ITEM 1. BUSINESS General ClearComm, L.P., a
Delaware limited partnership (the “Partnership”), was formed on January 24,
1995 under the name PCS 2000, L.P., to own and operate broadband personal
communications services (“PCS”) licenses to be acquired in auctions conducted
by the Federal Communications Commission (the “FCC”). The Partnership competed for PCS licenses in frequency Block C,
set aside for “designated entities” (“Entrepreneurs”) that met certain
financial and equity structure requirements and that qualify for certain benefits
under rules, regulations and policies of the FCC and related statutory
provisions (“FCC Rules”).
The Partnership, through
its majority-owned subsidiary, NewComm Wireless Services, Inc. (“NewComm”),
owns and operates a state-of-the-art PCS network in Puerto Rico (the “Puerto
Rico Network”). The Partnership
directly or indirectly through NewComm owns two 15 MHz C-Block PCS licenses
covering the entire island of Puerto Rico (the “Puerto Rico Licenses”) and
four 15 MHz licenses in California (the
“California Licenses,” and together with the Puerto Rico Licenses, the
“Licenses”). Since January 2002, the
Partnership has been offering wireless DSL service throughout certain areas in
California under the California Licenses and in compliance with the FCC’s
build-out requirements.
The Agreement of Limited
Partnership of the Partnership (the “Partnership Agreement”) provides that the
Partnership will terminate on December 31, 2005. The Partnership will dissolve
on such date (unless terminated earlier or unless the Partnership Agreement is
amended to change such date).
The Puerto Rico Network The Partnership started
building its Puerto Rico Network during the first quarter of 1999 and the
system commenced commercial operations on September 24, 1999. The Partnership was the fifth entrant into
the Puerto Rico wireless telecommunications market. It currently provides wireless coverage in the areas where 95% of
the Puerto Rico wireless traffic occurs.
The Partnership has established points of sale in all major shopping
districts and has over 250 points of sale throughout Puerto Rico. The Partnership believes that it currently
has approximately 15% of the Puerto Rico wireless market.
To build and operate its
Puerto Rico network, the Partnership entered into an agreement, dated February
4, 1999 (the “TLD Agreement”) with Telefónica Larga Distancia de Puerto Rico,
Inc. (“TLD”). TLD is a wholly owned
subsidiary of Telefónica Internacional, S.A. which is a member of the
Telefónica, S.A. group (Ticker: TEF) (the “Telefónica Group”), Spain’s largest
traded company and one of the world’s largest telecommunication companies. Telefónica Móviles (Ticker: TEM), the wireless communications affiliate
of Telefónica, currently has approximately 25 million subscribers
world-wide. Pursuant to the terms of
the TLD Agreement, the Partnership transferred the Puerto Rico Licenses and
associated business plans and studies to NewComm. TLD provided NewComm a loan of approximately $19.96 million and
received a secured convertible promissory note (the “Note”) which entitles TLD
to select a director for one of the five NewComm board of director seats (the
“Board”). The Note is convertible into
49.9% of NewComm’s equity. The Note
cannot be converted, however, until the FCC authorizes TLD to hold more than a
25% equity interest in NewComm. NewComm
and TLD entered into a management agreement whereby TLD provides day-to-day
management services for NewComm, subject to the supervision of NewComm’s
Board. Pursuant to a certain Stock
Purchase Agreement dated as of March 12, 2002, by and between the Partnership
and TLD, the Partnership has agreed to sell 0.2% control interest at market
value to TLD. The transfer of this
control interest and validity of the agreement is subject to FCC approval. This Stock Purchase Agreement, in addition
to FCC approval, requires TLD to secure a permanent Project Finance Facility of approximately $175 million no later
than July 15, 2002. Together with the
Stock Purchase Agreement and as part of the transaction a Shareholders’
Agreement and a Sale Agreement were executed between the parties. The Shareholders’ Agreement provides for a
great number of
general and specific protections and rights for the Partnership as a minority
shareholder in NewComm. The Sale
Agreement provides for a convenient exit for the Partnership from NewComm. Under the Joint Venture Agreement the
Partnership’s principal means of exiting from NewComm was by exercising
Registration Rights against TLD. Due to
Telefónica’s re-organization and new market conditions, the possibility of
publicly registering an exclusive
wireless service company in the Puerto Rico market is very unlikely. However, under the Sale Agreement, the
Partnership can force the sale of NewComm at any time after May 12, 2003.
The new Sale Agreement
provides that after 14 months from March 12, 2002 (i.e. May 12, 2003)
either party (ClearComm or TLD) may trigger a shareholder obligation to sell
NewComm. Within 30 days of a notice of
sale, TLD (or ClearComm as the case may be) would have the right to purchase
ClearComm’s (or TLD’s) interest. The
purchase price to be paid at that time would be based on a valuation performed
by an internationally recognized investment banking firm selected by both
parties. If TLD does not exercise its
right to buy out ClearComm’s interest, TLD is bound together with ClearComm to
proceed with the sales process to attempt a sale of NewComm. TLD and ClearComm are bound to accept the
highest price proposed by an interested buyer, which price must be payable in
cash or freely tradable securities, or a combination thereof, and which must be
for a price not less than the valuation prepared by the investment banker. At the closing of the sale the Management
Agreement and the Technology Transfer Agreement held by TLD will terminate
without compensation, and no premium for controlling interest or discount for
holding a minority interest in NewComm will apply.
The Sale Agreement shall
continue in full force and effect even if the Stock Purchase Agreement with
TLD, for whatever reason, does not close.
The Partnership’s Puerto
Rico Network operates under the image and brand name “MoviStar.” MoviStar is the PCS brand name of the
Telefónica Group in Spain and certain other countries in Latin America. The Puerto Rico Network is a
state-of-the-art CDMA (“Code Division Multiple Access”) network. Pursuant to a roaming agreement with Sprint
PCS, MoviStar customers have mainland U.S. coverage.
Lucent Technologies, Inc.
(“Lucent”) built the Puerto Rico Network on behalf of NewComm. The Partnership continues optimizing the
network to maintain and offer better quality
service to its customers.
The Puerto Rico Market The Partnership believes
that the Puerto Rico market provides many unique advantages for
telecommunications companies. Puerto
Rico is politically stable, as it has been a territory of the United States
since 1898 and its economy is fully integrated with that of the United States
mainland. It has the Caribbean’s best
educated, most skilled labor force and the most sophisticated manufacturing and
transportation infrastructure. Puerto
Rico has a solid base of major manufacturers which includes Hewlett-Packard
Company, Microsoft Corporation, BASF Corporation, Colgate-Palmolive, Johnson
& Johnson, and Pfizer Pharmaceutical.
Along with its U.S.-linked stability, Puerto Rico offers the advantage
of emerging market type growth and a significant cash based economy. The Partnership believes that current per
capita income and
consumption in
Puerto Rico, combined with continued economic growth will support
continued demand for the high quality
telephone services which the Partnership is offering.
Competition in Puerto Rico The continued success of
the Partnership’s PCS business in Puerto Rico will depend upon its ability to
compete with the two cellular operators and three operating PCS providers,
potential competition from two other PCS licensees and potential future
wireless communications providers in the Puerto Rico market. The Partnership expects that the existing
cellular providers will upgrade their networks to provide comparable services
in competition with the Partnership.
The Partnership also faces competition from other existing
communications technologies such as conventional mobile telephone service,
specialized mobile radio (“SMR”) and enhanced specialized mobile radio
(“ESMR”). The Partnership believes that
ESMR will have a limited competitive impact against PCS, particularly in the
consumer mass market sector, largely because of technical limitations and
limited bandwidth. In the future, PCS
is expected to compete more directly with traditional landline telephone
service providers and other technologies including mobile satellite
systems. In addition, the availability
of new spectrum and resale of existing spectrum and the entry of new
participants, may result in increased competition in the Puerto Rico
market. At the end of 2001, Puerto Rico
had a wireless market penetration of approximately 33% while the United States
mainland ended the same year with an approximate market penetration of 45%. Market research reflects that Puerto Rico should
attain a market penetration of 47% by the end of 2004.
Markets The following table sets
forth as of December 31, 2001, with respect to each Market in which the
Partnership owns a PCS license, the estimated persons of population (“POPs”).
* Based
on the Paul Kagan 1998 PCS Atlas and Databook.
** Based
on the 1990 census figures used by the FCC.
On August 28, 2001, the
Partnership entered into a Purchase and Sale Agreement with Leap Wireless
International (“Leap Wireless”), pursuant to which the Partnership sold the
Visalia license to Leap Wireless in exchange for $9,500,000 cash payment. This
sale was approved by the FCC and it closed on June 8, 2001.
Regulation Overview
In 1993, Congress adopted
the Omnibus Budget Reconciliation Act of 1993 (the “Reconciliation Act”) which,
among other things, mandated auctions for the award of certain FCC licenses,
including PCS licenses. Pursuant to
authority granted to the FCC by the Reconciliation Act, the FCC awarded PCS
licenses through a process of competitive bidding auctions in which there were
multiple applications for the same license (the “Auctions”).
PCS is a radio-based
transmission technology which, like cellular technology, uses the same
frequencies repeatedly in a multiple-transmitter cell design. PCS is a digital technology, capable of
numerous advanced service features, including caller-ID, voice-prompting,
voice-recognition, scrambled (secure) calling, message and image delivery,
intelligent call transfer and follow-me calling, single number service (the
same number can be assigned to multiple PCS telephones in different locations)
and auto-trace of crank callers. The Partnership has been offering E-mail and
internet access from its handsets since June 2000. The Partnership began offering wireless banking services in
October 2000. The Partnership also
pioneered in the Puerto Rico market short text messaging services from its
handsets in October 2001. An average of
a million messages a month are being sent among subscribers within the network.
