UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[(check mark)] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number 0-16560
VANGUARD CELLULAR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1549590
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2002 Pisgah Church Road, Suite 300,
Greensboro, North Carolina 27455-3314
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 282-3690
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES (check mark) NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation 8-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (check mark)
The aggregate market value of the registrant's Common Stock held by those
other than executive officers and directors at March 15, 1996, based on
the NASDAQ closing sale price for the Registrant's Common Stock as of such
date, was approximately $693,065,000.
The number of shares outstanding of the issuer's common stock as of March
15, 1996 was 41,313,443.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement relating to its
1996 annual meeting of stockholders are incorporated by reference into Part
III as set forth herein. Such proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the
registrant's fiscal year ended December 31, 1995.
The undersigned registrant hereby amends the following item of its
report on Form 10-K for the fiscal year December 31, 1995 by adding the
following financial statement schedule and exhibit:
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(2) Financial Statements and Financial Statement Schedules. The following
financial statements for International Wireless Communications
Holdings, Inc. and Subsidiaries are filed as a schedule to this
amendment:
Independent Auditors' Report....................................F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995... F-3
Consolidated Statements of Operations for the years ended
December 31, 1993, 1994 and 1995.........................F-4
Consolidated Statements of Stockholders' Equity (Deficit) for
the years ended December 31, 1993, 1994 and 1995.........F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1994 and 1995.........................F-6
Notes to Consolidated Financial Statements......................F-7
(a)(3) Exhibits. The following exhibit is filed with this amendment:
Exhibit 23.2 Consent of KPMG Peat Marwick LLP
SIGNATURES
Pursuant to the requirements of the Section 13 and 15(d) of the Securities
Act of 1934, the registrant has duly caused this amendment to be signed on
its behalf by the undersigned, thereunto duly authorized.
VANGUARD CELLULAR SYSTEMS, INC.
By: /s/ Stephen L. Holcombe
Stephen L. Holcombe,
Senior Vice President
and Chief Financial Officer
Dated: August 16, 1996
INDEPENDENT AUDITORS' REPORT
The Board of Directors
International Wireless Communications Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of International
Wireless Communications Holdings, Inc. and subsidiary (IWC Holdings) as of
December 31, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the years
in the three-year period ended December 31, 1995. These consolidated financial
statements are the responsibility of IWC Holdings' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of PT
Rajasa Hazanah Perkasa (RHP), an investment which is reflected in the
accompanying consolidated financial statements using the equity method of
accounting as of and for the year ended December 31, 1995 (see Note 3). The
investment in this company represents 25% of consolidated assets as of December
31, 1995. The equity in its net loss was approximately $1,310,000 for the year
ended December 31, 1995. Those statements were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to the
amounts included for that company, is based on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, based on our audit and the report of other auditors for 1995,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of International Wireless
Communications Holdings, Inc. and subsidiary as of December 31, 1994 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Francisco, California
July 12, 1996,
except for Note 1, as to
which the date is August 8, 1996
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND
SUBSIDIARY
Consolidated Balance Sheets
December 31, 1994 and 1995
(In thousands, except share data)
Assets 1994 1995
---- ----
Current assets:
Cash and cash equivalents............................................................................ $10,298 25,398
Notes receivable from affiliates .................................................................... 2,245 338
Advance to affiliate ................................................................................ -- 728
Other current assets ................................................................................ 37 387
------ ------
Total current assets ....................................................................... 12,580 26,851
Property and equipment, net .................................................................................. 88 4,269
Investments in affiliates .................................................................................... 5,427 52,280
Telecommunication licenses, net .............................................................................. -- 12,106
Other assets ................................................................................................. 329 137
------ ------
Total assets................................................................................ $18,424 95,643
====== ======
Liabilities, Redeemable Convertible
Preferred Stock and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses................................................................ $ 200 5,757
Notes payable to related party ...................................................................... 1,800 1,800
Note payable ........................................................................................ -- 4,000
------ ------
Total current liabilities .................................................................. 2,000 11,557
Commitments and contingencies (Note 7)
Redeemable convertible preferred stock, $.01 par value per share; 21,541,480
shares designated; 5,222,080 and 15,698,400 shares issued and
outstanding in 1994 and 1995, respectively; net of note receivable from
stockholder of $26 in 1994 and 1995; liquidation and minimum redemption
value of $105,509 as of December 31, 1995 ........................................................... 19,446 98,254
Stockholders' deficit:
Convertible preferred stock, $.01 par value per share; 1,200,000 shares
designated, issued, and outstanding in 1994 and 1995;
liquidation preference of $1,020 as of December 31, 1995 ................................... 12 12
Common stock, $.01 par value per share; 26,000,000 shares authorized;
76,080 and 328,000 shares issued and outstanding in 1994 and
1995, respectively ......................................................................... 1 3
Additional paid-in capital ................................................................................... 625 748
Note receivable from stockholder ............................................................................. (152) (152)
Accumulated deficit .......................................................................................... (3,508) (14,779)
-------- --------
Total stockholders' deficit ........................................................................ (3,022) (14,168)
-------- --------
Total liabilities, redeemable convertible preferred stock
and stockholders' deficit ........................................................................... $ 18,424 95,643
======== ========
See accompanying notes to consolidated financial statements
F-3
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND
SUBSIDIARY
Consolidated Statements of Operations
For the years ended December 31, 1993, 1994 and 1995
(In thousands)
1993 1994 1995
------- -------- ---------
Operating revenue..................... $ - - -
Operating expenses:
General and administrative expenses... 809 2,481 6,365
Equity in losses of affiliates........ - - 3,756
------- -------- ---------
Loss from operations.................. (809) (2,481) (10,121)
Other income (expense):
Interest income....................... 2 106 232
Interest expense...................... (33) (115) (1,354)
Other................................. (1) (13) (28)
------- -------- ---------
Net loss.............................. $(841) (2,503) (11,271)
======= ======== =========
See accompanying notes to consolidated financial statements.
F-4
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND
SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1993, 1994, and 1995 (In thousands,
except share data)
Convertible
preferred stock Common stock
------------------- -------------------
Note Total
Additional receivable stockholders'
paid-in from Accumulated equity
Shares Amount Shares Amount capital stockholder deficit (deficit)
------------ ------ ------------ ------ ---------- ----------- ----------- -------------
Balances as of December
31, 1992............... 271,960 $3 1,200,000 $12 $635 $- $(164) $486
Exercise of warrant.... 108,760 - - - - - - -
Conversion of notes
payable to Series A
preferred stock........ 108,800 1 - - 99 - - 100
Issuance of Series A
preferred stock........ 739,720 7 - - 673 - - 680
Net loss............... - - - - - - (841) (841)
------------ ------ ------------ ------ ---------- ----------- ----------- -------------
Balances as of December
31, 1993............... 1,229,240 11 1,200,000 12 1,407 - (1,005) 425
Conversion of Series A
preferred stock to
Series B redeemable
preferred stock........ (1,229,240) (11) - - (933) - - (944)
Conversion of common
stock to Series A
preferred stock........ 1,200,000 12 (1,200,000) (12) - - - -
Issuance of common
stock.................. - - 76,080 1 151 (152) - -
Net loss............... - - - - - - (2,503) (2,503)
------------ ------ ------------ ------ ---------- ----------- ----------- -------------
Balances as of December
31, 1994............... 1,200,000 12 76,080 1 625 (152) (3,508) (3,022)
Issuance of common
stock.................. - - 251,920 2 123 - - 125
Net loss............... - - - - - - (11,271) (11,271)
------------ ------ ------------ ------ ---------- ----------- ----------- -------------
Balances as of December
31, 1995............... 1,200,000 $12 328,000 $3 $748 $(152) $(14,779) $(14,168)
============ ====== ============ ====== ========== =========== =========== =============
See accompanying notes to consolidated financial statements.
