100,000. The Escrow Agent shall release an additional 10 percent allotment for
each additional incremental increase of $100,000 of Telecommunications Revenue
more than the month before. The 10 percent allotments shall be distributed to
WALLACE at no more than monthly intervals. To receive all ten allotments,
POWERTEL must receive Telecommunications Revenue in excess of $4.5 Million
within thirty months after the Confirmation Date as defined in POWERTEL's Plan
of Reorganization.
Section 2.2(c) is hereby deleted in its entirety and the new Section
2.2(c) will read:
(c) If shares remain in the escrow at the end of the thirty months,
then the escrow shall release the remaining shares within thirty (30) days. In
no event shall the Escrow Agent return the unissued shares to POWERTEL if the
Telecommunications Revenue exceeds $4.5 Million and provided WALLACE has paid in
full the Promissory Note in the amount $100,000 held in escrow by the Escrow
Agent. If the total Telecommunications Revenue is less than $4.5 Million, then
the remaining, unearned and unissued shares shall be returned to POWERTEL and
the earned 10 percent allotments shall be distributed to WALLACE upon payment in
full of the $100,000 Promissory Note.
188
IN WITNESS WHEREOF, the POWERTEL, DIEGO TEL and WALLACE have signed
duplicate copies of this Addendum on this 8th day of June , 1998.
Signed in the Presence of:
POWERTEL USA, INC.
/s/ Wendy S. Burhard By: /s/ Richard Cascarilla
- ----------------------------------- ------------------------------------
Richard Cascarilla
Title: President
---------------------------
DIEGO TEL, INC.
By: /s/ David L. Wallace
- ----------------------------------- --------------------------------
David L. Wallace
Title: President
---------------------------
/s/ David L. Wallace
- ----------------------------------- --------------------------------
David L. Wallace, Individually
189
Budget Report by Month
5/1/98 Through 12/31/98
Month 1
5/1/98 5/31/98
Category Description Actual Budget Difference
INFLOWS
Other Inc 0.00 0.00 0.00
Sales:
Wholesale:
Mexico 0.00 0.00 0.00
TOTAL Wholesale 0.00 0.00 0.00
TOTAL Sales 0.00 0.00 0.00
TOTAL INFLOWS 0.00 0.00 0.00
OUTFLOWS
Admin Services:
Bookkeeping 0.00 0.00 0.00
TOTAL Admin Services 0.00 0.00 0.00
Aero Harris 0.00 0.00 0.00
Auto:
Fuel 0.00 0.00 0.00
Insurance 0.00 0.00 0.00
TOTAL Auto 0.00 0.00 0.00
Bank Charge 0.00 25.00 25.00
Cost of Service:
VIVA MEX 0.00 24,000.00 24,000.00
TOTAL Cost of Service 0.00 24,000.00 24,000.00
Insurance:
Ins office 0.00 0.00 0.00
Insurance - Other 0.00 0.00 0.00
TOTAL Insurance 0.00 0.00 0.00
LA DACS Lease 0.00 0.00 0.00
LA SD Line 0.00 0.00 0.00
LA SD Service 0.00 0.00 0.00
Payroll:
Bookkeeper 0.00 0.00 0.00
Off Mgr 0.00 0.00 0.00
Sales Staff 0.00 0.00 0.00
Secretary 0.00 0.00 0.00
TOTAL Payroll 0.00 0.00 0.00
SD AeroRent 0.00 0.00 0.00
SD TJ Line 0.00 0.00 0.00
SD TJ Service 0.00 0.00 0.00
Tax:
State 0.00 0.00 0.00
Tax - Other 0.00 0.00 0.00
TOTAL Tax 0.00 0.00 0.00
Telephone:
Phone cellular 0.00 0.00 0.00
Phone long 0.00 0.00 0.00
Phone office 0.00 0.00 0.00
Telephone - Other 0.00 0.00 0.00
TOTAL Telephone 0.00 0.00 0.00
TJ Trunk 0.00 0.00 0.00
Utilities:
Gas & Electric 0.00 0.00 0.00
Water 0.00 0.00 0.00
TOTAL Utilities 0.00 0.00 0.00
Uncategorized Outflows 16,087.50 0.00 -16,087.50
TOTAL OUTFLOWS 16,087.50 24,025.00 7,937.50
OVERALL TOTAL -16,087.50 -24,025.00 7,937.50
190
Budget Report by Month
5/1/98 Through 12/31/98
Month 2
6/1/98 6/30/98
Category Description Actual Budget Difference
INFLOWS
Other Inc 0.00 0.00 0.00
Sales:
Wholesale:
Mexico 0.00 0.00 0.00
TOTAL Wholesale 0.00 0.00 0.00
TOTAL Sales 0.00 0.00 0.00
TOTAL INFLOWS 0.00 0.00 0.00
OUTFLOWS
Admin Services:
Bookkeeping 0.00 0.00 0.00
TOTAL Admin Services 0.00 0.00 0.00
Aero Harris 0.00 0.00 0.00
Auto:
Fuel 0.00 0.00 0.00
Insurance 0.00 0.00 0.00
TOTAL Auto 0.00 0.00 0.00
Bank Charge 0.00 25.00 25.00
Cost of Service:
VIVA MEX 0.00 126,000.00 126,000.00
TOTAL Cost of Service 0.00 126,000.00 126,000.00
Insurance:
Ins office 0.00 0.00 0.00
Insurance - Other 0.00 0.00 0.00
TOTAL Insurance 0.00 0.00 0.00
LA DACS Lease 0.00 0.00 0.00
LA SD Line 0.00 0.00 0.00
LA SD Service 0.00 0.00 0.00
Payroll:
Bookkeeper 0.00 0.00 0.00
Off Mgr 0.00 0.00 0.00
Sales Staff 0.00 0.00 0.00
Secretary 0.00 0.00 0.00
TOTAL Payroll 0.00 0.00 0.00
SD AeroRent 0.00 0.00 0.00
SD TJ Line 0.00 0.00 0.00
SD TJ Service 0.00 0.00 0.00
Tax:
State 0.00 1,200.00 1,200.00
Tax - Other 0.00 0.00 0.00
TOTAL Tax 0.00 1,200.00 1,200.00
Telephone:
Phone cellular 0.00 0.00 0.00
Phone long 0.00 0.00 0.00
Phone office 0.00 0.00 0.00
Telephone - Other 0.00 0.00 0.00
TOTAL Telephone 0.00 0.00 0.00
TJ Trunk 0.00 0.00 0.00
Utilities:
Gas & Electric 0.00 0.00 0.00
Water 0.00 0.00 0.00
TOTAL Utilities 0.00 0.00 0.00
Uncategorized Outflows 0.00 0.00 0.00
TOTAL OUTFLOWS 0.00 127,225.00 127,225.00
OVERALL TOTAL 0.00 -127,225.00 127,225.00
191
Budget Report by Month
5/1/98 Through 12/31/98
Month 3
7/1/98 7/31/98
Category Description Actual Budget Difference
INFLOWS
Other Inc 0.00 0.00 0.00
Sales:
Wholesale:
Mexico 0.00 250,000.00 -250,000.00
TOTAL Wholesale 0.00 250,000.00 -250,000.00
TOTAL Sales 0.00 250,000.00 -250,000.00
TOTAL INFLOWS 0.00 250,000.00 -250,000.00
OUTFLOWS
Admin Services:
Bookkeeping 0.00 100.00 100.00
TOTAL Admin Services 0.00 100.00 100.00
Aero Harris 0.00 15,000.00 15,000.00
Auto:
Fuel 0.00 200.00 200.00
Insurance 0.00 200.00 200.00
TOTAL Auto 0.00 400.00 400.00
Bank Charge 0.00 25.00 25.00
Cost of Service:
VIVA MEX 0.00 200,000.00 200,000.00
TOTAL Cost of Service 0.00 200,000.00 200,000.00
Insurance:
Ins office 0.00 300.00 300.00
Insurance - Other 0.00 300.00 300.00
TOTAL Insurance 0.00 600.00 600.00
LA DACS Lease 0.00 2,000.00 2,000.00
LA SD Line 0.00 2,500.00 2,500.00
LA SD Service 0.00 500.00 500.00
Payroll:
Bookkeeper 0.00 0.00 0.00
Off Mgr 0.00 1,000.00 1,000.00
Sales Staff 0.00 5,000.00 5,000.00
Secretary 0.00 0.00 0.00
TOTAL Payroll 0.00 6,000.00 6,000.00
SD AeroRent 0.00 5,000.00 5,000.00
SD TJ Line 0.00 5,000.00 5,000.00
SD TJ Service 0.00 500.00 500.00
Tax:
State 0.00 0.00 0.00
Tax - Other 0.00 200.00 200.00
TOTAL Tax 0.00 200.00 200.00
Telephone:
Phone cellular 0.00 200.00 200.00
Phone long 0.00 2,000.00 2,000.00
Phone office 0.00 500.00 500.00
Telephone - Other 0.00 3,500.00 3,500.00
TOTAL Telephone 0.00 6,200.00 6,200.00