Frequency Blocks
The FCC has divided PCS
into six frequency blocks, designated Blocks A through F, such that there are
six overlapping licenses in each market in each geographic area of the
country. Blocks A, B and C are 30 MHz
blocks, and Blocks D, E and F are 10 MHz blocks. The FCC has created new C2 blocks of 15 MHz in certain markets including
Puerto Rico and California.
Entrepreneur
Classes and Economic Preferences
Block C and F licenses
were reserved for Entrepreneurs meeting certain limiting criteria set forth in
FCC Rules. Entrepreneurs were granted a
set of economic preferences in the Auctions.
Under FCC Rules, an Entrepreneur is defined as an entity that, together
with its affiliates and persons or entities that hold attributable interests in
such entity and their affiliates, has less than (i) $500 million of assets, and
(ii) $125 million of annual gross revenue over the prior two years. In addition, FCC Rules define three classes
of Entrepreneurs, with each class eligible for different economic preferences
in the Blocks C and F Auctions. The
Partnership’s Entrepreneur qualification is as a “Small Business,” which is an
entity that had less than $40 million of aggregate annual gross revenue
averaged over the last three years, at the date of grant of the license.
Small Businesses are
entitled to make interest-only payments for the first six years and
can amortize
interest and principal over the remaining four years of the license term. The interest rate applicable to Small
Businesses is the 10-year treasury note rate at the date of grant of the
license. In addition, Small Businesses
were entitled to a bidding credit of 25%.
In March 1997, the FCC issued an order suspending indefinitely interest
payments on all Block C licenses; however, interest continued to accrue. Ultimately, in accordance with the FCC
procedures specified in the FCC’s March 24, 1998 Order on Reconsideration of
the Second Report and Order (the “Reconsideration Order”), the Partnership
commenced interest payments during July, 1998.
Build-Out
Requirements
All PCS license holders
are required to meet certain requirements imposed by the FCC relating to the
provision of service in each license area. Block C license holders must provide
coverage to one-third of the POPs in each license service area within five
years of license grant and two-thirds of the POPs in each license service area
within ten years of license grant.
These periods were rescheduled by the FCC to begin on June 8, 1998. Failure to comply with the build-out
requirements could subject the Partnership to license forfeiture or other
penalties, and may have a material adverse effect on the financial condition of
the Partnership. The Partnership has
complied with its build out requirements for the Puerto Rico Licenses and the
California Licenses.
Employees The Partnership,
including its wholly owned subsidiary NewComm, had approximately 300 employees
at the end of 2001.
ITEM 2.
ITEM 2. PROPERTIES The Partnership leases
office space in Hato Rey and Guaynabo, Puerto Rico. In connection with the build-out by NewComm of the Partnership’s
Puerto Rico Network, NewComm leases sites where its telephone switching
equipment, relay stations and other equipment are located, as well as sites and
kiosks in malls and shopping centers where it sells its services to the public.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS Sprint/Centennial
On September 21, 2001,
Newcomm Wireless Services, Inc. d/b/a MoviStar (“MoviStar”) filed a Complaint and
Motion
and Memorandum of Law Requesting Temporary Restraining Order and Preliminary
Injunction in the Federal District Court for the District of Puerto
Rico, which alleged serious and unlawful interruptions, interferences and
irreparable damages to MoviStar’s operations rising out of Sprint’s refusal to
broadcast a SID for the Puerto Rico market
that will not interfere with the services
presently being offered by MoviStar to its subscribers. During October 15th to 18th,
2001, the District Court held an evidentiary hearing related to the injunctive
relief sought. In its Opinion and
Order of October 29, 2001, the District Court
ordered Sprint to “immediately cease and desist from using SID 5142 and/or any
other SID which similarly interferes with plaintiff’s operations in Puerto
Rico.”
On October 30, 2001,
Centennial filed a Motion of Intervention of Right in which
it requested leave from the District Court to join the Sprint litigation. Despite MoviStar’s opposition, the District
Court granted Centennial’s motion on November 5, 2001. Both Sprint and Centennial are currently
appealing, in the First Circuit Court of Appeals, the injunctive relief granted
by the District Court of Puerto Rico.
On April 6, 2002, the First Circuit Court of Appeals issued an order
reversing the injunction release. On or
about April 20, 2002, MoviStar plans to file a Petition for a Re-Hearing.
PRAICO
This is a civil action
for breach of contract and collection of moneys before the Superior Court of
San Juan on September 17, 2001, wherein the NewComm Wireless Services, Inc.
(“NewComm”) is suing the Puerto Rican American Insurance Company (“PRAICO”)
demanding the payment of claims made by NewComm under insurance policies issued
by PRAICO. NewComm attempts to recover
four million dollars ($4,000,000) against PRAICO to recover from PRAICO under
an insurance policy issued by that company to cover theft and damages of
handsets sold to the public. The four
million dollar claim covers approximately four thousand (4,000) phones reported
as either lost or stolen. The complaint
has been filed but no answer has been filed to date. The parties are currently in negotiations for a settlement of the
subject claim. PRAICO has offered the
sum of two million dollars ($2,000,000) as settlement. NewComm has made a counteroffer of three
point eight million dollars ($3,800,000).
Puerto Rico
Telecommunications Regulatory Board
On January 31,
2002, NewComm filed a Petition for Arbitration before the Puerto
Rico Telecommunications Regulatory Board (“PRTRB”) whereby NewComm petitions
PRTRB for arbitration of rates, terms and conditions for interconnection and
related arrangements in conjunction with a revised interconnection agreement
between NewComm and the Puerto Rico Telephone Company (“PRTC”).
Jaime L. Santiago
On February 22, 2002,
MoviStar answered a complaint filed by Jaime Luis Santiago Cajigas alleging
damages based on Law 44 of December 20, 1991, 1 L.P.R.A. § 501 et. seq., which
is Puerto Rico’s Law Against Discrimination Based on Disability. The plaintiff
is also alleging damages under the Americans With Disabilities Act (ADA). The
damages alleged against all defendants amounts to $1,000,000.00. The plaintiff
is also claiming equitable
remedies such as
reinstatement to his former employment, with reasonable accommodation, costs
and attorneys fees. The next step for the parties is to initiate discovery in
this case. Once discovery is completed,
MoviStar will be in a much better position to assess the case and provide more
detailed information as to the possibilities of prevailing or opting for
settlement.
Complaint
A complaint was filed
against Movistar on December 7, 2001. It alleges discrimination based on
national origin against the Plaintiff, who was allegedly terminated from his
employment for being from the Dominican Republic. Additionally, it claims
unjust termination. The Plaintiff requests $100,000 to compensate for his
emotional damages, $6,000 for his alleged unjust dismissal and $10,000 as
special damages for alleged unpaid compensation.
Movistar filed an answer
to the complaint on December 31, 2001. Therein MoviStar denied the allegations
set forth in the complaint and plead as an affirmative defense, inter alia,
that the Plaintiff was terminated, not for his national origin, but after it
was discovered that he had lied in his employment application process when he
furnished a resume to the Defendants where he claimed that he had earned a
Bachelor in Science of Civil Engineering.
On January 23, 2002,
MoviStar filed a Motion to Dismiss for the insufficiency of the process and the
service of the process. On February 6, 2002, the court ordered the Plaintiff to
show cause as to why our Motion to Dismiss should not be granted. The Plaintiff complied with the Court’s
order and on February 19, 2002, filed a Motion in Compliance with the Order to
Show Cause. The Court’s decision is still pending. In the meantime, the Court
has scheduled a Status Conference to be held on April 26, 2002.
From time to time
the Partnership is involved in litigation arising from the ordinary course of
business, some of which is ongoing. The
General Partner does not believe that any litigation involving the Partnership
will have a material adverse effect on the Partnership’s business or financial
condition
ITEM
4.
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
Part II
ITEM
5.
ITEM
5.
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no trading
market for the Units, and it is unlikely that a trading market will exist at
any time in the future unless the Partnership is restructured. Any transfer of the Units is severely
restricted by certain conditions outlined in the Partnership Agreement, and
requires the consent of the General Partner which can be withheld in the
General Partner’s sole reasonable discretion.
As of December 31, 2001
only the General Partner holds a general partnership interest and 1,604
Investors hold an aggregate of 2,907.7 Units of limited partnership
interest. There are 3.3 units held as
treasury units.
There have been no cash
distributions to the Investors to date.
The following summary of certain allocation provisions of the
Partnership Agreement is entirely qualified by reference to the Partnership
Agreement, which was filed as an Exhibit to the Partnership’s Form 10-K. As a general rule, the General Partner shall
cause the Partnership to make distributions, if any, of cash flow received from
operations of the Partnership which the General Partner, in its sole
discretion, determines to distribute to Investors (“Cash Flow”). All distributions will be made 75% to the
Investors and 25% to the General Partner.
Distributions to the Investors shall be made in proportion to the number
of Units held by each Investor on the last day of the calendar quarter to which
such distribution relates.
The availability of Cash
Flow for distribution to the Investors is dependent upon the Partnership
earning more than its expenses. No
assurance can be given that income in any year will be sufficient to generate
Cash Flow for distribution to the Investors or that there will not be cash
deficits. Further, because operating expenses are subject to increases, and
increases in revenue from Partnership operations may be subject to market
limitations, income from the Partnership in any year may not be sufficient to
generate Cash Flow.
Net losses from
operations of the Partnership will be allocated as follows: first, to the
Investors to offset any profits previously allocated to the Investors, and
second, 75% to the Investors in accordance with the number of Units held by
each Investor and 25% to the General Partner.
The gain from a financing, refinancing, sale or other disposition of the
Partnership’s assets (or from similar capital transactions) (collectively,
“Capital Transactions”) will be allocated 75% to the Investors and 25% to the
General Partner. The loss from a
Capital Transaction will be allocated in the same way that net losses from the
Partnership’s operations are allocated.
Further adjustments to capital accounts may be required and are
authorized by the Partnership Agreement to comply with the provisions of any
future Internal Revenue Service regulations.