F-5
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
December 31, 1993, 1994 and 1995
(In thousands)
1993 1994 1995
-------- -------- ----------
Cash flows from operating activities:
Net loss....................................................... $(841) (2,503) (11,271)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation................................................... 3 15 37
Amortization................................................... 40 40 294
Equity in losses of affiliates................................. - - 3,756
Changes in operating assets and liabilities:
Other current assets........................................... (42) 5 (350)
Accounts payable and accrued expenses.......................... 155 45 5,557
-------- -------- ----------
Net cash used in operating activities.......................... (685) (2,398) (1,977)
-------- -------- ----------
Cash flows from investing activities:
Purchases of property and equipment............................ (8) (88) (4,218)
Notes receivable from affiliates............................... - (2,245) (113)
Advances to affiliate.......................................... - - (728)
Investments in affiliates...................................... (1,401) (3,704) (19,589)
Telecommunication licenses..................................... - - (12,153)
Other assets................................................... (40) (169) 70
-------- -------- ----------
Net cash used in investing activities.......................... (1,449) (6,206) (36,731)
-------- -------- ----------
Cash flows from financing activities:
Loan proceeds.................................................. 2,160 5,180 28,138
Repayment of principal......................................... (50) (2,060) (2,050)
Net proceeds from issuance of stock and warrant................ 680 15,122 27,720
-------- -------- ----------
Net cash provided by financing activities...................... 2,790 18,242 53,808
-------- -------- ----------
Net increase in cash and cash equivalents...................... 656 9,638 15,100
Cash and cash equivalents at beginning of year................. 4 660 10,298
-------- -------- ----------
Cash and cash equivalents at end of year....................... $660 10,298 25,398
======== ======== ==========
Supplemental cash flow information:
Cash paid for interest......................................... $16 103 949
======== ======== ==========
Noncash financing and investing activities:
Conversion of loans to equity.................................. $100 3,380 24,307
======== ======== ==========
Conversion of note receivable to investment in affiliate....... $- - 2,020
======== ======== ==========
Note receivable from sale of stock............................. $- 178 -
======== ======== ==========
Exchange of preferred stock for investment in affiliates....... $- - 25,000
======== ======== ==========
Exchange of common stock for investment in CTP................. $- - 125
======== ======== ==========
Note payable in connection with RHP investment................. $- - 4,000
======== ======== ==========
See accompanying notes to consolidated financial statements.
F-6
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
(1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business
International Wireless Communications, Inc. and subsidiaries (IWC or the
Company) was incorporated in Delaware in 1992. The Company develops, owns, and
operates wireless communications companies in emerging markets throughout Asia
and Latin America. These local wireless businesses (LWBs) provide a variety of
communications services. Together with local and strategic partners, the Company
has interests in Brazil, India, Indonesia, Malaysia, Mexico, New Zealand,
Pakistan, Peru, and the Philippines.
In prior years, the Company was considered a development stage enterprise.
During 1995, the Company's interests in Malaysia, Indonesia, New Zealand, and
Mexico commenced operations. Entities in which the Company has ownership
interests and have commenced operations are referred to as "operating entities."
As such, the Company's management has ceased to report the operations as a
development stage enterprise.
International Wireless Communications Holdings, Inc. ("IWC Holdings") was
incorporated in Delaware in July 1996 as a holding company whose primary asset
is the capital stock of IWC. Subsequent to the formation of IWC Holdings, the
Company completed a reorganization in which each share of the then outstanding
capital stock of IWC, which became a wholly owned subsidiary of IWC Holdings,
was converted into 40 shares of the corresponding class and series of capital
stock of IWC Holdings. IWC Holdings assumed and became the successor to the
agreements of IWC relating to capital stock. All data related to shares and per
share amounts for all periods presented have been adjusted to reflect the effect
of the reorganization and the stock conversion.
Consistent with industry practice, the Company considers itself to be operating
in one business segment.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
International Wireless Communications, Inc. and its wholly owned subsidiary,
Servicos de Radio Comunicacoes Ltda. (SRC) located in Brazil. In addition, the
accompanying consolidated financial statements include the accounts of two
majority owned subsidiaries, M/S Mobilcom (Pte) Ltd. (Mobilcom) located in
Pakistan, and PeruTel S.A. (PeruTel) located in Peru. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Minority interests are not reflected in the accompanying consolidated financial
statements as they are immaterial.
Foreign Currency Translation
The functional currency for the Company's foreign operating entities is the
applicable local currency, except for those located in highly inflationary
countries. Translation from the applicable foreign currencies to U.S. dollars is
performed for monetary assets and liabilities using current exchange rates in
effect at the balance sheet date and for revenue and expense accounts using a
weighted average exchange rate during the period. The gains or losses, net of
applicable deferred income taxes, resulting from such translation, if material,
are included in stockholders' equity. Gains or losses resulting from foreign
currency transactions are included in other income. The functional currency of
the Company's non-operating foreign investees is the U.S. dollar.
F-7
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of 90 days
or less at the time of acquisition to be cash equivalents. Cash equivalents as
of December 31, 1995 consisted of money market mutual funds. For all such
investments, cost approximates fair market value.
Property and Equipment
Property and equipment are stated at original cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the respective
assets, generally three to five years for domestic assets and three to twenty
years for foreign assets.
Investments in Affiliated Companies
Investments in affiliated companies consist of the costs incurred to acquire
development stage projects or interests in entities that have been awarded
telecommunication licenses to provide various wireless services.
The cost method of accounting is used for the Company's investments in
affiliated companies where the Company's voting interest is less than 20% and
the Company does not exert significant influence. Under the cost method, the
investment is recorded at cost, and income is recognized only to the extent
distributed by the investee as dividends. No such dividends were declared or
distributed for the years ended December 31, 1994 and 1995. Write-downs to the
recorded historical cost are recognized when the Company believes that an
impairment in value has occurred.
Where the Company's voting interest is 20% to 50% and the Company does not
exercise control, the equity method of accounting is used. Under this method,
the investment, originally recorded at cost, is adjusted to recognize the
Company's share of net earnings or losses of the investee, limited, in the case
of losses, to the extent of the Company's investment therein. The amount of the
purchase price that exceeded the Company's percentage of ownership of the LWB's
net book value at the date of the acquisition is separately attributed to the
value of the underlying LWB's operating telecommunication license. Such
telecommunication licenses are amortized over 20 years commencing upon the
completion of the acquisition with such amortization included as a component of
equity in losses of affiliates.
The Company consolidates entities it controls, generally through greater than
50% ownership interest.
Telecommunication Licenses of Majority Owned Subsidiaries
The Company has acquired majority ownership interest in various LWBs. These
acquisitions have been accounted for under the purchase method and are included
in the accompanying consolidated financial statements. The amount of the
purchase price that exceeded the Company's percentage ownership of the LWB's net
book value at the date of the acquisition is separately attributed to be the
value of the underlying LWB's operating telecommunication license. Licenses are
amortized over 20 years, commencing upon the completion of the acquisition.
Amortization expense of $47,000 was recorded in 1995. No amortization was
recorded in 1993 or 1994.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to
F-8
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from these estimates.
Business and Credit Concentrations and Risk Factors
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist of cash and cash equivalents. The Company's investments
are comprised of investment grade short-term debt instruments. Management
believes that the financial risks associated with such deposits are minimal.
Included in the Company's consolidated balance sheet as of December 31, 1994 and
1995, are long-term investments in various LWBs in such developing countries as
Malaysia, Indonesia, Brazil, Pakistan and Mexico (see Note 8). These investments
make up a significant portion of IWC's balance sheet (see Note 3).
Each IWC affiliate has a unique and distinct market, operating environment, and
local economy with different subscription rates and costs to build and operate
the systems. Achieving each operating plan is dependent upon successfully
contending not only with normal risks associated with constructing and operating
wireless properties, but also risks unique to operating in foreign countries,
such as regulatory compliance, contractual restrictions, labor laws,
expropriation, nationalization, political, economic or social instability, and
confiscatory taxation.
The Company anticipates that it will often have a minority interest in operating
companies, in part because applicable laws often limit foreign investors to
minority equity positions. As such, the Company may be unable to access the cash
flow, if any, of its operating companies. Additionally, the Company's ability to
sell or transfer its ownership interest in its operating companies is generally
subject to limitations based on agreements with its strategic and financial
partners, as well as provisions in local operating licenses and local government
regulations that may prohibit or restrict the transfer of the Company's
ownership interest in such operating companies.
The Company's ability to retain and exploit its existing telecommunication
licenses, and to obtain new licenses in the future, is essential to the
Company's operations. However, these licenses are typically granted by
governmental agencies in developing countries, and there can be no assurance
that these governmental agencies will not seek to unilaterally limit, revoke, or
otherwise adversely modify the terms of these licenses in the future, any of
which could have a material adverse effect on the Company, and the Company may
have limited or no legal recourse if any of these events were to occur. In
addition, licenses typically require renewal from time to time and there can be
no assurance that renewals to these licenses will be granted.
Most of the LWBs currently operating have incurred operating losses and negative
cash flow from operations since inception, and the Company expects that most of
its operating companies will continue to generate operating losses and negative
cash flow from operations for the foreseeable future. Most of these operating
companies have only recently initiated providing commercial services and have
a limited subscriber base. This is not uncommon in the wireless
communications industry, which requires significant capital investments
in the initial years prior to obtaining a sufficient subscriber revenue
base to support
F-9
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
operations. Achievement of positive cash flow from operations will depend on
successful execution of management's business plans. Those plans assume
significant additional capital investment, in some cases, to expand the wireless
network. There can be no assurance that such funding capacity will be available
in the future.