TJ Trunk 0.00 2,500.00 2,500.00
Utilities:
Gas & Electric 0.00 1,000.00 1,000.00
Water 0.00 100.00 100.00
TOTAL Utilities 0.00 1,100.00 1,100.00
Uncategorized Outflows 0.00 0.00 0.00
TOTAL OUTFLOWS 0.00 247,625.00 247,625.00
OVERALL TOTAL 0.00 2,375.00 -2,375.00
192
Budget Report by Month
5/1/98 Through 12/31/98
Month 4
8/1/98 8/31/98
Category Description Actual Budget Difference
INFLOWS
Other Inc 0.00 15,000.00 -15,000.00
Sales:
Wholesale:
Mexico 0.00 750,000.00 -750,000.00
TOTAL Wholesale 0.00 750,000.00 -750,000.00
TOTAL Sales 0.00 750,000.00 -750,000.00
TOTAL INFLOWS 0.00 765,000.00 -765,000.00
OUTFLOWS
Admin Services:
Bookkeeping 0.00 100.00 100.00
TOTAL Admin Services 0.00 100.00 100.00
Aero Harris 0.00 15,000.00 15,000.00
Auto:
Fuel 0.00 200.00 200.00
Insurance 0.00 200.00 200.00
TOTAL Auto 0.00 400.00 400.00
Bank Charge 0.00 25.00 25.00
Cost of Service:
VIVA MEX 0.00 600,000.00 600,000.00
TOTAL Cost of Service 0.00 600,000.00 600,000.00
Insurance:
Ins office 0.00 300.00 300.00
Insurance - Other 0.00 300.00 300.00
TOTAL Insurance 0.00 600.00 600.00
LA DACS Lease 0.00 2,000.00 2,000.00
LA SD Line 0.00 2,500.00 2,500.00
LA SD Service 0.00 500.00 500.00
Payroll:
Bookkeeper 0.00 500.00 500.00
Off Mgr 0.00 1,500.00 1,500.00
Sales Staff 0.00 10,000.00 10,000.00
Secretary 0.00 0.00 0.00
TOTAL Payroll 0.00 12,000.00 12,000.00
SD AeroRent 0.00 5,000.00 5,000.00
SD TJ Line 0.00 5,000.00 5,000.00
SD TJ Service 0.00 500.00 500.00
Tax:
State 0.00 0.00 0.00
Tax - Other 0.00 400.00 400.00
TOTAL Tax 0.00 400.00 400.00
Telephone:
Phone cellular 0.00 200.00 200.00
Phone long 0.00 2,000.00 2,000.00
Phone office 0.00 500.00 500.00
Telephone - Other 0.00 0.00 0.00
TOTAL Telephone 0.00 2,700.00 2,700.00
TJ Trunk 0.00 2,500.00 2,500.00
Utilities:
Gas & Electric 0.00 1,000.00 1,000.00
Water 0.00 100.00 100.00
TOTAL Utilities 0.00 1,100.00 1,100.00
Uncategorized Outflows 0.00 0.00 0.00
TOTAL OUTFLOWS 0.00 650,325.00 650,325.00
OVERALL TOTAL 0.00 114,675.00 -114,675.00
193
Budget Report by Month
5/1/98 Through 12/31/98
Month 5
5/1/98 9/30/98
Category Description Actual Budget Difference
INFLOWS
Other Inc 0.00 15,000.00 -15,000.00
Sales:
Wholesale:
Mexico 0.00 1,000,000.00 -1,000,000.00
TOTAL Wholesale 0.00 1,000,000.00 -1,000,000.00
TOTAL Sales 0.00 1,000,000.00 -1,000,000.00
TOTAL INFLOWS 0.00 1,015,000.00 -1,015,000.00
OUTFLOWS
Admin Services:
Bookkeeping 0.00 100.00 100.00
TOTAL Admin Services 0.00 100.00 100.00
Aero Harris 0.00 15,000.00 15,000.00
Auto:
Fuel 0.00 200.00 200.00
Insurance 0.00 200.00 200.00
TOTAL Auto 0.00 400.00 400.00
Bank Charge 0.00 25.00 25.00
Cost of Service:
VIVA MEX 0.00 800,000.00 800,000.00
TOTAL Cost of Service 0.00 800,000.00 800,000.00
Insurance:
Ins office 0.00 300.00 300.00
Insurance - Other 0.00 300.00 300.00
TOTAL Insurance 0.00 600.00 600.00
LA DACS Lease 0.00 2,000.00 2,000.00
LA SD Line 0.00 2,500.00 2,500.00
LA SD Service 0.00 500.00 500.00
Payroll:
Bookkeeper 0.00 1,000.00 1,000.00
Off Mgr 0.00 2,000.00 2,000.00
Sales Staff 0.00 10,000.00 10,000.00
Secretary 0.00 500.00 500.00
TOTAL Payroll 0.00 13,500.00 13,500.00
SD AeroRent 0.00 5,000.00 5,000.00
SD TJ Line 0.00 5,000.00 5,000.00
SD TJ Service 0.00 500.00 500.00