The Partnership may realize net proceeds (that is,
proceeds available after the payment of certain fees and expenses including
payments to the General Partner or its affiliates) from a Capital
Transaction. No assurance can be given,
however, as to the availability of a Capital Transaction or the amount of net
cash proceeds therefrom. Any amounts
received by the Partnership which constitute amounts derived from a Capital
Transaction, will be treated as being received from operations of the
Partnership and will be distributed to Investors only if the General Partner
determines to do so.
ITEM 6.
ITEM 6. SELECTED FINANCIAL
DATA The following table
summarizes selected consolidated financial data of the Partnership from the
period from January 1, 1997 to December 31, 1997, from January 1, 1998 to
December 31, 1998, from January 1, 1999 to December 31, 1999, from January
1, 2000 to December 31, 2000, and from January 1, 2001 to December 31,
2001. This information should be read
in conjunction with the Partnership’s consolidated financial statements and
related notes thereto and management discussion contained herein.
Statements of Operations Data
(1) The 1997 operating expenses include payment of $6,511,250 to
Romulus Telecommunications Corp. for its services in preparation of the
Partnership’s FCC application to bid in the FCC C-Block auctions and bidding at
the auctions.
Balance
Sheets Data
ITEM 7.
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Partnership was
formed in January 1995 and is managed by its General Partner, SuperTel
Communications Corp. The Partnership
was organized to acquire, own, consult and operate personal communication
services PCS licenses in the Block C band and to take advantage of the benefits
that the FCC has set aside for Entrepreneurs.
The Partnership owns the Puerto Rico Licenses, which consist of two 15
MHz PCS licenses covering Puerto Rico, and the California Licenses, which
consist of four 15 MHz PCS licenses covering the California cities of Eureka,
Redding, Modesto, and Merced.
On August 28, 2000, the
Partnership entered into a Purchase and Sale Agreement with Leap Wireless
International (“Leap Wireless”), pursuant to which the Partnership sold the
Visalia-Porterville license to Leap Wireless in exchange for a $9,500,000 cash
payment. The sale was approved by the
FCC and closed on June 8, 2001.
The Partnership commenced
commercial operations of its PCS network in Puerto Rico on September 24, 1999
when it began offering wireless services in Puerto Rico to the public. Prior to that date, its revenues had
consisted of interest income only.
Since the Partnership commenced commercial operations in 1999, the
comparisons presented below may not be indicative of future operations.
The Partnership
established its Puerto Rico network by forming a wholly owned subsidiary,
NewComm on January 29, 1999. On
February 4, 1999, the Partnership and NewComm entered into an agreement with
TLD, whereby the Partnership contributed its two Puerto Rico Licenses to
NewComm and TLD provided NewComm a $19,960,000 loan to develop the Puerto Rico
Licenses. TLD’s loan is pursuant to a
secured convertible promissory note (the “Note”) which is convertible into
49.9% of NewComm’s equity. The Note
however, cannot be converted until the FCC authorizes TLD to hold more than a
25% equity interest in NewComm.
The Partnership has
agreed to sell shares in NewComm to TLD in sufficient amount to provide TLD
with an additional 0.2% share interest in NewComm, enabling TLD to have a total
of 50.1% control interest in NewComm.
The transaction involves a Stock Purchase Agreement, a Shareholders
Agreement, and a Sale Agreement. A
summary of the terms of the sale and these agreements is provided below.
The Stock Purchase Agreement
The purchase price for
the 0.2% share interest in NewComm shall be determined after all conditions to
closing are obtained. The principal
conditions for this closing are the closing of the long term financing for
NewComm and the final approval by the FCC.
At such time, ClearComm and TLD will select an internationally
recognized investment banking firm who will perform a valuation of the shares
to be sold. The investment banker will
have an agreed upon period of time to prepare the valuation of the shares. After delivery of the valuation, a closing
will occur.
The investment banking
firm will use a combination of various methodologies for its valuation, that
include: discounted cash flows, comparable
transactions and trading prices of comparable transactions, and trading prices
of comparable publicly held companies and in the application of such
methodologies shall use acceptable industry standards. Payment shall be in
cash.
If a long term finance
facility for NewComm of approximately $175 million is not closed by July 15,
2002 or if the FCC does not approve the transfer of control to TLD, ClearComm
may terminate the Stock Purchase Agreement.
The Shareholders Agreement
In consideration of the
sale of a controlling interest in NewComm a new Shareholders Agreement shall
become effective upon the closing of the Stock Purchase Agreement. The Shareholders Agreement shall incorporate
all of the rights and benefits under the current Joint Venture Agreement, which
include, rights of first refusal, pre-emptive rights, drag along rights,
registration rights, piggy back rights, financial reporting and others.
In addition to the above,
ClearComm will have approval rights for a great number of actions that have the
intent of protecting the Partnership’s then minority interest in NewComm, some
of which are as follows: any
transaction between NewComm and a shareholder or an affiliate of such
shareholder, other than the Management Agreement and the Technology Transfer
Agreement; the annual strategic business plan and operating budgets for each
fiscal year and any variations or modifications which individually or in the
aggregate exceed ten percent of the operating budget for such annual period;
the appointment of the general manager, the director of finance and all
directors of each division of NewComm, as well as the compensation of each such
person, consent to which shall not be unreasonably withheld; the engagement of
a new marketing consultant and the employment of marketing strategies,
promotions, advertising and product development different from those in effect
on the date hereof, consent to which shall not unreasonably be withheld; any
modification to the Certificate of Incorporation or Bylaws of NewComm that
would have an adverse effect on any rights granted to a shareholder thereunder
or under applicable law; and any amendments or modifications to the Management
Agreement or the Technology Transfer Agreement in effect as of the Effective
Date. ClearComm will have the right to
appoint three directors and TLD four directors.
The Sale Agreement
The new Sale Agreement
provides that at any time after 14 months from the signing of the Stock
Purchase Agreement with TLD, ClearComm (or TLD) may trigger a shareholder
obligation to sell NewComm. Within 30
days of a notice of sale, TLD (or ClearComm as the case may be) would have the
right to purchase ClearComm’s (or TLD’s) interest. The purchase price to be paid at that time would be based on a
valuation performed by the investment banking firm that prepared the one under
the Stock Purchase Agreement.
If TLD does not exercise
its right to buy out ClearComm’s interest, the shareholders will be bound to proceed with the sales process to
attempt a sale of NewComm. All
shareholders are bound to cooperate and undertake all that is necessary in that
effort. Further, the shareholders are
bound to accept the highest price proposed by an interested buyer, which price
must be payable in cash or freely tradable securities, or a combination
thereof, and which must be for a price not less than the valuation prepared by
the investment banker.
Some additional points
are that at the closing of the sale of NewComm the Management Agreement and the
Technology Transfer Agreement held by TLD will terminate. Also, no premium for controlling interest or
discount for holding a minority interest in NewComm will apply.
The Sale Agreement shall
continue in full force and effect even if the Stock Purchase Agreement with
TLD, for whatever reason, does not close.
Project Finance Facility
With the signing of the
Stock Purchase Agreement ABN/AMRO and BBVA (the “Banks”) have proceeded to work
towards providing a $175 million Project Finance Facility for NewComm. This facility, together with the required
additional capital of $25 million shall suffice to fully fund NewComm’s
business plan and operations.
California Licenses
Since January 2002
the Partnership has been offering wireless DSL service in certain areas within
the California Licenses in compliance with the FCC build out requirements.
Critical
Accounting Policies.
The consolidated
financial statements are prepared in accordance with accounting principles
generally accepted in the United States, which require the Partnership to make
estimates and assumptions. The
Partnership believes that of its significant accounting policies (see Note 3 to
the consolidated financial statements), the following may involve a higher
degree of judgment and complexity.
We rely on the use of estimates and make assumptions
that impact our financial condition and results. These estimates and assumptions are based on historical results
and trends as well as our forecasts as to how these might change in the
future. Some of the most critical
accounting policies that might materially impact our results include:
Valuation
of Accounts Receivable, Inventories and Long-lived Assets
Allowance
for Doubtful Accounts - Estimates used in determining our provision for doubtful accounts
are based on our historical collection experience, current trends, credit
policy and a percentage of our accounts receivable by aging category. In determining these percentages, we look at
historical write-offs of our receivables and our history is limited. We also look at current trends in the credit
quality of our customer base as well as changes in the credit policies. Under NewComm’s credit policy, customers who
do not meet certain credit criteria are required to make a deposit ranging from
$70 to $250 that could be credited against future billings, to control credit
exposure. If the estimates are
insufficient for any reason, our operating income, earnings before interest
taxes depreciation and amortization (“EBITDA”) and available cash would be
reduced.
Insurance
Claims Receivable
- We currently have written-down a significant insurance claims receivable to
estimated realizable value. The
Partnership filed claims aggregating approximately $4,000,000 with the
insurance company. There is a dispute
between the Partnership and the insurance company in relation to coverage for
certain losses (refer to Note 5).
Accordingly, the Partnership has recorded an insurance claims receivable
of approximately $1,496,000 as of December 31, 2001, which mostly represents
the portion of the claims the insurance company has offered to pay. During 2001, NewComm filed a lawsuit against
the insurance company demanding payment of these claims. The realization of the receivable is
contingent on the settlement of the lawsuit.
If the estimated write-down for insurance claim receivable is
understated, operating income, EBITDA and available cash would be reduced.
Write-down
of Refurbished and Excess or Obsolete Inventories - We currently have written-down
refurbished handset inventories to the lower of cost or market value (which
approximates cost to refurbish or replace the handsets). We currently have written-down excess or
obsolete handset accessories to net realizable value. As inducement to obtain new customers the Partnership may sell
handsets to customers for a price that is less than cost. The loss on such sales is recognized at the
time of sale. We continue to monitor
the depletion of our current inventory levels.
If we do not deplete the refurbished handsets or the handset
accessories, we may have to record an additional write-down for any remaining
refurbished and excess or obsolete inventories due to lower realizable retail
prices on those inventories. If the
estimated write-down for refurbished and excess or obsolete inventories is
understated, operating income, and EBITDA would be reduced.