Nonoperating risks include substantial use of borrowings by unconsolidated
investee companies to leverage equity capital employed and risks with respect to
foreign currency exchange rates.
Recoverability of Long-Lived Assets
The recoverability of property and equipment, investments in equity and cost
investee companies is dependent upon the successful build-out of system
infrastructure, obtaining additional licenses by investee companies, and
successful development of systems in each of the respective markets in which the
Company's investees operate or through the sale of such assets.
The Company's policy is to assess annually any impairment in value based upon a
comparison of projected operating cash flows from each of the underlying
investee companies over their expected period of operation, on an undiscounted
basis, to the carrying amount of the related assets.
Fair Value of Financial Instruments
The carrying value of the Company's cash and cash equivalents, notes receivable
from and advance to affiliates, accounts payable and accrued expenses, notes
payable to related party and note payable approximates the fair market value due
to the relatively short maturity of these instruments.
Acquisition, Transaction, and Development Costs
The Company expenses direct and incremental costs incurred relative to pursuing
potential investments due to the relative uncertainty of the future realization
of such costs principally due to the nature of early stage development projects
in foreign countries.
Reclassifications
Certain amounts in the accompanying 1993 and 1994 consolidated financial
statements have been reclassified to conform with the 1995 consolidated
financial statement presentation.
Recent Accounting Pronouncements
The Financial Accounting Standards Board recently adopted SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. This statement requires long-lived assets to be evaluated for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. The Company adopted SFAS No. 121 in
fiscal 1995. The adoption of SFAS No. 121 did not have a material effect on the
Company's results of operations.
The Financial Accounting Standards Board recently adopted SFAS No. 123,
Accounting for Stock-Based Compensation. This statement establishes financial
accounting and reporting standards for stock-based employee compensation plans,
including stock option/stock issuance plans. The Company will adopt SFAS No.
123 in fiscal 1996. Management plans to continue conforming to APB No. 25,
Accounting for Stock Issued to Employees, for purposes of measurement of
compensation expense. Therefore, adoption of SFAS No. 123 is not expected to
have a material effect on the Company's results of operations in the year of
adoption.
F-10
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
(2) Balance Sheet Components
Balance sheet components as of December 31 are as follows (in thousands):
1994 1995
------ ------
Property and equipment
Furniture and fixtures............... $ 36 40
Equipment............................ 71 126
Automobiles.......................... - 34
Construction in process.............. - 4,125
------ ------
107 4,325
Less accumulated amortization........ 19 56
------ ------
Property and equipment, net.......... $88 4,269
====== ======
Telecommunication licenses
SRC.................................. $- 6,714
Mobilcom............................. - 5,439
------ ------
- 12,153
Less accumulated amortization........ - 47
------ ------
Telecommunication licenses, net...... $- 12,106
====== ======
Accounts payable and accrued expenses
Professional services................ $- 3,041
Employee compensation and benefits... 89 189
Interest............................. 30 256
Equipment purchases.................. - 1,719
Accounts payable and other........... 81 552
------ ------
$200 5,757
====== ======
F-11
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
(3) Investments in Affiliates
The Company's investments in affiliates represent interests in various LWBs in
several developing countries. These investments are accounted for under the
equity or cost methods.
Equity Investments
For those investments in companies in which the Company's voting interest is 20%
to 50%, or for investments in companies in which the Company exerts significant
influence through board representation and management authority, the equity
method of accounting is used. Under this method, the investment, originally
recorded at cost, is adjusted to recognize the Company's share of losses of
affiliates, limited to the extent of the Company's investment in and advances to
affiliates, including any debt guarantees or other contractual funding
commitments. All affiliated companies have fiscal years ended December 31.
Investments in affiliated companies are as follows as of December 31, 1994 and
1995 (dollars in thousands):
Portion of
investment
exceeding
Company's
share of the
Investments underlying
Affiliated Percentage in affiliated historical
Country company of ownership companies(2) net assets
- ----------- ---------------------------------- -------------- ------------- -------------
1994 1995 1994 1995 1994 1995
--------- ---- ------ ------ ------ ------
Malaysia Syarikat Telefon Wireless (STW)... 2%(1) 30% $1,400 20,879 $1,311 17,459
Indonesia PT Rajasa Hazanah Perkasa (RHP)... - 25% - 24,539 - 23,680
New Zealand TeamTalk Limited (TeamTalk)....... 25% 50% 284 2,345 - 1,712
HFCL Mobile Radio Limited
India (HFCL)............................ - 49% - 243 - 243
Indonesia PT Binamulti Visualindo (PTBV).... - 49% - 206 - 206
------ ------ ------ ------
1,684 48,212 1,311 43,300
Less accumulated amortization........................... - 966 - 966
------ ------ ------ ------
$1,684 47,246 $1,311 42,334
====== ====== ====== ======
- ------
(1) In 1994 this investment was accounted for under the cost method.
(2) Adjusted for the Company's share of equity in losses of affiliated
companies.
The Company acquired its interest in RHP, HFCL, and PTBV during 1995 and
accounted for them using the purchase method (see Note 4). The following
condensed financial statement data, presented in accordance with U.S. generally
accepted accounting principles and stated in U.S. dollars, has been derived from
audited and unaudited financial statements. The financial information pertaining
to RHP was derived from financial statements audited by other auditors. Both
HFCL and PTBV are nonoperating entities with insignificant operations as of
December 31, 1995, and as such, selected financial information is not included.
For the year ended December 31, 1993, no significant operations existed for any
equity investment.
F-12
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
Financial information for affiliated companies accounted for by the equity
method is as follows (in thousands):
As of and for the year ended
December 31, 1994
--------------------------------
STW RHP TeamTalk
-------- ----------- -----------
(Unaudited)
Current assets........... $1,506 - 24
Noncurrent assets........ 11,374 - 239
Current liabilities...... 878 - 100
Noncurrent liabilities... 7,565 - -
Net revenues............. 83 - -
Net loss................. (1,746) - -
As of and for the year ended
December 31, 1995
--------------------------------
STW RHP(A) TeamTalk(B)
-------- ----------- -----------
Current assets........... $2,576 5,156 167
Noncurrent assets........ 32,128 12,014 6,311
Current liabilities...... 2,948 13,920 3,890
Noncurrent liabilities... 21,636 59 1,493
Net revenues............. 749 7,284 300
Net loss................. (5,898) (3,280) (1,133)
- ----------------------------------------------------------------------
(A) For the period March 28, 1995 through December 31, 1995
(B) For the period May 18, 1995 through December 31, 1995
Cost Investments
The Company uses the cost method of accounting for three other investments.
They are Corporacion Mobilcom, S.A. de C.V. (Tricom), PT Mobilkom Telekomindo
(Mobilkom), and Universal Telecommunications Service, Inc. (UTS). The Company's
ownership percentage is 2.47%, 15% and 19%, respectively. Both Tricom and
Mobilkom are operating entities. UTS, owned directly, and indirectly through
Mobilcom Corporation, is nonoperating.
The Company's carrying value and estimated fair value of these investments as of
December 31 are as follows (in thousands):
1994 1995
-------------------- -----------------------
Carrying Fair market Carrying Fair market
amount value amount value
-------- ----------- ----------- -----------
Tricom................... $2,062 3,510 2,062 3,510(A)
Mobilkom................. 1,500 1,500 1,500 2,400(B)
UTS...................... 181 181 1,472 1,472(C)
-------- ----------- ----------- -----------
$3,743 5,191 5,034 7,382
======== =========== =========== ===========
The Company considers these investments to be long-term in nature and are not
held for trading purposes. Fair value for these investments was determined as
follows:
(A) Fair value determined based upon the minimum value available through the
exercise of a put option.
(B) Fair value based upon recent investments by other shareholders. The Company
has undertaken to pledge all of its stock of Mobilkom to secure Mobilkom's
borrowings under a bank credit facility.
(C) Management has determined that the carrying cost approximates market value.
F-13
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
(4) Related Party Transactions
Advances to Affiliate
The advances to affiliate as of December 31, 1995 represented advances to
TeamTalk in the amount of $728,000. The advances are interest-free with no
stated terms.
Notes Receivable from Affiliates
Notes receivable from affiliates as of December 31, 1994, consisted primarily of
a working capital loan to STW of $2,020,000, bearing interest at market rates,
which was converted to an equity interest in STW during 1995.
Notes receivable from affiliates as of December 31, 1995, consisted primarily of
a note due from Tricom for $158,000, which earns interest at 6% per annum; and a
note due from RHP for $128,000, bearing interest at market rates. The notes
expired on January 5, 1996 and April 15, 1996, respectively, and have
subsequently been extended.