Tax:
State 0.00 0.00 0.00
Tax - Other 0.00 700.00 700.00
TOTAL Tax 0.00 700.00 700.00
Telephone:
Phone cellular 0.00 200.00 200.00
Phone long 0.00 2,000.00 2,000.00
Phone office 0.00 500.00 500.00
Telephone - Other 0.00 0.00 0.00
TOTAL Telephone 0.00 2,700.00 2,700.00
TJ Trunk 0.00 2,500.00 2,500.00
Utilities:
Gas & Electric 0.00 1,000.00 100.00
Water 0.00 100.00 100.00
TOTAL Utilities 0.00 1,100.00 1,100.00
Uncategorized Outflows 0.00 0.00 0.00
TOTAL OUTFLOWS 0.00 852,125.00 852,125.00
OVERALL TOTAL 0.00 162,875.00 -162,875.00
194
Budget Report by Month
5/1/98 Through 12/31/98
Month 6
10/1/98 10/31/98
Category Description Actual Budget Difference
INFLOWS
Other Inc 0.00 15,000.00 -15,00.00
Sales:
Wholesale:
Mexico 0.00 1,250,000.00 -1,250,000.00
TOTAL Wholesale 0.00 1,250,000.00 -1,250,000.00
TOTAL Sales 0.00 1,250,000.00 -1,265,000.00
TOTAL INFLOWS 0.00 1,265,000.00 -1,265,000.00
OUTFLOWS
Admin Services:
Bookkeeping 0.00 100.00 100.00
TOTAL Admin Services 0.00 100.00 100.00
Aero Harris 0.00 15,000.00 15,000.00
Auto:
Fuel 0.00 200.00 200.00
Insurance 0.00 200.00 200.00
TOTAL Auto 0.00 400.00 400.00
Bank Charge 0.00 25.00 25.00
Cost of Service:
VIVA MEX 0.00 1,000,000.00 1,000,000.00
TOTAL Cost of Service 0.00 1,000,000.00 1,000,000.00
Insurance:
Ins office 0.00 300.00 300.00
Insurance - Other 0.00 300.00 300.00
TOTAL Insurance 0.00 600.00 600.00
LA DACS Lease 0.00 2,000.00 2,000.00
LA SD Line 0.00 2,500.00 2,500.00
LA SD Service 0.00 500.00 500.00
Payroll:
Bookkeeper 0.00 1,000.00 1,000.00
Off Mgr 0.00 2,500.00 2,500.00
Sales Staff 0.00 19,000.00 10,000.00
Secretary 0.00 1,000.00 1,000.00
TOTAL Payroll 0.00 14,500.00 14,500.00
SD AeroRent 0.00 5,000.00 5,000.00
SD TJ Line 0.00 5,000.00 5,000.00
SD TJ Service 0.00 500.00 500.00
Tax:
State 0.00 0.00 0.00
Tax - Other 0.00 900.00 900.00
TOTAL Tax 0.00 900.00 900.00
Telephone:
Phone cellular 0.00 200.00 200.00
Phone long 0.00 2,000.00 2,000.00
Phone office 0.00 500.00 500.00
Telephone - Other 0.00 0.00 0.00
TOTAL Telephone 0.00 2,700.00 2,700.00
TJ Trunk 0.00 2,500.00 2,500.00
Utilities:
Gas & Electric 0.00 1,000.00 1,000.00
Water 0.00 100.00 100.00
TOTAL Utilities 0.00 1,100.00 1,100.00
Uncategorized Outflows 0.00 0.00 0.00
TOTAL OUTFLOWS 0.00 1,053,325.00 1,053,325.00
OVERALL TOTAL 0.00 211,675.00 -211,675.00
195
Budget Report by Month
5/1/98 Through 12/31/98
Month 7
11/1/98 11/30/98
Category Description Actual Budget Difference
INFLOWS
Other Inc 0.00 15,000.00 -15,000.00
Sales:
Wholesale:
Mexico 0.00 1,500,000.00 -1,500,000.00
TOTAL Wholesale 0.00 1,500,000.00 -1,500,000.00
TOTAL Sales 0.00 1,500,000.00 -1,500,000.00
TOTAL INFLOWS 0.00 1,515,000.00 -1,515,000.00
OUTFLOWS
Admin Services:
Bookkeeping 0.00 100.00 100.00
TOTAL Admin Services 0.00 100.00 100.00
Aero Harris 0.00 15,000.00 15,000.00
Auto:
Fuel 0.00 200.00 200.00
Insurance 0.00 200.00 200.00
TOTAL Auto 0.00 400.00 400.00
Bank Charge 0.00 25.00 25.00
Cost of Service:
VIVA MEX 0.00 1,200,000.00 1,200,000.00
TOTAL Cost of Service 0.00 1,200,000.00 1,200,000.00
Insurance:
Ins office 0.00 300.00 300.00
Insurance - Other 0.00 300.00 300.00
TOTAL Insurance 0.00 600.00 600.00
LA DACS Lease 0.00 2,000.00 2,000.00