Long-lived
Assets - We
continually evaluate long-lived assets to determine whether current events and
circumstances warrant adjustment to the carrying values or amortization
periods. The Partnership measures
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for recoverability, an estimate of the
future cash flows expected to result from the use of the asset and its eventual
disposition must be made. If the sum of
the future cash flows (undiscounted and without interest charges) is less than
the carrying amount of the asset, an impairment loss is recognized. The impairment loss, if any, is determined
based on projected discounted future operating cash flows using a discount rate
reflecting the Partnership’s average cost of funds. No impairment loss was recognized during 2001, 2000 and
1999. If the estimates used to measure
impairment are insufficient for any reason, our operating income and EBITDA
would be reduced.
Revenue
Recognition
We recognize post paid PCS service revenue from our
customers as they use the service.
Prepaid PCS service revenue are recognized based on estimates of
usage. Additionally, we provide a
reduction of recorded revenue for billing adjustments and billing
corrections. We record equipment
revenue for the sale of handsets and accessories to customers in our retail
stores and through our third party dealers.
If the estimate used to recognize prepaid PCS service revenue usage vary
from actual results or if the estimate of certain revenue adjustments are
inaccurate our revenues would be adjusted accordingly.
Results of Operations - 2001 Compared
to 2000
The Partnership’s
revenues for the year ended December 31, 2001, which amounted to $123,735,927
($92,011,205 in 2000), included $112,025,407 ($79,906,400 in 2000) in service
revenues and $11,710,520 ($12,104,805 in 2000) in handset and accessories sales
generated from NewComm’s wireless operations.
The increase in service revenues is primarily due to an increase in the
wireless customer base during 2001 as compared to 2000.
Expenses
Expenses for the year
ended December 31, 2001 totaled $136,940,300, as compared to $133,397,603 for
the same period in 2000. During 2001,
the Partnership’s expenses included $32,583,589 ($32,309,660 for 2000) in costs
of handset and accessories, $13,884,281 ($10,747,715 for 2000) in salaries and
benefits, $12,307,559 ($5,928,431 for 2000) for legal and professional
services, $17,631,238 ($20,458,500 for 2000) in depreciation and amortization,
$10,585,296 ($17,716,025 for 2000) in provision for doubtful accounts,
$42,466,975 ($39,044,977 for 2000) in interconnection, sales, advertising,
rent, taxes and other expenses, and $7,481,362 ($7,062,610 for 2000) for
services rendered by related parties.
The increase in expenses during 2001, as compared to 2000, is primarily
associated with an increase in NewComm’s head count and operating expenses
needed to expand NewComm’s operations and market share. The increase in operating expenses was
offset by a decrease in the provision for doubtful accounts of $7,130,729
during 2001, as compared to 2000, due to better collection efforts and tighter
credit policy. Depreciation and
amortization expense decreased during 2001, as compared to 2000, after the
handsets rented to customers were fully depreciated in May 2001.
Net loss of $26,659,660
for 2001 and $51,775,387 for 2000, reflects the costs of competing in the
Puerto Rico market against existing and new cellular and PCS operators in order
to continue to develop and maintain a strong subscriber base. To compete, a significant subsidy is granted
in the sale of handsets and accessories, on which a negative margin of
$20,873,069 was generated during 2001 ($20,204,855 in 2000). In addition, sales, advertising, and
salaries and benefits expenses amounting to $24,227,397 for 2001 ($20,458,500
for 2000) have been required to penetrate the market and serve the established
subscriber base.
Interest expense for the
year ended December 31, 2001, totaled $20,172,216, as compared to $11,141,769
for the same period in 2000. The
increase in interest expense during 2001 is primarily attributable to the FCC
Note, the TLD notes, the Note Payable to Lucent, the Note Payable to Alcatel,
and the Bridge Loan Facility (refer to Notes 9, 10, 11 and 13 to the
accompanying consolidated financial statements). In 2001, the Partnership had interest income of $548,002, as
compared to $490,309 in 2000.
The net loss was offset
by the $4,814,337 gain from the sale of the Visalia-Porterville, California
License.
Liquidity and Capital Resources
As of December 31, 2001,
the Partnership had cash and cash equivalents amounting to $10,241,902, which
are mostly related to proceeds from the sale of the Visalia-Porterville
license.
As part of the agreement
with TLD, NewComm entered into a contract with Lucent Technologies, Inc.
(“Lucent”) that requires Lucent to build a network that uses Code Division
Multiple Access (“CDMA”) protocol. It
is expected that the total cost will approximate $125 million. During 2001, NewComm’s management and Lucent
agreed on formally extending the payment of up to $61.0 million of the total
amount of network construction then currently payable under a formal financing
agreement. The financing agreement
extended payments for an eight-month period (through June 2001), at an annual
rate of 1.5% over 90-day LIBOR.
NewComm’s management and Lucent restructured this financing agreement,
by means of a Promissory Note issued on September 26, 2001 for the principal
sum of $60.5 million plus interest, payable no later than March 15, 2002, at
the rate of 14% annually. NewComm
anticipates that the Promissory Note will be restructured to provide that repayment
will be due on June 30, 2002 with interest at 8%, but no definitive agreement
has yet been signed. This lower
interest had been agreed to with Lucent by means of Letter Agreement dated
September 27, 2001, upon the signing of the Stock Purchase Agreement with
TLD. As of December 31, 2001,
$60,531,697 is outstanding under this financing agreement (refer to Note 10 to
the accompanying consolidated financial statements).
Alcatel USA International
Marketing, Inc. (“Alcatel”) was contracted to build part of the CDMA
network. By December 18, 2001, NewComm
had outstanding invoices, payables, and past due interest totaling
$14,361,732. On December 18, 2001,
NewComm and Alcatel entered
into a Promissory
Agreement and Note for said amount at interest rate of 14%, and a maturity date
of March 25, 2002. This Promissory
Agreement and Note was amended with an extension of payment until November 25,
2002. It was also agreed that with
payment of $6,000,000 expected to be
made by May 25, 2002 the interest rate will be decreased to 8% annually.
In addition, the
Partnership owes the United States federal government approximately $51,339,555
(undiscounted) plus accrued interest at 6.5% of $840,718 in connection with the
acquisition of its PCS licenses. As of
December 31, 2001, the notes payable to FCC are presented net of a discount of
approximately $9,706,000 (refer to Note 13 to the accompanying consolidated
financial statements).
The Partnership has a
secured promissory note payable to TLD, which bears interest at the floating
rate of 90 days LIBOR plus 1.5% and is due in March, 2004. In addition, in January 2000 the joint
venture agreement with TLD was amended to provide NewComm a revolving line of
credit of approximately $30 million for working capital from TLD. This loan was paid-off in December 2000 by
means of a $60 million bridge loan (the “Bridge Loan Facility”) to NewComm from
ABN-AMRO and BBVA (the “Banks”). The
original Bridge Loan Facility bore interest at 1.5% over 90-day LIBOR, which was
originally supposed to expire on March 15, 2001, and was then extended until
March 17, 2002, with an interest at .75% over 90-day LIBOR. The Bridge Loan is now guaranteed by TISA
and was extended again until May 31, 2002.
The Banks expect to replace it with a permanent Project Finance
approximately $175 million (refer to Notes 1 and 11 to the accompanying
financial statements).
The Partnership expects
the total cost to implement NewComm’s business plan to be approximately $200
million. This consists of approximately
$125 million in costs associated with building out the Puerto Rico Network, and
approximately $75 million to fund NewComm’s operations until it becomes
profitable.
The Partnership, by means
of Syncom and TLD, each contributed $15
million of additional capital. Syncom
now has ownership of 4.92% of NewComm and is committed to contribute up to $25
million to NewComm in exchange for a 8.2% ownership. On March 2, 2002, the Partnership sold 4.08% of NewComm to a
group of investors led by Fleet Development Ventures for $13 million. Prior to June 30, 2002, the Partnership and
TLD will contribute approximately $12.5 million each to NewComm in the form of
equity and convertible debt, respectively, to close the Project Finance
Facility. The Partnership believes it
has obtained sufficient funds, together with TLD, to provide NewComm with the
capital necessary for the Project Finance Facility and to fully fund NewComm’s
operations.
As a result of the
restructuring of its FCC debt in June 1998, the Partnership has no outstanding
debt on its California Licenses, which consist of 15MHz of bandwidth covering
an approximate population of 1.1 million people in Eureka, Redding, Merced, and
Modesto all within the state of California.
Holders of major C Block licenses surrounding the California Licenses
are currently under bankruptcy court proceedings, which adversely affects the
Partnership’s ability to enter into joint venture agreements to develop these
licenses. However, a re-auction of D,
E, F and disaggregated C Block licenses concluded on April 16, 1999. Another re-auction was concluded in January,
2001. However, this re-auction was set
aside by the Washington, D.C. Court of Appeals on June 22, 2001. The FCC has appealed this decision
before the United
States Supreme Court. Accordingly,
there continues to be uncertainty regarding ownership of the licenses
surrounding the California Licenses.
Notwithstanding the uncertainty, since January 2002 the Partnership has
been providing wireless DSL service in compliance with the FCC build out
requirements.
The Partnership
anticipates that earnings and cash distributions derived from its Puerto Rico
Network once it is fully operational, interim and permanent financing and, if
necessary, additional capital calls from its Investors or accessing the public
capital markets, should provide it with the liquidity to meet its
obligations. The Partnership also
expects that once it is able to fully develop its California Licenses, it will
have additional sources of revenues and profits.
Results of Operations - 2000 Compared to 1999 The Partnership’s
revenues for the year ended December 31, 2000, which amounted to $92,011,205,
included $79,906,400 in service revenues and $12,104,805 in handset and
accessories sales generated from NewComm’s wireless operations. The increase in revenues is primarily due to
the fact that the Partnership had only three months of operations in 1999 as
compared to 12 months of operations in 2000.