Notes Payable to Related Party
Notes payable as of December 31, 1994 and 1995, consisted of two notes payable
to Vanguard Cellular Operating Corp. (Vanguard), a significant stockholder, each
in the amount of $900,000 and bearing interest at 9% compounded annually. The
notes are due on the earlier of April 26, 1996 or the close of an initial public
offering. These notes are convertible, at the option of the holder, into 274,800
shares of redeemable convertible Series D preferred stock. Subsequent to
year-end, these notes were converted (see Note 9).
Vanguard Merger
On December 18, 1995, the Company merged with Vanguard International
Telecommunications, Inc. (VIT) (see Note 5), a wholly owned subsidiary of
Vanguard. In exchange for 3,972,240 shares of redeemable convertible Series E
preferred stock with a liquidation preference of $6.29 per share, the Company
acquired VIT's interests in TeamTalk and VIT's rights to acquire an interest in
various international LWBs. The resulting total value of $25,000,000, was
allocated to the various LWBs based on their respective stage of development and
an independent valuation study of the LWBs.
The excess of the allocated portion of the merger value to TeamTalk over the net
book value of TeamTalk was attributed to telecommunication licenses. This
excess amounted to $1,712,000 and is amortized on a straight-line basis over 20
years.
The Company also acquired VIT's rights to participate in RHP, SRC, Mobilcom,
HFCL and PTBV and other yet to be developed projects. Approximately $23,288,000
was allocated to telecommunication licenses in each LWB based on their relative
stage of development. These amounts are amortized on a straight-line basis over
20 years.
F-14
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
Unaudited pro forma consolidated results of operations, as if the merger with
VIT had occurred on January 1, 1994, are as follows (in thousands):
1994 1995
--------- ---------
Revenues......... $- -
Operating loss... (3,731) (11,713)
Net loss......... (3,753) (12,863)
(5) Redeemable Convertible Preferred Stock and Stockholders' Equity
The Company is authorized to issue 23,080,000 shares of preferred stock, of
which 21,541,480 are designated redeemable convertible preferred stock,
1,200,000 are designated nonredeemable convertible preferred stock, 338,520 are
undesignated, and 26,000,000 shares of common stock, each with a par value of
$0.01 per share.
Redeemable convertible preferred stock as of December 31, 1995, was comprised of
the following (in thousands except share and per share amounts):
Shares Liquidation Aggregate
Redeemable convertible Shares issued and value per liquidation
preferred stock: designated outstanding share value
---------- ----------- ----------- -----------
Series B.............. 1,229,240 1,229,240 .9652 $1,186
Series C.............. 2,460,000 1,762,280 2.3343 4,114
Series D.............. 5,800,000 3,378,160 6.8775 23,233
Series E.............. 3,972,240 3,972,240 6.7365 26,759
Series F-1............ 7,000,000 4,508,480 9.3750 42,267
Series F-2............ 1,080,000 848,000 9.3750 7,950
---------- ----------- -----------
21,541,480 15,698,400 $105,509
========== =========== ===========
Nonredeemable convertible preferred stock as of December 31, 1994 and 1995, was
comprised of 1,200,000 designated, issued, and outstanding shares of Series A
preferred stock with a liquidation per share of $.85 and an aggregate
liquidation value of $1,020,000.
The rights, preferences, and privileges of the holders of preferred stock are as
follows:
~ Liquidation
In the event of Company liquidation, holders of Series F-1 and F-2 preferred
stock (collectively referred to as Series F preferred stock) shall be entitled
to receive, prior and in preference to the holders of Series A, B, C, D and E
preferred stock ("Junior preferred stock") and common stock an amount per share
equal to the sum of (i) the product of (A) .50 multiplied by (B) the liquidation
value per share specified above, as adjusted, and (ii) any declared but unpaid
dividends thereon. Holders of Series B, C, D and E preferred stock shall next be
entitled to receive an amount per share equal to the sum of (i) the product of
(A) .55 multiplied by (B) an amount per share of .9192, 2.2232, 6.55 and 6.2937,
respectively, as adjusted and (ii) any declared but unpaid dividends thereon.
Holders of the Junior preferred stock and Series F preferred stock shall next be
entitled to receive the product of (1) .50 multiplied by (2) an amount per share
of .9193, 2.223, 6.55, 6.55 and 9.375, respectively, as adjusted.
F-15
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
Holders of the Series A preferred stock shall be entitled to receive an amount
per share equal to the liquidation value per share specified above, as adjusted,
plus any declared but unpaid dividends thereon. After the distributions
described above, and after the distribution related to common stock described
below, the remaining assets of the Company shall be distributed among the
holders of the preferred stock and common stock pro rata assuming
full conversion of preferred stock into common stock.
~ Distributions
The holders of preferred stock are entitled to receive noncumulative dividends
at the same time and on the same basis as holders of common stock when, and if,
declared by the Board of Directors. No dividends had been declared through
December 31, 1995.
~ Redemption
Each share of Series B, C, D, E, and F preferred stock is redeemable at any time
on or after December 31, 1998, but within 45 days after the receipt by the
Company of a written request from the holders of a majority of the then
outstanding shares of Series B, C, D, E and F-1 preferred stock. The Company
shall redeem all such shares by paying in cash a sum per share equal to the
greater of (1) the then fair market value of such share of preferred stock on an
as-converted basis, or (2) the liquidation value of such share of preferred
stock (hereinafter referred to as the redemption price). In the event the assets
of the Company are insufficient to effect such redemption in full, the shares of
preferred stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein.
In addition to the above redemption, at any time on or after December 31, 2000,
but within 45 days after the receipt by the Company of a written request from
the majority of the holders of Series F-1 preferred stock, the Company shall
redeem all outstanding shares of such stock by paying, in cash, an amount per
share equal to the redemption price of such stock.
Upon the occurrence of a change of control of the Company that is not approved
by certain directors designated by the holders of Series F preferred stock, then
the holders of a majority of the shares of Series F-1 preferred stock then
outstanding shall have the right, by written demand to the Company, to require
the Company to redeem immediately all the shares of Series F preferred stock
then outstanding, at a price per share equal to the redemption price of the
Series F preferred stock.
~ Conversion and Voting Rights
Each share of preferred stock is convertible, at the option of the holder, into
such number of fully paid and nonassessable shares of common stock as is
determined by dividing the original preferred stock issue price by the
conversion price applicable to such preferred share. The conversion price per
share for each series of preferred stock is equal to the preferred stock issue
price of the respective series of preferred stock, subject to adjustment under
certain circumstances. An automatic conversion into common stock will occur in
the event of a firm commitment underwritten public offering of at least $13.10
per share, as adjusted, and $8,000,000 in the aggregate. However, the Series F
preferred stock shall not automatically be converted in Common Stock unless: (i)
the underwritten public offering is consummated on or prior to December 31,
1998, (ii) the public offering per share is at least $18.75, as adjusted and
(iii) the aggregate offering price is not less than $25,000,000.
Each share of preferred stock has voting rights equal to that of common stock on
an "as if converted" basis. The holder of Series E preferred stock is entitled
to elect three directors to the Company's Board of Directors, and, for so long
as 20% of the shares of Series F preferred stock remain outstanding, the holders
of Series F-1 preferred stock are entitled to elect three directors. As of
December 31, 1995, the Company had 16,898,400 shares of common stock reserved
for the conversion of preferred stock.
F-16
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
Preferred Stock Transactions
~ The Series A and B Financings
The Company sold an aggregate of 848,520 shares of Series A preferred stock in
May 1993 for an aggregate purchase price of $780,000 (a purchase price of $.92
per share), including cancellation of notes payable in the amount of $100,000.
In January 1994, each share of then outstanding common stock was converted to an
equal number of shares of Series A preferred stock. Concurrently, shares of
Series A preferred stock were converted into an equal number of shares of Series
B preferred stock.
~ The Series C Financing
In a series of transactions during January and February 1994, the Company sold
an aggregate of 1,762,280 shares of Series C preferred stock for an aggregate
purchase price of $3,918,000 (a purchase price of $2.22 per share), (the "Series
C Financing"), including cancellation of notes payable to investors totaling
$1,351,000.
In connection with the Series C Financing, the Company issued to an investor
warrants to purchase (a) 50,440 shares of Series C preferred stock at an
exercise price of $2.22 per share (b) 222,200 shares of preferred stock at an
exercise price of $7.15 per share, and (c) 444,360 shares of preferred stock at
an exercise price of $3.58 per share. Warrants (a), (b) and (c) were exercisable
until December 18, 1995, April 15, 1995 and January 15, 1995, respectively. The
warrants were subsequently amended in July 1995 (see below).
~ The Series D Financing
In connection with bridge financing obtained in May 1994, the purchasers
received warrants exercisable for an aggregate of 46,440 shares of Series D
preferred stock. The warrants have an exercise price of $6.55 per share and are
exercisable until May 6, 1997.