LA SD Line 0.00 2,500.00 2,500.00
LA SD Service 0.00 500.00 500.00
Payroll:
Bookkeeper 0.00 1,000.00 1,000.00
Off Mgr 0.00 2,500.00 2,500.00
Sales Staff 0.00 10,000.00 10,000.00
Secretary 0.00 1,500.00 1,500.00
TOTAL Payroll 0.00 15,000.00 15,000.00
SD AeroRent 0.00 5,000.00 5,000.00
SD TJ Line 0.00 5,000.00 5,000.00
SD TJ Service 0.00 500.00 500.00
Tax:
State 0.00 0.00 0.00
Tax - Other 0.00 1,000.00 1,000.00
TOTAL Tax 0.00 1,000.00 1,000.00
Telephone:
Phone cellular 0.00 200.00 200.00
Phone long 0.00 2,000.00 2,000.00
Phone office 0.00 500.00 500.00
Telephone - Other 0.00 0.00 0.00
TOTAL Telephone 0.00 2,700.00 2,700.00
TJ Trunk 0.00 2,500.00 2,500.00
Utilities:
Gas & Electric 0.00 1,000.00 1,000.00
Water 0.00 100.00 100.00
TOTAL Utilities 0.00 1,100.00 1,100.00
Uncategorized Outflows 0.00 0.00 0.00
TOTAL OUTFLOWS 0.00 1,253,925.00 1,253,925.00
OVERALL TOTAL 0.00 261,075.00 -261,075.00
196
Budget Report by Month
5/1/98 Through 12/31/98
Month 8
12/1/98 12/31/98
Category Description Actual Budget Difference
INFLOWS
Other Inc 0.00 15,000.00 -15,000.00
Sales:
Wholesale:
Mexico 0.00 1,750,000.00 -1,750,000.00
TOTAL Wholesale 0.00 1,750,000.00 -1,750,000.00
TOTAL Sales 0.00 1,750,000.00 -1,750,000.00
TOTAL INFLOWS 0.00 1,750,000.00 -1,765,000.00
OUTFLOWS
Admin Services:
Bookkeeping 0.00 100.00 100.00
TOTAL Admin Services 0.00 100.00 100.00
Aero Harris 0.00 15,000.00 15,000.00
Auto:
Fuel 0.00 200.00 200.00
Insurance 0.00 200.00 200.00
TOTAL Auto 0.00 400.00 400.00
Bank Charge 0.00 25.00 25.00
Cost of Service:
VIVA MEX 0.00 1,400,000.00 1,400,000.00
TOTAL Cost of Service 0.00 1,400,000.00 1,400,000.00
Insurance:
Ins office 0.00 300.00 300.00
Insurance - Other 0.00 300.00 300.00
TOTAL Insurance 0.00 600.00 600.00
LA DACS Lease 0.00 2,000.00 2,000.00
LA SD Line 0.00 2,500.00 2,500.00
LA SD Service 0.00 500.00 500.00
Payroll:
Bookkeeper 0.00 1,000.00 1,000.00
Off Mgr 0.00 2,500.00 2,500.00
Sales Staff 0.00 20,000.00 20,000.00
Secretary 0.00 1,500.00 1,500.00
TOTAL Payroll 0.00 25,000.00 25,000.00
SD AeroRent 0.00 5,000.00 5,000.00
SD TJ Line 0.00 5,000.00 5,000.00
SD TJ Service 0.00 500.00 500.00
Tax:
State 0.00 0.00 0.00
Tax - Other 0.00 1,000.00 1,000.00
TOTAL Tax 0.00 1,000.00 1,000.00
Telephone:
Phone cellular 0.00 200.00 200.00
Phone long 0.00 2,000.00 2,000.00
Phone office 0.00 500.00 500.00
Telephone - Other 0.00 0.00 0.00
TOTAL Telephone 0.00 2,700.00 2,700.00
TJ Trunk 0.00 2,500.00 2,500.00
Utilities:
Gas & Electric 0.00 1,000.00 1,000.00
Water 0.00 100.00 100.00
TOTAL Utilities 0.00 1,100.00 1,100.00
Uncategorized Outflows 0.00 0.00 0.00
TOTAL OUTFLOWS 0.00 1,463,925.00 1,463,925.00
OVERALL TOTAL 0.00 301,075.00 -301,075.00
197
Budget Report by Month
5/1/98 Through 12/31/98
Year Total
12/1/98 12/31/98
Category Description Actual Budget Difference
INFLOWS
Other Inc 0.00 75,000.00 -75,000.00
Sales:
Wholesale:
Mexico 0.00 6,500,000.00 -6,500,000.00
TOTAL Wholesale 0.00 6,500,000.00 -6,500,000.00
TOTAL Sales 0.00 6,500,000.00 -6,500,000.00
TOTAL INFLOWS 0.00 6,575,000.00 -6,575,000.00
OUTFLOWS
Admin Services:
Bookkeeping 0.00 600.00 600.00
TOTAL Admin Services 0.00 600.00 600.00
Aero Harris 0.00 90,000.00 90,000.00
Auto:
Fuel 0.00 1,200.00 1,200.00
Insurance 0.00 1,200.00 1,200.00
TOTAL Auto 0.00 2,400.00 2,400.00
Bank Charge 0.00 200.00 200.00
Cost of Service:
VIVA MEX 0.00 5,350,000.00 5,350,000.00
TOTAL Cost of Service 0.00 5,350,000.00 5,350,000.00
Insurance:
Ins office 0.00 1,800.00 1,800.00
Insurance - Other 0.00 1,800.00 1,800.00
TOTAL Insurance 0.00 3,600.00 3,600.00
LA DACS Lease 0.00 12,000.00 12,000.00
LA SD Line 0.00 15,000.00 15,000.00
LA SD Service 0.00 3,000.00 3,000.00
Payroll:
Bookkeeper 0.00 4,500.00 4,500.00
Off Mgr 0.00 12,000.00 12,000.00
Sales Staff 0.00 65,000.00 65,000.00
Secretary 0.00 4,500.00 4,500.00
TOTAL Payroll 0.00 86,000.00 86,000.00
SD AeroRent 0.00 30,000.00 30,000.00
SD TJ Line 0.00 30,000.00 30,000.00
SD TJ Service 0.00 3,000.00 3,000.00
Tax:
State 0.00 1,200.00 1,200.00
Tax - Other 0.00 4,200.00 4,200.00
TOTAL Tax 0.00 5,400.00 5,400.00
Telephone:
Phone cellular 0.00 1,200.00 1,200.00
Phone long 0.00 12,000.00 12,000.00
Phone office 0.00 3,000.00 3,000.00
Telephone - Other 0.00 3,500.00 3,500.00
TOTAL Telephone 0.00 19,700.00 19,700.00
TJ Trunk 0.00 15,000.00 15,000.00
Utilities:
Gas & Electric 0.00 6,000.00 6,000.00
Water 0.00 600.00 600.00
TOTAL Utilities 0.00 6,600.00 6,600.00
Uncategorized Outflows 16,087.50 0.00 -16,087.50
TOTAL OUTFLOWS 16,087.50 5,672,500.00 5,656,412.50
OVERALL TOTAL -16,087.50 902,500.00 -918,587.50
198
RICHARD A. CASCARILLA, ESQ., has practiced law in the State of Michigan since
1981 and is a former partner in the law firm of Cascarilla & Brogan. He was
named Secretary and Treasurer of the PowerTel in November, 1990 and has served
as the PowerTel's General Counsel. Mr. Cascarilla was a director until May,
1996. From May until September 1996, Mr. Cascarilla served as an officer of the
PowerTel until he was terminated by the management of the PowerTel. As described
in the Disclosure Statement, in December, 1996, the Series B Preferred
Shareholders elected one director to take control of the PowerTel due to the
continuing default of Golden Chance. Mr. Kassouff was the director elected. Mr.
Kassouff then appointed two temporary directors to serve until further notice.
One of those directors was Mr. Cascarilla. After the order adjudicating PowerTel
a chapter 11 debtor, management filed a motion to restore the debtor to
possession which motion was granted. Since September, 1997, Mr. Cascarilla has
been serving as President of PowerTel and has been reporting to the bankruptcy
court on a regular basis regarding the reorganization effort.
MICHAEL KASSOUFF first became a director of PowerTel in June, 1992. Mr. Kassouff
is co-owner and operations manager of Guaranteed Builders, Inc., and has acted
as a professional real estate developer and investor for over a decade. Mr.
Kassouff is a limited partner of Nevada Geothermal Power Partners. Mr. Kassouff
resigned as a director in May, 1996. In December, 1996, Mr. Kassouff was named
by the Series B Preferred Shareholders to take control of the PowerTel due to
the continuing default of Golden Chance. Mr. Kassouff continues to serve as a
director and it is anticipated that he will be re-elected as a director at the
next annual meeting of PowerTel.