Expenses
Expenses for the year
ended December 31, 2000 totaled
$133,397,603, as compared to $28,072,321 for the same period in
1999. During 2000, the Partnership’s
expenses included $32,309,660 ($4,430,637 for 1999) in costs of handset and
accessories, $10,747,715 ($5,128,280
for 1999) in salaries and benefits, $5,928,431 ($2,144,349 for 1999) for legal
and professional services, $20,458,500 ($2,957,683 for 1999) in depreciation
and amortization, $17,716,025 ($625,000 for 1999) in provision for doubtful
accounts, $39,044,977 ($9,663,546 for 1999) in interconnection, sales,
advertising, rent, taxes and other expenses, and $7,062,610 ($2,980,718 for
1999) for services rendered by related parties. The increase in expenses during 2000 is primarily associated with
a full year of NewComm’s operations, as compared with only three months during
1999.
Net loss of $51,755,387
for 2000, reflects the costs of entering the Puerto Rico market and meeting the
competition of existing cellular and PCS operators in order to develop a
subscriber base. To meet competition, a
significant subsidy is granted in the sale of handsets and accessories, on
which a negative margin of $20,204,855 was generated during 2000. In addition, sales, advertising, and
salaries and benefits expenses amounting to $25,842,980 have been required to
penetrate the market and serve the established subscriber base. Depreciation and amortization expenses of
$20,458,500 in 2000, include $9,704,436 related to the one-year amortization of
handsets rented. New rentals of
handsets were discontinued after May, 2000.
Interest expense for the
year ended December 31, 2000, totaled $11,141,769, as compared to $2,263,002
for the same period in 1999. The
increase in interest expense during 2000 is primarily attributable to the FCC
Note, the TLD notes, the Note Payable to Lucent, and the Bridge Loan Facility
(refer to Notes 9, 11 and 13 to the accompanying consolidated financial
statements). In 2001, the Partnership
had interest income of $490,309, as compared to $832,006 in 1999.
Results of Operations - 1999 Compared to 1998 The Partnership’s
revenues for the year ended December 31, 1999, which amounted to $7,308,559
included $4,950,769 in service revenues and $ 2,357,790 in handset and
accessories sales generated from NewComm’s wireless operations, which started
in Puerto Rico in September 1999.
Expenses
Expenses for the year
ended December 31, 1999 totaled
$28,072,321 compared to $11,747,161 for the same period in 1998.
Expenses incurred in 1998 included legal fees incurred in Oregon litigation and
proceedings before the FCC. The
increase in expenses during 1999 is attributable to the costs associated with
NewComm’s operations that started in September 1999. During 1999, the Partnership’s expenses included $4,430,637 in costs of handset and
accessories, $5,128,280 for salaries
and benefits, $2,957,683 in depreciation and amortization, $625,000 in
provision for doubtful accounts, $9,805,654 in advertising, sales,
interconnection, management fee, rent and other expenses, $2,144,349 for legal
and professional services and $2,980,718 for consulting and legal services
associated with the start-up of NewComm charged by related parties such as TLD
and TISA.
In 1998, the Partnership
had interest earnings of $324,232 compared to $832,006 in 1999. The increase in interest income during 1999
is attributable to NewComm’s investment of the funds loaned by TLD. Interest expense increased in 1999 to
$2,263,002, as compared to $5,749 in 1998, mostly due to the TLD and FCC notes.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Partnership’s
exposure to market risk through derivative financial instruments and other
financial instruments is not material because the Partnership does not use
derivative financial instruments and does not have foreign currency exchange
risks. The Partnership invests cash
balances in excess of operating requirements in short-term money market
funds. As of December 31, 2001, the
Partnership had cash equivalents and short-term investments of approximately
$9,720,000 consisting of cash and highly liquid, short-term investments in
money market funds.
The Partnership’s cash
and cash equivalents will increase or decrease by an immaterial amount if
market interest rates increase or decrease, and therefore, its exposure to
interest rate changes has been immaterial.
The Partnership’s loans payable to the FCC have a fixed interest rate of
6.5% and therefore are not exposed to interest rate risks. The TLD Note relating to indebtedness of
NewComm bears interest at the floating rate of the 90-day LIBOR plus 1.5% and
is due in March 2004. NewComm
anticipates that the Promissory Note originally issued to Lucent Technologies,
Inc. on September 26, 2001 in connection with its build out of the Puerto Rico
Network will be restructured to provide that repayment will be due on June 30,
2002 and bear interest at 8%, but no definitive agreement has yet been
signed. This lower interest had been
agreed to with Lucent by means of a Letter Agreement dated September 27, 2001,
upon the signing of the Stock Purchase Agreement with TLD. The Bridge Loan bears an interest rate of
0.75% over 90-day LIBOR and is now guaranteed by TISA. As part of this arrangement ClearComm agreed
to pay an annual fee of 2.5% over half of this guarantee (or $30 million), or
provide an equivalent cash collateral to the Banks during the first 90
days. If the Partnership did not
collaterize its share after the foregoing 90-day period, the fee would increase
to 4.5%. On November 26, 2001, the
Partnership was prepared to provide a cash collateral amount of $28 million,
and the non-collaterized amount was reduced to $2 million. This guarantee period ends with the closing
of the Project Finance Facility, which is expected to be in place by June 30,
2002. The Bridge Loan Facility was extended
again to May 31, 2002.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All financial
schedules have been omitted because they are not applicable or because the
information required is included in the financial statements or notes thereto.
Report of Independent Public Accountants
To ClearComm,
L.P.:
We have audited the
accompanying consolidated statements of assets, liabilities and partners’
capital (deficit) of ClearComm, L.P. (a Delaware limited partnership) and
subsidiary as of December 31, 2001 and 2000, and the related consolidated
statements of revenues and expenses, changes in partners’ capital (deficit) and
cash flows for the years then ended.
These financial statements are the responsibility of the Partnership’s
management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits
in accordance with auditing standards generally accepted in the United
States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the
financial statements referred to above present fairly, in all material
respects, the financial position of ClearComm, L.P. and subsidiary as of
December 31, 2001 and 2000, and the results of their operations and their cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
The accompanying
consolidated financial statements have been prepared assuming that the
Partnership will continue as a going concern.
As discussed in Note 2 to the consolidated financial statements, the
Partnership has suffered recurring operating losses, has a working capital and
partners’ capital deficit, and has not yet obtained the permanent financing
required to pay for the cost of its network and its working capital needs. These matters raise substantial doubt about
its ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note
2. The consolidated financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
ARTHUR ANDERSEN
LLP
San Juan, Puerto Rico,
April 16, 2002.
Revenue Stamp Number
has been affixed to the original
copy of this report.
Report of Independent Accountants
To the Partners of ClearComm, L.P.
In our opinion, the
consolidated statements of assets, liabilities and partners’ capital (deficit)
and the related consolidated statements of revenues and expenses, of changes in
partners’ capital (deficit) accounts and of cash flows present fairly, in all
material respects, the financial position of ClearComm, L.P. and its
subsidiaries (the Partnership) at December 31, 1999 and the results of their
operations and their cash flows for the year then ended conformity with
accounting principles generally accepted in the United States of America. These financial statements are the
responsibility of the Partnership’s management; our responsibility is to
express an opinion on these financial statements based on our audit. We conducted our audit of these statements
in accordance with auditing standards generally accepted in the United States
of America, which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statements have been
prepared assuming that the Partnership will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Partnership has not yet obtained the permanent
financing required for paying the cost of its network which raises substantial
doubt about its ability to continue as a going concern. The Partnership has received proposals from
banks to provide short term and long term financing. Such financing is subject to certain conditions, among others,
additional contributions by its partners in the amount of $50 million. Management’s plans in regard to this matter
are further described in Note 2 to the consolidated financial statements. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS
LLP
San
Juan, Puerto Rico
March
29, 2000
Stamp
1791152 of the P.R. Society of
Certified
Public Accountants has been
affixed to the file copy of this report
ClearComm, L.P.
Consolidated
Statements of Assets, Liabilities and Partners’ Capital (Deficit)
December
31, 2001 and 2000
The accompanying notes are an integral part of these consolidated
statements.
ClearComm, L.P.
Consolidated
Statements of Revenues and Expenses
December
31, 2001, 2000 and 1999
The accompanying notes are an integral part of these consolidated
statements.
ClearComm, L.P.
Consolidated
Statements of Changes in Partners’ Capital (Deficit)
December
31, 2001, 2000 and 1999
The accompanying
notes are an integral part of these consolidated statements.
ClearComm, L.P.
Consolidated
Statements of Cash Flows
December
31, 2001 and 2000
The accompanying
notes are an integral part of these consolidated statements.
ClearComm,
L.P.
Notes to
Consolidated Financial Statements
December
31, 2001, 2000 and 1999
1. Reporting Entity:
ClearComm, L.P. (the
“Partnership”) is a limited partnership organized on January 24, 1995 under the
laws of the State of Delaware. The
Partnership was formed to file applications with the Federal Communications Commission
(“FCC”) under personal communications service (“PCS”) frequency Block C,
originally restricted to minorities, small businesses and designated entities,
to become a provider of broadband PCS.
The Partnership will terminate on December 31, 2005, or earlier upon the
occurrence of certain specified events as detailed in the Partnership
Agreement.
SuperTel Communications
Corp. (“SuperTel”), a Puerto Rico corporation, is the General Partner. Its total share of the income and losses of
the Partnership is 25% in accordance with the Partnership Agreement. Approximately 1,600 limited partners also
invested in the Partnership through a private placement.
On January 22, 1997, the
Partnership was granted the PCS Block C licenses for Puerto Rico and certain
cities in California.