In a series of transactions in September and October 1994, the Company sold an
aggregate of 2,230,560 shares of Series D preferred stock for an aggregate
purchase price, net of a $26,000 note receivable, of approximately $14,584,000
(a purchase price of $6.55 per share), (the "Series D Financing"), including
cancellation of notes payable in the principal amount of $2,029,000.
In connection with the issuance of Bridge Notes on April 6, 1995, the Company
issued a warrant (the "April Bridge Warrants") to purchase 10,720 shares of
Series D preferred stock at $6.55 per share. The April Bridge Warrants are
outstanding and are exercisable until April 6, 1998 or, if earlier, upon the
closing of the Company's initial public offering.
In connection with the Series D Financing, Vanguard loaned $1.8 million to the
Company in exchange for two convertible notes in the amount of $900,000 each
(see Note 4). Each note was due upon the earlier of April 26, 1996 or the
occurrence of certain events which did not occur prior to that date. On April
26, 1996, Vanguard converted both notes into an aggregate of 274,800 shares of
Series D preferred Stock (see Note 9).
In July 1995, convertible secured bridge financing notes issued on April 24,
1995 were converted into 1,147,600 shares of Series D preferred stock for an
aggregate purchase price of $7,517,000 (a purchase price of $6.55 per share).
F-17
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
~ The Series E Financing
In July 1995, the Company entered into a merger agreement with Vanguard and VIT,
a wholly-owned subsidiary of Vanguard, whereby VIT would merge their
international interests in numerous international wireless projects into the
Company in exchange for 3,972,240 shares of Series E preferred stock. This
merger was completed on December 18, 1995, concurrent with the issuance of
Series F preferred stock (see Note 4).
In connection with the Vanguard Merger, the Company entered into an agreement
with an investor to amend previously existing warrant agreements granted in
connection with the Series C Financing. The investor's original warrant to
purchase 50,440 shares of Series C preferred stock was amended to extend the
warrant through December 18, 1997. The investor's original warrant to purchase
222,200 shares of preferred stock was amended to increase the number of shares
to 393,120 and to define the preferred stock as Series D preferred stock at
$6.55 per share. The warrant is exercisable until December 18, 1997. The
investor's original warrant to purchase 444,360 shares of preferred stock was
amended to decrease the number of shares to 273,440 and to define the preferred
stock as Series C preferred stock at $2.22 per share. The warrant is exercisable
until May 15, 1997.
~ The Series F Financing
In connection with the issuance of a note payable to an investor in July 1995,
the Company issued for a purchase price of $15,000, a warrant to purchase 32,000
shares of Series F-1 preferred stock at an exercise price of $9.38 per share.
The number of shares and the exercise price are subject to adjustment in certain
circumstances. The warrant is exercisable until December 18, 1998.
Concurrent with the July 1995 Financing, for an aggregate purchase price of
$72,000, the Company issued warrants to purchase an aggregate of 153,760 shares
of Series F-1 preferred stock (not including the warrant issued to Vanguard in
connection with the first July 1995 note) at an exercise price of $9.38 per
share. All share amounts and the exercise price are subject to adjustment in
certain circumstances. The warrants are exercisable until December 18, 1998.
On August 15, 1995 pursuant to a Note and Warrant Purchase Agreement dated as of
August 14, 1995, the Company issued for a purchase price of $50,000 a warrant
(the "First Warrant") to purchase 106,680 shares of Series F-2 preferred stock
at an exercise price of $9.38 per share, with the number of shares and exercise
price subject to adjustment in certain circumstances. The First Warrant is
exercisable until December 18, 1998.
Pursuant to a Loan Agreement dated August 14, 1995 between the Company and an
investor, the Company issued a second warrant (the "Second Warrant") to purchase
106,680 shares of Series F-2 preferred stock at an exercise price of $9.38 per
share, with the number of shares and the exercise price subject to adjustment in
certain circumstances. The Second Warrant is exercisable until the same date,
with the date being subject to change in the same circumstances, as the First
Warrant.
On December 18, 1995, the Company sold and issued 5,356,480 shares of Series F
preferred stock for $50,217,000. Prior to the share issuance of the Series F
preferred stock, the Company entered into bridge financing agreements with
certain existing shareholders. Certain bridge loans were repaid with proceeds
from the issuance of shares of Series F preferred stock, while the remaining
bridge loans were converted into 1,147,600 shares of Series D preferred stock.
Pursuant to the Series F Purchase Agreement, the Company agreed to covenants
customary in financing transactions of such type, including limits on incurring
debt and granting liens and pledges and other negative covenants including
limitations on payments, dividends, investments, mergers, asset sales,
F-18
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
amendments of its Certificate of Incorporation or Bylaws that would adversely
impact the rights of the Series F-1 preferred stock and the Series F-2 preferred
stock, changes to its business, changes in control, and sales of equity
securities.
Warrants
The Company had the following warrants outstanding as of December 31, 1995:
Warrants Exercise
Preferred stock outstanding price Expiration
- --------------- ----------- -------- -----------------
Series C....... 273,440 $2.22 May 15, 1997
Series C....... 50,440 2.22 December 18, 1997
Series D....... 393,120 6.55 December 18, 1997
Series D....... 46,440 6.55 May 6, 1997
Series D....... 10,720 6.55 April 6, 1998
Series F-1..... 185,760 9.38 December 18, 1998
Series F-2..... 213,360 9.38 December 18, 1998
-----------
1,173,280
===========
Common Stock
In the event of a liquidation, holders of common stock will be entitled to
receive an amount equal to $.50 per share, as adjusted, plus any declared and
unpaid dividends, after completion of distributions to the holders of preferred
stock.
The remaining assets of the Company, after satisfaction of the stipulated
distribution requirements related to the various preferred stock and common
stock liquidation preferences, will be distributed on a pro rata basis among all
of the holders of common stock and all of the holders of the preferred stock,
assuming full conversion of the preferred stock into common stock.
In January 1994, the Company entered into an agreement to acquire a 70% interest
in Corporate Technology Partners (CTP), a partnership established to develop a
Personal Communications Services (PCS) business, in exchange for 251,920 shares
of common stock in the Company. CTP is owned, in part, by officers of the
Company. This agreement was completed on December 18, 1995, concurrent with the
issuance of Series F preferred stock. A total of 45,360 of these shares remain
in escrow as of December 31, 1995 pending finalization of an ex-employee matter.
In October 1994, the Company loaned a Director of the Company, $178,000 to
purchase 76,080 shares of common stock at a purchase price of $2.00 per share
and 3,920 shares of redeemable convertible Series D preferred stock at a
purchase price of $6.55 per share. The note bears interest at 7.69% per annum.
Principal and accrued interest are due in October 2004. The note is secured by a
pledge of the stock by the Director and is non-recourse to the Director. The
note principal is included as a component of stockholders' equity and redeemable
convertible preferred stock on the accompanying consolidated balance sheets as
of December 31, 1994 and 1995.
Stock Option/Stock Issuance Plan
During 1994, the Board of Directors adopted the 1994 Stock Option/Stock Issuance
Plan (the Plan) under which incentive stock options may be granted to employees
and officers and nonqualified (supplemental) stock options may be granted to
employees, officers, directors, and consultants to purchase shares of the
Company's common stock. Accordingly, the Company, as of December 31, 1995, had
reserved a total of
F-19
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
1,000,000 shares of the Company's common stock for issuance upon the exercise of
options granted pursuant to the Plan. Options granted under the Plan generally
expire 10 years following the date of grant and are subject to limitations on
transfer.
Option grants under the Plan are subject to various vesting provisions, all of
which are contingent upon the continuous service of the optionee and may not
impose vesting criterion more restrictive than 20% per year. The exercise price
of options granted under the Plan must equal or exceed the fair market value of
the Company's common stock on the date of grant. Unless otherwise terminated by
the Board of Directors, the Plan automatically terminates in January 2004.
A summary of stock option/stock issuance transactions under the Plan follows:
Shares
available
for grant Outstanding Options
---------- ----------------------
Number Price
of shares per share
--------- ------------
Initial shares reserved............ 1,000,000 - -
Options granted.................... (761,920) 761,920 $.25 - 2.50
---------- --------- ------------
Balances as of December 31, 1994... 238,060 761,920 $.25 - 2.50
Options granted.................... (160,000) 160,000 $6.25 - 6.88
Options canceled................... 40,000 (40,000) $.25
---------- --------- ------------
Balances as of December 31, 1995... 118,080 881,920 $6.25 - 6.88
========== =========
As of December 31, 1995, there were 399,448 vested options.