JEFFREY E HARTMAN was a director of the PowerTel from November 1, 1992 until
May, 1996. Hartman has practiced law in the State of Nevada since 1982 and is a
partner in the law firm of Hartman & Armstrong, Ltd. It is anticipated that Mr.
Hartman will be elected as a director at the next annual meeting of PowerTel.
199
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into on the 26th day of August,
1998, by and between Powertel USA, Inc., a Delaware Corporation (the "Company")
and Richard Cascarilla, an individual residing in Mason, Michigan (the
"Executive").
WHEREAS, the Board of Directors of the Company (the "Board") desires to
secure for the Company the services of the Executive on the terms and conditions
set forth herein; and
WHEREAS, the Executive desires to provide such services on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants, terms and conditions hereinafter set forth, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Company and
the Executive hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive as its
President and Chief Executive Officer, and the Executive hereby accepts
employment from the Company in such position for the term set forth below and
upon conditions provided herein.
2. THE EXECUTIVE'S DUTIES.
(a) The Executive hereby agrees to perform competently and diligently
the duties of the office of President of the Company, including such executive
duties as may be reasonably required from time to time by the Board.
(b) The Executive agrees to observe and comply with all rules,
regulations, policies and practices adopted by the Company, either orally or in
writing, both as they now exist and as they may be adopted or modified from time
to time.
3. TERM. The term of this Employment Agreement shall commence as of
August 26, 1998 and shall end on August 25, 2001, unless earlier terminated
pursuant to Paragraph 6. or 7. below.
4. COMPENSATION. In consideration of the services to be rendered
hereunder by the Executive, the Company hereby agrees to pay compensation to the
Executive as follows:
(a) During the first contract year hereunder (i.e., from August 26,
1998 to August 26, 1999), a base salary in the amount of EIGHTY-FOUR THOUSAND
DOLLARS, ($84,000.00). During the second contract year hereunder (i.e., from
August 26, 1999 to August 26, 2000), a base salary in the amount of NINETY-TWO
THOUSAND DOLLARS, ($92,000.00). During the third contract year hereunder (i.e.,
from August 26, 2000 to August 26, 2001), a base salary in the amount of ONE
HUNDRED
200
THOUSAND DOLLARS, ($100,000.00). Such a salary, less customary deductions for
withholding and other charges, shall be payable on the Company's customary pay
days.
(b) In addition, the Executive will receive a bonus, depending upon
the Company's operating results of $15,000.00 for each $1 million of earnings
before interest, taxes, depreciation, amortization and such bonuses ("EBITDAB")
as generated by the Company during any fiscal year beginning on August 26,
1998.
5. FRINGE BENEFITS.
(a) The Company agrees to reimburse the Executive for the expense
incurred by the Executive in connection with the performance of his
duties hereunder. (b) The Executive shall also be provided health
insurance and a life insurance policy of an amount not less than the
total amount of this contract. Executive shall also be entitled to
three (3) weeks of vacation each year.
6. TERMINATION. Notwithstanding anything to the contrary contained
herein, the Company may terminate this Employment Agreement, the Executive's
employment hereunder, and all compensation due to the Executive pursuant to
Paragraph 4. above at any time for "just cause". For purposes of this agreement,
termination for "just cause" shall mean: (a) a termination due to malfeasance or
nonfeasance by the Executive in the performance of this duties for which he is
employed, in either such instance so as to cause harm to the Company; (b) a
termination due to the Executive's committing fraud, misappropriation or
embezzlement in the performance of his duties as an employee of the Company; (c)
a termination due to the Executive's committing any felony for which he is
convicted and which, as determined in good faith by the Board, constitutes a
crime involving moral turpitude, which causes harm to the Company; or (d) a
substantial breach of any of the terms of this Employment Agreement.
7. TERMINATION UPON DEATH. If the Executive shall die before the
expiration of term hereof, this Employment Agreement shall terminate and the
Company shall have no further obligation hereunder to the Executive, except that
the Company shall pay to the Executive's estate the amount of any earned but
unpaid compensation pursuant to Paragraph 4. above to the date of death.
8. ENTIRE AGREEMENT. This Employment Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, and contains
all of the covenants, promises, representations, warranties and agreements
between the parties with respect to the employment of the Executive by the
Company. Any modification of this Employment Agreement will be effective only if
it is in writing and signed by the party to be charged.
9. SEVERABILITY. Any determination by the court of competent
jurisdiction that any provision herein contained is invalid or unenforceable
shall not affect the validity or the enforceability of any other provision of
this Employment Agreement.
201
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first above written.
POWERTEL USA, INC.