On February 4, 1999, the
Partnership entered into a joint venture agreement (“the Joint Venture
Agreement”) with Telefónica Larga Distancia De Puerto Rico, Inc. (“TLD”) to
jointly develop and operate certain PCS licenses in Puerto Rico. Among the most important provisions of the
Joint Venture Agreement are the following:
• The Partnership transferred all of its
Puerto Rico PCS licenses including its related debt with the FCC to NewComm
Wireless Services, Inc. (“NewComm”), a newly organized Puerto Rico corporation,
in exchange for all of NewComm’s issued and outstanding common stock.
• TLD loaned approximately $20 million to
NewComm by means of a secured convertible promissory note payable (the
“Promissory Note”). The Promissory Note
is secured by a security agreement pursuant to which a security interest is
imposed upon NewComm’s assets, a Partnership guarantee and a pledge agreement,
as defined.
• Once certain regulatory and other
requirements are met, the Promissory Note will be converted to NewComm’s common
stock representing approximately 49.9% of NewComm’s equity at the time of the
exchange. On March 12, 2002, the
Partnership agreed to sell 0.2% of its shares in NewComm to bring TLD’s
ownership to 50.1% subject to a third party valuation of NewComm’s stock and
approval by the FCC.
• NewComm and TLD entered into certain
management and technology transfer agreements.
In September 1999, NewComm commenced providing PCS services in Puerto
Rico.
On August 28, 2000, the Partnership entered into a
Purchase and Sale Agreement
with Leap Wireless International (“Leap
Wireless”), pursuant to which the Partnership sold the Visalia, California
license to Leap Wireless in exchange for a $9,500,000 cash payment. The transaction closed on June 8, 2001.
NewComm received an
aggregate equity investment of $15,000,000 ($5 million in 2001 and $10 million
in 2000) from Syndicated Communications Venture Partners IV, L.P. (Syncom), a
third party, in exchange for a 4.92% ownership in NewComm. Syncon is committed to contribute up to $25
million to NewComm in exchange for a 8.2% ownership.
The accompanying
consolidated financial statements include the accounts of the Partnership and
its majority-owned subsidiary, NewComm.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
2. Financing Requirements:
The accompanying
consolidated financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business.
The Partnership commenced operations in September 1999 and has incurred
operating losses ($13.2 million in 2001, $41.4 million in 2000 and $20.8
million in 1999). It also has working
capital and partners’ deficit of $133.2 million and $67.6 million,
respectively, as of December 31, 2001.
The Partnership is likely to continue incurring losses until such time
as its subscriber base generates revenue in excess of the Partnership’s
expenses. Development of a significant
subscriber base is likely to take time, during which the Partnership must
finance its operations by means other than its revenues.
As part of the agreement
with TLD, NewComm entered into a contract with Lucent Technologies, Inc.
(“Lucent”) that requires Lucent to build a network that uses Code Division
Multiple Access (“CDMA”) protocol.
NewComm has incurred approximate $125 million in the construction of the
network. During 2000, NewComm’s
management and Lucent agreed on formally extending the payment of up to $61
million of the total amount of network construction payable, at the time, under
a formal financing agreement. The
financing agreement was restructured as a Promissory Note on September 26, 2001,
with a principal sum of approximately $60.5 million plus interest, due March
15, 2002. The interest rate on the
Promissory Note is 14%, which increases to 16% if the Note was not satisfied by
March 15, 2002. NewComm anticipates
that the Promissory Note will be restructured to provide that repayment will be
due on June 30, 2002 and bear interest at a rate of 8%, but no definitive
agreement has yet been signed. As of
December 31, 2001 and 2000, $60.5 million and $61.0 million, respectively, are
outstanding under this financing agreement (refer to Note 9).
Alcatel USA International
Marketing, Inc. (“Alcatel”) was contracted to build part of the CDMA
network. By December 18, 2001, NewComm
owed Alcatel for outstanding invoices, payables, and past due interest totaling
$14,361,732. On December 18, 2001,
NewComm and Alcatel entered into a Promissory Agreement and Note for said
amount at interest rate of 14%, and a maturity date of March 25, 2002. This
Promissory Agreement and Note was amended with an extension of payment until
November 25, 2002. It was also agreed
that with a payment of $6,000,000 expected to be made by May 25, 2002 the
interest rate will be decreased to 8% annually.
During November 2000,
NewComm entered into a $60 million bridge loan agreement (the Bridge Loan
Facility) with ABN-AMRO and BBVA with interest at 1.5% over 90-day LIBOR, which
expired on March 15, 2001, and was extended until June 22, 2001, with interest
at 2.50% over 90-day LIBOR. The Bridge
Loan Facility was then extended until March 17, 2002, with interest at .75%
over 90-day LIBOR. The Bridge Loan
Facility is now guaranteed by TISA, and its maturity date has been extended to
May 31, 2002. As part of this
arrangement ClearComm agreed to pay an annual fee of 2.5% for one half of this
guarantee (or $30 million), or provide an equivalent cash collateral to the
Banks during the first 90 days. If the
Partnership did not collaterize its share after the foregoing 90-day period, the
fee would increase to 4.5%. On November
26, 2001, the Partnership was prepared to provide a cash collateral amount of
$28 million, and the non-collaterized amount was reduced to $2 million. Thus, the fee for the guarantee for the year
ended December 31, 2001 amounted to approximately $453,000. The guarantee period ends with the closing
of the permanent financing (Project Finance Facility) which is expected to be
in place by June 30, 2002. The Project
Finance Facility will require that the Partnership, by means of Syncom and
Fleet, and TLD, to contribute approximately $55 million total (or $27.5 million
each) to NewComm in equity and convertible debt, respectively. As part of this commitment, during the first
six months of 2001, Syncom and TLD each contributed an additional $5 million to
NewComm in the form of equity and convertible debt, respectively, for a total
of $15 million each. (refer to Note 11).
Each of the Partnership’s
C-Block licenses is subject to an FCC requirement that the Partnership construct
network facilities that offer coverage to at least one-third of the population
in the market covered by such license within five years following the grant of
the applicable license and to at least two-thirds of the population within ten
years following the grant. Although the
Partnership’s build-out plan calls for it to exceed these minimum requirements,
failure to comply with these requirements could result in the revocation of the
related licenses or the imposition of fines on the Partnership by the FCC. The Partnership has complied with the build
out requirements in Puerto Rico and for the California Licenses.
Management believes that
the Partnership has complied with all the requirements for obtaining the
permanent financing arrangements discussed above and believes that cash and
cash equivalents on hand, anticipated growth in revenues, vendor financing and
the permanent financing will be adequate to fund its operations, at a minimum,
through the end of 2002. However, in
the absence of improved operating results and cash flows, and the closing of
its contemplated Project Finance Facility, the Partnership may face liquidity
problems to fund its operations and meet its obligations. As a result of these matters, substantial
doubt exists about the Partnership’s ability to continue as a going
concern. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
3. Summary of Significant Accounting Policies:
The following
summarizes the most significant accounting policies followed in the preparation
of the accompanying consolidated financial statements:
Use of Estimates The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could
differ from those estimates.
Significant estimates include the allowance for doubtful accounts, insurance claims receivable, the valuation
of inventories, and the fair value of long-lived assets. A significant assumption that impacts the
carrying value of assets and liabilities is that the Partnership will continue
as a going concern (refer to Note 2).
Basis of Accounting and Fiscal Year The Partnership’s records
are maintained on the accrual basis of accounting for financial reporting and
tax purposes. The fiscal year of the
Partnership ends on December 31.
Cash Equivalents The Partnership considers
all highly liquid investment instruments purchased with an original maturity of
three months or less to be cash equivalents.
Cash equivalents at December 31, 2001 and 2000, consist of money market
funds of approximately $9,720,000 and $5,055,000, respectively.
Allowance for Doubtful Accounts The allowance for
doubtful accounts provides for estimated losses on accounts receivable. The allowance is established based upon a
review of the aggregate accounts, loss experience, economic condition and other
pertinent factors. Account losses are charged
and recoveries are credited to the allowance for doubtful accounts.
Inventories The Partnership maintains
inventories for resale of wireless handsets and accessories to
subscribers. Inventories are recorded
at the lower of average cost (which approximates first-in, first-out) or market
(which approximates replacement cost from suppliers). As inducement to obtain new customers the Partnership may sell
handsets to customers for a price that is less than cost. The loss on such sales is recognized at the
time of sale. Handsets for rental are
transferred to property and equipment at book value at the time these are
rented.
Deferred Financing Costs Financing costs incurred
in connection with the Bridge Loan Facility have been deferred to be amortized
throughout the term of the short-term financing or, for amounts agreed with the
financial institutions to be credited to permanent financing costs, throughout
the term of the permanent financing.
PCS Licenses PCS licenses are recorded
at cost. The Puerto Rico PCS licenses
are being amortized over their estimated life of twenty years. The California PCS licenses (the “California
Licenses”), which are in use effective January 2002, will be amortized over their
estimated life of twenty years. The
Partnership capitalized the interest related to the debt pertaining to the
Puerto Rico PCS licenses during the development stage, which amounted to
$12,174,000. However, such
capitalization was discontinued in September 1999 when NewComm started
commercial operations. The licenses
expire in January 2007 unless renewed.
However, FCC rules provide for renewal expectancy provisions. The Partnership expects to exercise the
renewal provisions.
On August 28, 2001, the
Partnership entered into a Purchase and Sale Agreement with Leap Wireless
International (“Leap Wireless”), pursuant to which the Partnership sold the
Visalia-Porterville license to Leap Wireless in exchange for $9,500,000 cash
payment, resulting in a gain of $4,814,337.
This sale was approved by the FCC and closed on June 8, 2001.
Property and Equipment Property and equipment
are recorded at cost. Major
replacements and improvements are capitalized while general repairs and
maintenance are charged to expense as incurred.
Depreciation is computed
using the straight-line method over the estimated useful life of the asset
commencing from the time it is placed into service or the term of the lease, if
shorter, for leasehold improvements.
Upon retirement or sale, the cost of the asset disposed of and the
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is credited or charged to income.