(6) Income Taxes
The Company has incurred net losses since inception and has not recorded any
provision for income taxes. The reconciliation between the amount computed by
applying the U.S. federal statutory tax rate of 34% to net loss before income
taxes and the actual provision for income taxes as of December 31, 1993, 1994,
and 1995 follows (in thousands):
1993 1994 1995
------- ------ --------
Income tax (benefit) at statutory rate....................... $(286) (851) (3,832)
Equity in losses of foreign affiliates....................... - - 1,277
License amortization......................................... - - 344
Net operating loss and temporary differences for which no tax
benefit was recognized....................................... 286 851 2,211
------- ------ --------
$- - -
======= ====== ========
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets as of December 31, 1994 and 1995 are as follows (in
thousands):
1994 1995
-------- --------
Deferred tax assets:
Loss carryovers and deferred start-up expenditures $1,360 3,911
Less valuation allowance.......................... (1,360) (3,911)
-------- --------
Total deferred tax assets......................... - -
======== ========
F-20
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
Management has established a valuation allowance for the portion of deferred tax
assets for which realization is uncertain. The valuation allowance as of
December 31, 1994 and 1995 was $1,360,000 and $3,911,000, respectively. The net
changes in valuation allowance during 1994 and 1995 was an increase of $960,000
and $2,551,000, respectively.
As of December 31, 1995, the Company has cumulative U.S. federal net operating
losses of approximately $9,200,000, which can be used to offset future income
subject to federal income taxes. The federal tax loss carryforwards will expire
from 2008 through 2010. The Company has cumulative California net operating
losses of approximately $5,900,000, which can be used to offset future income
subject to California income taxes. The California tax loss carryforwards will
expire from 1998 through 2000.
The Tax Reform Act of 1986 imposes substantial restrictions on the utilization
of net operating losses and tax credits in the event of an "ownership change" as
defined. All U.S. federal and California net operating loss carryforwards are
subject to limitation as a result of these restrictions. The ownership change
restrictions are not expected to impair the Company's ability to utilize the
affected carryforward items. If there should be a subsequent ownership change,
as defined, of the Company, its ability to utilize its carryforwards could be
reduced.
(7) Commitments and Contingencies
Lease Commitments
The Company leases a facility under a noncancelable operating lease expiring in
May 1999. Future minimum lease payments due under the lease total approximately
$62,000, $63,000, $63,000, and $26,000 in 1996 through 1999, respectively.
Rent expense was approximately $14,000, $47,000, and $60,000 for the years ended
December 31, 1993, 1994, and 1995, respectively.
Capital Contributions
In order to protect the Company's investments in affiliates from ownership
dilution, the Company has committed to make additional capital contributions to
the LWBs as needed.
The Company also anticipates making additional investments in various operating
companies totalling $16,500,000, including the acquisition of the remaining 50%
interest in TeamTalk Limited for $3,198,000 (see Note 9).
Note Payable
The Company is jointly and severally liable on a $16,000,000 note payable to an
unrelated party in connection with its RHP investment. The note bears interest
at 6.95% with principal and interest due October 10, 1996. The Company has
recorded its pro rata share of this note on the accompanying consolidated
balance sheet. In the event that the other payors, which are also shareholders
of RHP, and RHP itself are unable to honor their pro rata obligation, the
Company would be wholly liable.
Guarantee of Debt of Equity Investee
In connection with a Ringgit 91,000,000 (approximately $35,800,000 as translated
using effective exchange rates at December 31, 1995) senior credit facility with
a Malaysian bank obtained by the Company's 30% equity investee, STW, the Company
along with other STW shareholders, executed a financial "keep well" covenant
pursuant to which they have agreed (i) to ensure that STW will remain solvent
and be able to meet its financial liabilities when due and (ii) to ensure that
the project is timely completed and to make additional debt and equity
investments in STW to meet cost overruns. The loan is repayable by STW in
F-21
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
eleven semi-annual installments beginning October 8, 1997. The Company and other
STW shareholders have separately executed an agreement, whereby each shareholder
has agreed to share in the liability on a pro rata basis in relation to their
interest in STW. In the event that the bank were to seek repayment from the STW
shareholders and the other shareholders were unable to honor their pro rata
share in the liability, the Company might be liable for the full amount of the
outstanding amount of the loan. As of December 31, 1995, the balance on this
loan was Ringgit 54,640,000 or $21,500,000.
The Company does not believe it is practicable to estimate the fair value of the
guarantee and does not believe exposure to loss is likely. Accordingly, no
provision has been made in the accompanying consolidated financial statements.
The Company, through its affiliate, New Zealand Wireless Limited, owns 15% of PT
Mobilkom Telekomindo (Mobilkom). Mobilkom expects to fund the continued buildout
of its network and the acquisition of subscriber terminals primarily through a
seven-year $50 million revolving/reducing credit facility which it has obtained
from a syndicate of Thai banks. Borrowings under the credit facility bear
interest at a floating rate based on LIBOR and are secured by substantially all
of Mobilkom's assets and a pledge of all the capital stock held by the Company
and Mobilkom's other shareholders. Another Mobilkom shareholder has guaranteed
borrowings of up to $25 million under the credit facility. As of June 30, 1996,
borrowings of approximately $20 million were outstanding under this facility.
The Company indirectly owns a 17.5% equity interest in PT Mobile Selular
Indonesia ("Mobisel"), a provider of cellular services in Indonesia through its
25% ownership in RHP. Mobisel has obtained a five-year $60 million credit
facility from Nissho Iwai International (Singapore) Pte. Ltd. ("Nissho Iwai") to
finance the construction of its network and the purchase of subscriber
terminals. Borrowings under the credit facility bear interest at a floating rate
based on LIBOR and are secured by all of Mobisel's assets and a pledge of all
the capital stock held by RHP. RHP has also guaranteed the credit facility. As
of June 30, 1996, borrowings of approximately $35 million were outstanding under
this facility.
(8) Geographic Information
Information about the Company's consolidated operations in different geographic
areas for the three years ended December 31, 1993, 1994 and 1995 is as follows
(in thousands):
As of December 31,
--------------------------
1993 1994 1995
------- -------- ---------
Operating loss:
Latin America.......... - - (154)
Southeast Asia......... - - -
Pacific and Far East... - - (3,756)
United States.......... (809) (2,481) (6,211)
------- -------- ---------
$(809) (2,481) (10,121)
======= ======== =========
Identifiable assets:
Latin America.......... 668 2,157 13,017
Southeast Asia......... - 10 5,658
Pacific and Far East... 1,056 3,429 50,017
United States.......... 916 12,828 26,951
------- -------- ---------
$2,640 18,424 95,643
======= ======== =========
The Company's consolidated operations in Latin America are in Brazil and Peru.
The Company's consolidated operations in Southeast Asia are in Pakistan. The
Company's equity method and cost investees are included in the geographic areas
in which principal operations exist or will exist (see Note 3).
F-22
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
(9) Subsequent Events
On March 6, 1996, the Board of Directors approved the amendment and restatement
to the 1994 Stock Option/Stock Issuance Plan which authorizes the issuance of an
additional 1,000,000 shares of common stock thereunder.
On April 26, 1996, two notes payable, each in the amount of $900,000, plus
accrued interest were converted into 274,800 shares of the Company's Series D
preferred stock.
On June 10, 1996, the Board approved a $3,080,000 bridge loan to the Company's
local partner in its Mexican ECTR joint venture. On June 11, 1996, the Board of
Directors approved the amendment and restatement to the 1994 Stock Option/Stock
Issuance Plan which authorizes the issuance of an additional 400,000 shares of
common stock thereunder.
On June 28, 1996, the Board approved and the Company funded $3,042,000 for its
20% interest in a National Taiwan Trunking Project. The funds have been placed
in an interest bearing account pending favorable government approval of their
various telecommunication license applications.
On July 12, 1996, the Board approved an initial investment of up to $5,250,000
for a 30% interest in the Taiwan Paging Project (a portion of this amount was
funded in July 1996).
On July 26, 1996, the Company acquired 1,700,000 shares of TeamTalk Limited for
a purchase price of approximately $3,198,000. The acquisition resulted in IWC
obtaining a 100% ownership interest in TeamTalk Limited.
On July 26, 1996, the Company entered into a Loan Agreement (the "1996 TD Loan
Agreement") with Toronto Dominion (Texas), Inc., an affiliate of Toronto
Dominion, providing for a $10.0 million revolving credit facility. Subject to
the terms and conditions of the 1996 TD Loan Agreement, the Company is able to
borrow funds in an initial amount of at least $2,000,000 and additional amounts
in integral multiples of at least $1.0 million. All borrowings are evidenced by
a promissory note bearing interest at a specified base rate plus a margin
increasing from 2.25% to 3.75% over the term of the facility or a specified
LIBOR rate plus a margin increasing from 3.5% to 5.0% over the term of the
facility and are due in July 1997, subject to mandatory repayment, without
premium, from the net proceeds from any public or private sale of debt or
equity securities, the net proceeds from certain asset sales by the Company or
its subsidiaries, or certain other events. The obligations of the Company under
the 1996 TD Loan Agreement and the note issued pursuant thereto are secured by a
pledge by the Company of all capital stock of certain of the Company's
subsidiaries and affiliates. On July 26, 1996, the Company borrowed $7,000,000
under the 1996 TD Loan Agreement.