By: ________________________________________
Richard A. Cascarilla, President
By: ________________________________________
Michael R. Kassouff, Secretary/Treasurer
202
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into on the 26th day of August,
1998, by and between Powertel USA, Inc., a Delaware Corporation (the "Company")
and Michael R. Kassouff, an individual residing in Houston, Texas (the
"Executive").
WHEREAS, the Board of Directors of the Company (the "Board") desires
to secure for the Company the services of the Executive on the terms and
conditions set forth herein; and
WHEREAS, the Executive desires to provide such services on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants, terms and conditions hereinafter set forth, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Company
and the Executive hereby agree as follows:
1. Employment. The Company hereby employs the Executive as its
Secretary/Treasurer, and the Executive hereby accepts employment from the
Company in such position for the term set forth below and upon conditions
provided herein.
2 THE EXECUTIVE'S DUTIES.
(a) The Executive hereby agrees to perform competently and diligently
the duties of the office of Secretary/Treasurer of the Company, including such
executive duties as may be reasonably required from time to time by the Board.
(b) The Company acknowledges that, during the term hereof, the
Executive's duties will be performed on a part-time basis, and the Executive's
construction business will require considerable time and attention by the
Executive. Nevertheless, the Executive agrees to be reasonably available to the
Company and will comply with the Company's reasonable requests for his presence
in Reno, Nevada or any other places deemed necessary by the Corporation.
(c) The Executive agrees to observe and comply with all rules,
regulations, policies and practices adopted by the Company, either orally or in
writing, both as they now exist and as they may be adopted or modified from
time to time.
3. TERM. The term of this Employment Agreement shall commence as of
August 26, 1998 and shall end on August 25, 2001, unless earlier terminated
pursuant to Paragraph 6. or 7. below.
4. COMPENSATION. In consideration of the services to be rendered
hereunder by the Executive, the Company hereby agrees to pay compensation to
the Executive as follows:
203
(a) During the first contract year hereunder (i.e., from August 26,
1998 to August 26, 1999), a base salary in the amount of EIGHTEEN THOUSAND
DOLLARS, ($18,000.00). During the second contract year hereunder (i.e., from
August 26, 1999 to August 26, 2000), a base salary in the amount of TWENTY-FOUR
THOUSAND DOLLARS, ($24,000.00). During the third contract year hereunder (i.e.,
from August 26, 2000 to August 26, 2001), a base salary in the amount of Thirty
Thousand Dollars, ($30,000.00). Such a salary, less customary deductions for
withholding and other charges, shall be payable on the Company's customary pay
days.
(b) In addition, the Executive will receive a bonus, depending upon
the Company's operating results of $10,000.00 for each $1 million of earnings
before interest, taxes, depreciation, amortization and such bonuses ("EBITDAB")
as generated by the Company during any fiscal year beginning on August 26,
1998.
5. FRINGE BENEFITS.
(a) The Company agrees to reimburse the Executive for the expense
incurred by the Executive in connection with the performance of his duties
hereunder.
(b) The Executive shall also be provided health insurance and a life
insurance policy of an amount not less than the total amount of this contract.
6. TERMINATION. Notwithstanding anything to the contrary contained
herein, the Company may terminate this Employment Agreement, the Executive's
employment hereunder, and all compensation due to the Executive pursuant to
Paragraph 4. above at any time for "just cause". For purposes of this
agreement, termination for "just cause" shall mean: (a) a termination due to
malfeasance or nonfeasance by the Executive in the performance of this duties
for which he is employed, in either such instance so as to cause harm to the
Company; (b) a termination due to the Executive's committing fraud,
misappropriation or embezzlement in the performance of his duties as an
employee of the Company; (c) a termination due to the Executive's committing
any felony for which he is convicted and which, as determined in good faith by
the Board, constitutes a crime involving moral turpitude, which causes harm to
the Company; or (d) a substantial breach of any of the terms of this Employment
Agreement.
7. TERMINATION UPON DEATH. If the Executive shall die before the
expiration of term hereof, this Employment Agreement shall terminate and the
Company shall have no further obligation hereunder to the Executive, except
that the Company shall pay to the Executive's estate the amount of any earned
but unpaid compensation pursuant to Paragraph 4. above to the date of death.
8. ENTIRE AGREEMENT. This Employment Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, and contains
all of the covenants, promises, representations, warranties and agreements
between the parties with respect to the employment of the Executive by the
Company. Any modification of this Employment Agrement will be effective only if
it is in writing and signed by the party to be charged.
204
9. SEVERABILITY. Any determination by the court of competent
jurisdiction that any provision herein contained is invalid or unenforceable
shall not affect the validity or the enforceability of any other provision of
this Employment Agrement.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first above written.
POWERTEL USA, INC.
By: ________________________________________
Richard A. Cascarilla, President
By: ________________________________________
Michael R. Kassouff, Secretary/Treasurer