Accounting for Impairment of Long-lived Assets The Partnership
continually evaluates its long-lived assets to determine whether current events
and circumstances warrant adjustment to the carrying values or amortization
periods. The Partnership measures
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for recoverability, an estimate of the
future cash flows expected to result from the use of the asset and its eventual
disposition must be made. If the sum of
the future cash flows (undiscounted and without interest charges) is less than
the carrying amount of the asset, an impairment loss is recognized. The impairment loss, if any, is determined
based on projected discounted future operating cash flows using a discount rate
reflecting the Partnership’s average cost of funds. No impairment loss was recognized during 2001, 2000 and 1999.
Revenue Recognition The Partnership earns
revenues by providing postpaid and prepaid PCS service to local subscribers, as
well as from sales of PCS equipment and accessories to subscribers. Sale of handsets and accessories are
recognized upon shipment or point-of-sale.
Up to May 2001, revenues were also earned from rental of handsets and
were billed and recognized on a monthly basis.
Postpaid PCS service
revenues consist of base monthly service fees, airtime revenue and
long-distance toll revenues. Generally,
the base monthly service fees are billed one month in advance, but recognized
when earned, while airtime and toll revenues are recognized when the service is
provided.
Prepaid PCS service
revenues are collected in advance, but recognized as service is provided.
Advertising Costs The Partnership expenses
production costs of print, radio and television advertisements and other
advertising costs as such costs are incurred.
Income Taxes In accounting for income
taxes the Partnership uses the asset and liability approach that requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities. A
valuation allowance is recognized for any deferred tax asset for which, based
on management’ s evaluation, it is more likely than not (a likelihood of more
than 50%) that some portion or all the deferred tax asset will not be realized.
Net Loss Per Limited Partnership Unit Net loss per limited
partnership unit is computed by dividing net loss for the period by the
weighted-average number of limited partnership units outstanding during the
period which were 2,907.7 in 2001 and 2000 and 2,830.7 in 1999.
Fair Value of Financial Instruments The carrying amounts of
the Partnership’s financial instruments, excluding notes payable and the bridge
loan facility, (cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities) are considered reasonable estimates of fair
value due to the short period to maturity.
Management believes,
based on current interest rates, that the fair value of its notes payable and
bridge loan facility approximates the carrying amount.
Other Accounting Pronouncements In June 2001, the
Financial Accounting Standards Board issued SFAS No. 141, “Business
Combinations” (effective July 1, 2001) and SFAS No. 142, “Goodwill and Other
Intangible Assets” (effective for the Partnership on January 1, 2002). SFAS No. 141 prohibits pooling-of-interests
accounting for acquisitions. SFAS No.
142 specifies that goodwill and some intangible assets will no longer be
amortized but instead will be subject to periodic impairment testing. The
Partnership applied SFAS No. 142 on January 1, 2002. Since the Partnership does not have any goodwill, the implementation
of SFAS No. 142 did not have a material impact on the Partnership’s
consolidated results of operations or financial position.
SFAS No. 143,
“Accounting for Asset Retirement Obligations,” was issued June 2001. SFAS No. 143 addresses accounting and reporting
for legal obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement is effective for fiscal years beginning after June
15, 2002. It is the opinion of
management that the implementation of SFAS No. 143 is not expected to have a
material impact on the Partnership’s consolidated results of operations or
financial position.
SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” was issued
August 2001. SFAS No. 144 addresses
accounting and reporting for the impairment or disposal of long-lived assets by
requiring that one accounting model be used for assets to be disposed of by
sale, whether previously held and used or newly acquired, and by broadening the
presentation of discontinued operations to included more disposal
transactions. This statement is
effective for fiscal years beginning after December 15, 2001. It is the opinion of management that the
implementation of SFAS No. 144 is not expected to have a material impact on the
Partnership’s results of operations or financial position.
4. Allowance for Doubtful Accounts:
The activity for the allowance for doubtful accounts
at December 31, follows:
5. Insurance Claims Receivable:
The Partnership
provides its customers with optional insurance coverage for damage, theft or
loss of handset equipment sold.
Insurance coverage to the Partnership is provided by a third party
insurance company. During 2000, the
Partnership filed claims aggregating approximately $4,000,000 with the
insurance company. There is a dispute
between the Partnership and the insurance company in relation to coverage for
certain losses. Accordingly, the
Partnership has recorded an insurance claim receivable of approximately
$1,496,000 as of December 31, 2001, which mostly represents the portion of the
claims the insurance company has offered to pay. During 2001, NewComm filed a lawsuit against the insurance
company demanding payment of these claims.
(Refer to Note 17)
6. Inventories:
Inventories at December
31, consist of:
7. PCS Licenses:
At December 31, PCS
licenses consist of:
On August 28, 2001, the Partnership entered into a
Purchase and Sale Agreement with Leap Wireless International (“Leap Wireless”),
pursuant to which the Partnership sold the Visalia-Porterville license to Leap
Wireless in exchange for $9,500,000 cash payment, resulting in a gain of
$4,814,337. This sale was approved by
the FCC and closed on June 8, 2001.
8. Property and Equipment:
At December 31, property and
equipment consist of
Effective May 2000, NewComm discontinued the practice
of renting handsets to customers. By
May 2001, these handsets were fully depreciated and were written-off books.
9. Note Payable to Lucent Technologies:
During 2000, NewComm’s
management and Lucent agreed on formally extending the payment of up to $61.0
million of the total amount due under the network construction payable, at the
time, under a formal financing agreement.
The financing agreement was restructured as a Promissory Note on
September 26, 2001, with a principal sum of $60.5 million plus interest, due
March 15, 2002. The interest rate on
the Promissory Note is 14%, which increases to 16% if the Note is not satisfied
by March 15, 2002. NewComm anticipates
that the Promissory Note will be restructured to provide that repayment will be
due June 30, 2002 and bear interest at 8%, but no definitive agreement has yet
been signed. This lower interest had
been agreed to with Lucent by means of Letter Agreement dated September 27,
2001, upon the signing of the Stock Purchase Agreement with TLD. As of December 31, 2001, $60,531,697 is
outstanding under this financing agreement.
10. Note Payable to Alcatel and Promissory Agreement:
On December 18, 2001,
NewComm had outstanding invoices, payables, and past due interest to Alcatel
totaling $14,361,732. On that day,
NewComm and Alcatel entered into a Promissory Agreement and Note for said
amount at an interest rate of 14%, and a maturity date of March 25, 2002. This Promissory Agreement and Note was
amended with an extension of payment until November 25, 2002. It was also agreed that upon a $6,000,000
payment expected to be made by May 25, 2002, the interest rate will be
decreased to 8% annually. The remaining
balance is due on November 25, 2002.
11. Bridge Loan Facility:
During November 2000,
NewComm entered into a $60 million bridge loan agreement (the Bridge Loan
Facility) with ABN-AMRO and BBVA (the “Bank”) with interest at 1.5% over 90-day
LIBOR, which expired on March 15, 2001, and was extended until June 22, 2001,
with interest at 2.50% over 90-day LIBOR.
The Bridge Loan Facility was then extended until March 17, 2002, with
interest at .75% over 90-day LIBOR. The
Bridge Loan Facility is now guaranteed by Telefónica Internacional, S.A.
(“TISA”), and its maturity date has been extended to May 31, 2002. As part of this arrangement ClearComm
agreed to pay an annual fee of 2.5% for one half of this guarantee ($30
million), or provide an equivalent cash collateral to the Banks during the
first 90 days. If the Partnership did
not collaterize its share after the foregoing 90-day period, the fee would
increase to 4.5%. On November 26, 2001,
the Partnership was prepared to provide cash collateral amounting to $28
million, and the non-collaterized amount was reduced to $2 million. Thus, the fee for the guarantee for the year
ended December 31, 2001 amounted to approximately $453,000. The guarantee period ends with the closing
of the Project Finance Facility, which is expected to be in place by June 30,
2002. The Project Finance Facility will
require the Partnership, by means of Syncom and Fleet Development Ventures, LLC
(“Fleet”) and TLD, to contribute approximately $55 million total (or $27.5
million each) to NewComm in the form of equity and convertible debt,
respectively. As part of this
commitment, Syncom and TLD have each contributed $15 million in the form of
equity and convertible debt. On March
2, 2002, the Partnership sold 4.08% of NewComm to a group of investors led by
Fleet for $13 million. Prior to June
30, 2002, the Partnership and TLD will contribute approximately $12.5 million
each to NewComm in the form of equity and convertible debt, respectively, to
close the Project Finance Facility.
12. Accounts Payable and Accrued Liabilities:
At December 31, accounts payable and accrued
liabilities consist of:
13. Long-Term
Notes Payable:
Long-term notes payable consist of:
FCC
Notes On January 22, 1997, the
Partnership was granted fifteen PCS Block C licenses by the Federal
Communications Commission (“FCC”) for an aggregate $344,293,125. A down payment, or 10% of the bid amount,
was deducted by the FCC from the deposit held.
The remaining balance of
$309,863,813 consisted of 10-year notes due to the FCC bearing interest at 6.5%
and guaranteed by the licenses obtained.
In accordance with industry practice, the Partnership recorded the
licenses and the related debt at a net present value of $210,143,476. Based on the Partnership’s estimates of
borrowing costs for debt similar to that issued by the FCC, the Partnership used
a 13% discount rate. At December 31,
1997, the notes payable to the FCC were presented net of a discount of
approximately $93,007,000.
The original payment term
provided for paying interest only for the first six years starting in April
1997 and both interest and principal for the remaining four years starting in
April 2003. Although in March 1997 the
FCC suspended the deadline for commencing the payments, the Partnership accrued
the interest on the notes.
In September 1997, the
FCC ended the interest payment suspension and established March 31, 1998, as
the deadline to resume payments. The
FCC also adopted certain options designed to assist Block C licensees in
obtaining financing and building their systems. On March 24, 1998, the FCC issued a new order (the “March FCC
Order”) establishing new options and June 8, 1998 and July 31, 1998, as the
dates for making an election on the options and the deadline to resume
payments, respectively.