F-23
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
AND SUBSIDIARY
Consolidated Condensed Financial Statements
December 31, 1995 and March 31, 1996
(Unaudited)
F-24
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1995 and March 31, 1996
(In thousands, except share data)
December 31, March 31,
1995 1996
- ------------------------------------------------------------------------------ ------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents..................................................... $25,398 15,463
Notes receivable from affiliates.............................................. 338 1,445
Advances to affiliate......................................................... 728 2,722
Other current assets.......................................................... 387 548
------------ -----------
Total current assets.......................................................... 26,851 20,178
Property and equipment, net................................................... 4,269 4,383
Investments in affiliates..................................................... 52,280 50,861
Telecommunication licenses, net............................................... 12,106 11,955
Other assets.................................................................. 137 424
------------ -----------
Total assets.................................................................. $95,643 87,801
============ ===========
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses......................................... $5,757 1,495
Notes payable to related party................................................ 1,800 1,800
Note payable.................................................................. 4,000 4,000
------------ -----------
Total current liabilities..................................................... 11,557 7,295
Commitments and contingencies (Note 6)
Redeemable convertible preferred stock, $.01 par value per share; 21,541,480
shares designated; 15,698,400 shares issued and outstanding in 1995 and 1996,
respectively; net of note receivable from stockholder of $26 in 1995 and 1996;
liquidation preference of $105,509 as of March 31, 1996....................... 98,254 98,254
Stockholders' deficit:
Convertible preferred stock, $.01 par value per share; 1,200,000 shares
designated, issued, and outstanding in 1995 and 1996; liquidation preference
of $1,020 as of March 31, 1996................................................ 12 12
Common stock, $.01 par value per share; 26,000,000 shares authorized;
328,000 shares issued and outstanding in 1995 and 1996........................ 3 3
Additional paid-in capital.................................................... 748 748
Note receivable from stockholder.............................................. (152) (152)
Accumulated deficit........................................................... (14,779) (18,359)
------------ -----------
Total stockholders' deficit................................................... (14,168) (17,748)
------------ -----------
Total liabilities, redeemable convertible preferred stock and stockholders'
deficit....................................................................... $ 95,643 87,801
============ ===========
See accompanying notes to consolidated financial statements.
F-25
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three months ended March 31, 1995 and 1996
(In thousands)
1995 1996
---------- --------
(Unaudited)
Operating revenue..................... $- -
Operating expenses:
General and administrative expenses... 830 2,285
Equity in losses of affiliates........ - 1,419
---------- --------
Loss from operations.................. (830) (3,704)
Other income (expense):
Interest income....................... 95 242
Interest expense...................... (41) (119)
Other................................. - 1
---------- --------
Net loss.............................. $(776) (3,580)
========== ========
See accompanying notes to consolidated financial statements.
F-26
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three months ended March 31, 1995 and 1996
(In thousands)
1995 1996
---------- --------
(Unaudited)
Cash flows from operating activities:
Net loss................................................................... $(776) (3,580)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation............................................................... 4 13
Amortization............................................................... 10 161
Equity in losses of affiliates............................................. - 1,419
Changes in operating assets and liabilities:
Other current assets....................................................... (6) (161)
Accounts payable and accrued expenses...................................... (108) (4,262)
---------- --------
Net cash used in operating activities...................................... (876) (6,410)
---------- --------
Cash flows from investing activities:
Purchases of property and equipment........................................ (5) (127)
Notes receivable from affiliates........................................... 1 (1,107)
Advances to affiliate...................................................... - (1,994)
Investments in affiliates.................................................. (9,362) -
Other assets............................................................... 204 (297)
---------- --------
Net cash used in investing activities...................................... (9,162) (3,525)
---------- --------
Net increase in cash and cash equivalents.................................. (10,038) (9,935)
Cash and cash equivalents at beginning of year/period...................... 10,298 25,398
---------- --------
Cash and cash equivalents at end of year/period............................ $260 15,463
========== ========
Supplemental cash flow information:
Cash paid for interest..................................................... $- 4
========== ========
Noncash financing and investing activities:
Conversion of note receivable from affiliate to investment in affiliate.... $2,020 -
========== ========
See accompanying notes to consolidated financial statements.
F-27
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
(1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business
International Wireless Communications, Inc. and subsidiaries (IWC or the
Company) was incorporated in Delaware in 1992. The Company develops, owns, and
operates wireless communications companies in emerging markets throughout Asia
and Latin America. These local wireless businesses (LWBs) provide a variety of
communications services. Together with local and strategic partners, the Company
has interests in Brazil, India, Indonesia, Malaysia, Mexico, New Zealand,
Pakistan, Peru, and the Philippines.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of the Company's financial
condition, results of operations, and cash flows for the periods presented.
These financial statements should be read in conjunction with IWC's audited
consolidated financial statements as of December 31, 1994 and 1995, and for each
of the years in the three-year period ended December 31, 1995, including notes
thereto. The results of operations for the three months ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
International Wireless Communications Holdings, Inc. ("IWC Holdings") was
incorporated in Delaware in July 1996 as a holding company whose primary asset
is the capital stock of IWC. Subsequent to the formation of IWC Holdings, the
Company completed a reorganization in which each share of the then outstanding
capital stock of IWC, which became a wholly owned subsidiary of IWC Holdings,
was converted into 40 shares of the corresponding class and series of capital
stock of IWC Holdings. IWC Holdings assumed and became the successor to the
agreements of the Company relating to capital stock. All data related to shares
and per share amounts for all periods presented have been adjusted to reflect
the effect of the stock conversion.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
International Wireless Communications, Inc. and its wholly owned subsidiary,
Servicos de Radiocomunicacoes Ltda. (SRC) located in Brazil. In addition, the
accompanying consolidated financial statements include accounts of two majority
owned subsidiaries, M/S Mobilcom (Pte) Ltd. (Mobilcom), and PeruTel S.A.
(PeruTel). All significant intercompany accounts and transactions have been
eliminated in consolidation. Minority interests are not reflected in the
accompanying consolidated financial statements as they are immaterial.
(2) Balance Sheet Components
Balance sheet components are as follows (in thousands):
December 31, March 31,
1995 1996
- -------------------------------- ------------ ---------
Property and equipment
Furniture and fixtures.......... $40 40
Equipment....................... 126 166
Automobiles..................... 34 72
Construction in process......... 4,125 4,174
------------ ---------
4,325 4,452
Less accumulated depreciation... 56 69
------------ ---------
Property and equipment, net..... $4,269 4,383
============ =========
F-28
(2) Balance Sheet Components (Continued)
December 31, March 31,
1995 1996
- -------------------------------------- ------------ ---------
Telecommunication licenses
SRC................................... $6,714 6,714
Mobilcom.............................. 5,439 5,439
------------ ---------
12,153 12,153
Less accumulated amortization......... 47 198
------------ ---------
Telecommunication licenses, net....... $ 12,106 11,955
============ =========
Accounts payable and accrued expenses:
Professional services................. $3,041 752
Employee compensation and benefits.... 189 154
Interest.............................. 256 371
Equipment purchases................... 1,719 -
Accounts payable and other............ 552 218
------------ ---------
$5,757 1,495
============ =========
(3) Investments in Affiliates
The Company's investments in affiliates represent interests in various LWBs in
several developing countries. These investments are accounted for under the
equity or cost methods.
Equity Investments
For those investments in companies in which the Company's voting interest is 20%
to 50%, or for investments in companies in which the Company exerts significant
influence through board representation and management authority, the equity
method of accounting is used. Under this method, the investment, originally
recorded at cost, is adjusted to recognize the Company's share of net earnings
or losses of the affiliates, limited to the extent of the Company's investment
in and advances to the affiliates, including any debt guarantees or other
contractual funding commitments. The Company's share of net earnings or losses
of affiliates includes the amortization of purchase accounting adjustments for
the excess of cost over the net book value of the interest acquired. All
affiliated companies have fiscal years ended December 31. Investments in
affiliated companies as of December 31, 1995 and March 31, 1996 are as follows:
Portion of
investment exceeding
Company's share
Investments in of the underlying
Percentage o affiliated historical net
ownership companies(1) assets
----------- -------------- --------------------
Country Affiliated company 1995 1996 1995 1996 1995 1996
- ----------- ----------------------------------- ----- ----- ------- ------ ---------- ---------
Malaysia Syarikat Telefon Wireless (STW).... 30% 30% $20,879 20,333 $17,459 17,459
Indonesia PT Rajasa Hazanah Perkasa (RHP).... 25% 25% 24,539 24,461 23,680 23,680
New Zealand TeamTalk Limited (TeamTalk)........ 50% 50% 2,345 2,091 1,712 1,712
India HFCL Mobile Radio Limited (HFCL)... 49% 49% 243 243 243 243
Indonesia PT Binamulti Visualindo
(PTBV)............................. 49% 49% 206 206 206 206
------- ------ ---------- ---------
48,212 47,334 43,300 43,300
Less accumulated amortization.................. 966 1,507 966 1,507
------- ------ ---------- ---------
$47,246 45,827 $42,334 41,793
======= ====== ========== =========
- ------
(1) Adjusted for the Company's share of equity losses of affiliated companies.
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
F-29
Notes to Consolidated Condensed Financial Statements-(Continued)
Cost Investments
The Company uses the cost method of accounting for three other investments.
They are Corporacion Mobilcom, S.A. de C.V. (Tricom), PT Mobilkom Telekomindo
(Mobilkom), and Universal Telecommunication Service, Inc. (UTS). The Company's
ownership percentage is 2.47%, 15% and 19%, respectively. Both Tricom and
Mobilkom are operating entities. UTS, owned directly, and indirectly through
Mobilcom Corporation, is nonoperating as of March 31, 1996.
The following represents the Company's carrying value of these cost
investments:
December 31, March 31,
1995 1996
- ----------- ------------ ----------
Tricom..... $2,062 2,062
Mobilkom... 1,500 1,500
UTS........ 1,472 1,472
------------ ----------
$5,034 5,034
============ ==========
(4) Related Party Transactions
Notes Receivable from Affiliates
During the three months ended March 31, 1996, the Company issued a series of
90-day interest-free promissory notes to RHP totaling $1,090,000, bringing the
total amount loaned to RHP to $1,218,000. All notes to RHP have subsequently
been extended.
Advances to Affiliate
In January 1996, the Company advanced an aggregate of $1,994,000 to TeamTalk
Limited, bringing the total amount advanced as of March 31, 1996 to $2,722,000.
The advances are interest-free with no stated terms.
(5) Stock Option/Stock Issuance Plan
On March 6, 1996, the Board of Directors approved the amendment and restatement
to the 1994 Stock Option/Stock Issuance Plan which authorizes the issuance of an
additional 1,000,000 shares of common stock thereunder. The Board of Directors
then granted an additional 764,000 options at an exercise price of $8.13.
(6) Commitments and Contingencies
Capital Contributions
In order to protect the Company's investments in affiliates from ownership
dilution, the Company has committed to make additional capital contributions to
the LWBs as needed.
The Company anticipates making additional investments in various operating
companies totalling $14,500,000, including the acquisition of the remaining 50%
interest in TeamTalk Limited for $3,198,000 (see Note 7).
Note Payable
The Company is jointly and severally liable on a $16,000,000 note payable to an
unrelated party in connection with its RHP investment. The note bears interest
at 6.95% with principal and interest due October 10, 1996. The Company has
recorded its pro rata share of this note on the accompanying consolidated
balance sheet. In the event that the other payors, which are also shareholders
of RHP, and RHP itself, are unable to honor their pro rata obligation, the
Company would be wholly liable.
F-30
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements-(Continued)
Guarantee of Debt of Equity Investee
In connection with a Ringgit 91,000,000 (approximately $35,800,000 as translated
using effective exchange rates at December 31, 1995) senior credit facility with
a Malaysian bank obtained by the Company's 30% equity investee, STW, the Company
along with other STW shareholders, executed a financial "keep well" covenant
pursuant to which they have agreed (i) to ensure that STW will remain solvent
and be able to meet its financial liabilities when due and (ii), to ensure that
the project is timely and completed, to make additional debt and equity
investments in STW to meet cost overruns. The loan is repayable by STW in eleven
semi-annual installments beginning October 8, 1997. The Company and other STW
shareholders have separately executed an agreement, whereby each shareholder has
agreed to share in the liability on a pro rata basis in relation to their
interest in STW. In the event that the bank were to seek repayment from the STW
shareholders and the other shareholders were unable to honor their pro rata
share in the liability, the Company might be liable for the full amount of the
outstanding amount of the loan. As of December 31, 1995, the balance on this
loan was Ringgit 54,640,000 or $21,500,000. No provision has been made in the
accompanying consolidated financial statements for any loss that might result
from this arrangement.
The Company, through its affiliate, New Zealand Wireless, owns 15% of PT
Mobilkom Telekcomindo (Mobilkom). Mobilkom expects to fund the continued
buildout of its network and the acquisition of subscriber terminals primarily
through a seven-year $50 million revolving/reducing credit facility which it has
obtained from a syndicate of Thai banks. Borrowings under the credit facility
bear interest at a floating rate based on LIBOR and are secured by substantially
all of Mobilkom's assets and a pledge of all the capital stock held by the
Company and Mobilkom's other shareholders. Another Mobilkom shareholder has
guaranteed borrowings of up to $25 million under the credit facility. As of June
30, 1996, borrowings of approximately $20 million were outstanding under this
facility.
The Company indirectly owns a 17.5% equity interest in PT Mobile Selular
Indonesia ("Mobisel"), a provider of cellular services in Indonesia through its
25% interest in RHP. Mobisel has obtained a six-year $60 million credit facility
from Nissho Iwai International (Singapore) PTE., LTD. ("Nissho Iwai") to finance
the construction of its network and the purchase of subscriber terminals.
Borrowings under the credit facility bear interest at a floating rate based on
LIBOR and are secured by all of Mobisel's assets and a pledge of all the capital
stock held by RHP and Mobisel's other shareholders. RHP has also guaranteed the
credit facility. As of June 30, 1996, borrowings of approximately $35 million
were outstanding under this facility.
(7) Subsequent Events
Notes payable as of December 31, 1995, consisted of two notes payable to
Vanguard Cellular Operating Corp. (Vanguard), a significant stockholder, each in
the amount of $900,000 plus accrued interest and bearing interest at 9%
compounded annually. On April 26, 1996, these notes were converted into 274,800
of the Company's shares of Series D Preferred Stock.
On June 10, 1996, the Board approved a $3,080,000 bridge loan to the Company's
local partner in its Mexican ECTR joint venture. On June 11, 1996, the Board of
Directors approved the amendment and restatement to the 1994 Stock Option/Stock
Issuance Plan which authorizes the issuance of an additional 400,000 shares of
common stock thereunder.
On June 28, 1996, the Board approved and the Company funded $3,042,000 for its
20% interest in a national Taiwan Trunking Project. The funds have been placed
in an interest bearing account pending favorable government approval of their
various telecommunication licenses applications.
F-31
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements-(Continued)
On July 8, 1996, International Wireless Communications Holdings, Inc. ("IWC
Holdings") was incorporated as a holding company whose primary asset is all of
the outstanding capital stock of International Wireless Communications, Inc.
On July 12, 1996, the Board approved an initial investment of up to $5,250,000
for a 30% interest in the Taiwan Paging Project (a portion of this amount was
funded in July 1996).
On July 26, 1996, the Company acquired 1,700,000 shares of TeamTalk Limited for
a purchase price of $3,198,000. The acquisition resulted in IWC obtaining a 100%
ownership interest in TeamTalk Limited.
On July 26, 1996, the Company entered into a Loan Agreement (the "1996 TD Loan
Agreement") with Toronto Dominion (Texas), Inc., an affiliate of Toronto
Dominion, providing for a $10.0 million revolving credit facility. Subject to
the terms and conditions of the 1996 TD Loan Agreement, the Company is able to
borrow funds in an initial amount of at least $2,000,000 and additional amounts
in integral multiples of at least $1.0 million. All borrowings are evidenced by
a promissory note bearing interest at a specified base rate plus a margin
increasing from 2.25% to 3.75% over the term of the facility or a specified
LIBOR rate plus a margin increasing from 3.5% to 5.0% over the term of the
facility and are due in July 1997, subject to mandatory repayment, without
premium, from the net proceeds from any public or private sale of debt or equity
securities, the net proceeds from certain asset sales by the Company or its
subsidiaries, or certain other events. The obligations of the Company under the
1996 TD Loan Agreement and the note issued pursuant thereto are secured by a
pledge by the Company of all capital stock of certain of the Company's
subsidiaries and affiliates. On July 26, 1996, the Company borrowed $7,000,000
under the 1996 TD Loan Agreement.
F-32