On June 8, 1998, the
Partnership elected the following options:
1. Returned eight licenses the Partnership
held in the western states of the United States with an undiscounted cost of
approximately $199,299,000 and the FCC forgave the undiscounted debt related to
these licenses amounting to approximately $179,369,000. A credit of approximately $17,000,000 resulting
from this election was used by the Partnership to prepay the debt of other
licenses the Partnership held in the western states of the United States.
2. Disaggregated and prepaid the remaining
five licenses the Partnership held in the western states of the United
States. As a result, the Partnership
returned 15 MHz in licenses with an undiscounted cost of approximately
$15,453,000 and the FCC forgave fifty percent of the related undiscounted debt
or $13,908,000. The outstanding
undiscounted debt on the 15 MHz licenses retained of approximately $13,908,000
was prepaid with the credit received on the licenses returned in (1) above.
3. Disaggregated the Puerto Rico PCS
licenses. As a result, the Partnership
returned 15 MHz in licenses with an undiscounted cost of approximately
$57,044,000 and the FCC forgave fifty percent of the related undiscounted debt
or approximately $51,340,000. A credit
of approximately $2,282,000 resulting from this election was applied by the FCC
to the interest accrued.
As a result of the
elections made by the Partnership, the FCC forfeited approximately $10,990,000,
which was charged to operations in 1998.
The remaining notes
payable to the FCC are payable as follows:
• Quarterly interest payments of $834,268 through April 2003.
• Quarterly principal and interest payments of $3,669,768 from April 2003
through January 2007.
TLD Notes The secured promissory
note (“Promissory Note”) payable to TLD bears interest at the floating rate of
the 90-day LIBOR plus 1-1/2% and is due in March 2004. The principal amount of the Promissory Note
is convertible into NewComm’s shares of common stock, as follows: (i) shares of
NewComm’s Class A Common Stock in an amount equal to thirty-three and one third
percent (33-1/3%) of NewComm’s issued and outstanding Class A Common Stock held
by the Partnership, and (ii) shares of NewComm’s Class B Common Stock in an
amount equal to forty-nine point seven percent (49.7%) of all issued and
outstanding shares of Class A Common Stock of NewComm (including the Class A
Common Stock issued to TLD upon conversion of the Promissory Note). Upon the issuance of the FCC approval, TLD
shall surrender the Promissory Note to NewComm, duly endorsed for cancellation,
and NewComm shall issue (i) the certificates evidencing the number of shares of
Class A Common Stock and Class B Common Stock into which the Promissory Note is
convertible, as set forth herein, and (ii) a promissory note in a principal
amount equal to the accrued interest on the Promissory Note as of such date
(the Interest Note). The Interest Note
will be non-interest bearing and the principal amount may be converted into
additional shares of NewComm’s stock.
Because of restrictions on the PCS licenses, the Promissory Note cannot
be converted until the FCC authorizes TLD to hold more than a 25% equity
interest in NewComm.
On January 31, 2000, the
Joint Venture Agreement was amended.
TLD provided NewComm a revolving line of credit of approximately $30,000,000
for working capital. The amounts
advanced under this line of credit bore interest at 3% over the LIBOR rate and
are secured under the same terms of the Promissory Note of approximately $20
million. During 2000, TLD advanced
NewComm additional amounts bringing the total advances to $30,000,000. The total balance outstanding, including
principal and interest, amounting to $30,191,878, was repaid by NewComm on
December 1, 2000, with the proceeds from the Bridge Loan Facility.
During November 2000, December
2000 and May 2001 TLD loaned and NewComm issued three convertible promissory
notes for the principal amounts of $4,990,000 each. The principal amounts of the promissory notes are each
convertible into 29.34 shares of NewComm’s Class A Common Stock at any time
prior to their respective maturity dates November 2, 2005, December 15, 2005
and May 1, 2006.
On March 12, 2002, the
Partnership agreed to sell 0.2% of its shares in NewComm to TLD subject to the
approval by the FCC and to a third party valuation of NewComm’s stock. If the FCC approves, TLD would own 50.1% of
NewComm.
At December 31, 2001,
future principal installments due on the FCC and TLD notes payable are as
follows:
14. Partners’ Capital:
At December 31, 2001 and
2000, the limited partners’ capital consisted of 2,907.7 units (consisting of
2,607.5 units and 1,501 one-fifth units) distributed among approximately 1,600
limited partners.
The Partnership Agreement
provides that the Partnership may sell additional limited partnership interests
after the initial offering to raise additional equity. Cash flow received from normal operations of
the Partnership which the General Partner, in its sole discretion, determines
to distribute to the investors of the Partnership, will be distributed 75% to
the limited partners and 25% to the General Partner. The operating losses of the Partnership for federal income tax
purposes will be allocated first to the partners as necessary to offset any
profits previously allocated to them until each partner has cumulative losses
equal to cumulative profits previously allocated to each partner, and second,
75% to the limited partners in accordance with the number of units held by each
limited partner and 25% to the General Partner; provided, however, that any
losses that would have the effect of causing or increasing a partner’s capital
account deficit will be allocated first, pro rata to the other partners in
accordance with their respective share of partnership distributions, and
second, when such allocations can be made without increasing a partner’s
capital account deficit, to the General Partner.
15. Related Party Transactions:
The Partnership has
incurred legal and consulting expenses paid to limited partners and members of
the Board of Directors and shareholders of the General Partner amounting to
approximately $360,000, $456,000 and $1,720,000 in 2001, 2000 and 1999,
respectively.
The Partnership
Agreement, as amended, provides for payment of a management fee to its General
Partner, equal to the reasonable costs of operating the business of the
Partnership, plus 10% of such aggregate amount, which fee shall be payable
monthly, on the first day of each month during the year. Expenses reimbursed include, but are not
limited to, compensation costs and expenses related to the officers, directors,
and employees in the performance of their duties. In connection with this
agreement, the General Partner billed approximately $139,000, $130,000 and $142,000
in 2001, 2000 and 1999, respectively, for these services.
NewComm entered into a
management agreement with TLD whereby TLD has agreed to combine its experience,
know-how, synergies and resources in the development, preparation and
implementation of NewComm business policies and organization in all major areas
of operations. As part of this
management agreement, TLD agrees to advise NewComm in establishing and
developing NewComm’s strategic business policies, technical consultation in
connection with the design and development of networks, equipment selection,
quality controls, billing platforms, customer service and in new services and
products. NewComm is responsible for
all salaries, wages, benefits, expenses and any other compensation of the officers,
employees or agents selected by TLD in connection with its management
services. This management agreement
requires NewComm to pay an annual fee (payable quarterly in arrears) based on
the higher of 9% of NewComm’s earnings before interest, taxes, depreciation and
amortization (“EBITDA”) or $750,000.
The initial term of this management agreement is five years beginning in
February 4, 1999, and is automatically renewable.
Also, NewComm entered
into a services agreement with TLD, whereby TLD will provide support to NewComm
in the areas of legal consultation, public relations, management information
systems and general services. The
services agreement is on a year-to-year basis and requires monthly payments to
TLD in the amount of approximately $116,000.
In addition, NewComm
entered into a technology transfer agreement with Telefónica Internacional,
S.A. (“TISA”), an affiliate of TLD, whereby TISA granted NewComm the right to
use, during the term of this agreement, all patents, trademarks, processes, planning
resources, models, designs and, in general, all other intellectual property
belonging to TISA (collectively, the Technology), which is deemed necessary for
the efficient operation and development of the business of NewComm. NewComm shall pay TISA all costs incurred,
directly, or indirectly by virtue of granting NewComm the right to utilize the
Technology. In consideration for the
right to use the Technology, NewComm shall pay an annual fee (payable quarterly
in arrears) equal to one percent (1%) of NewComm’s gross revenue as of the end
of the previous year. NewComm shall be responsible for all taxes, withholdings
or similar deductions due on the fee.
The initial term of this agreement is five years and is automatically
renewable.
Atento de Puerto Rico,
Inc., an affiliate of TLD, provides NewComm call center services, including
customer service and others. Services
are charged based on arranged rates.
Total amounts charged by
TLD and its affiliates during the years ended December 31, 2001, 2000 and 1999,
for the above agreements and other charges amounted to approximately
$7,152,000, $6,607,000 and $2,410,000, respectively.
16. Income Tax:
The Partnership, as a
limited partnership, is not subject to federal income tax and the tax effect of
its activities flows-through to the partners.
The Partnership and NewComm, are treated as regular corporations and are
subject to Puerto Rico income tax.
Taxable income to the
General and Limited Partners differs from that reported in the statements of
revenues and expenses mainly due to different treatment of operational expenses
incurred since inception for tax and book purposes and due to NewComm’s
losses. The Partnership’s operating
expenses were deferred for tax purposes.
The taxable loss for the
partners is determined as follows:
At December 31, 2001,
NewComm has an operating loss carryforward amounting to approximately $94.8
million. This loss is available to
offset future Puerto Rico taxable income and expires at various date through
2008. Due to the uncertainty
surrounding the realization of the related deferred tax asset, the Partnership
has provided a full valuation allowance against its otherwise recognizable
deferred tax asset.
17. Contingencies:
Sprint/Centennial
On September 21, 2001,
Newcomm Wireless Services, Inc. d/b/a MoviStar (“MoviStar”) filed a Complaint and
Motion
and Memorandum of Law Requesting Temporary Restraining Order and Preliminary
Injunction in the Federal District Court for the District of Puerto
Rico, which alleged serious and unlawful interruptions, interferences and
irreparable damages to MoviStar’s operations rising out of Sprint’s refusal to
broadcast a SID for the Puerto Rico market that will not interfere with the
services presently being offered by MoviStar to its subscribers. During October 15th to 18th,
2001, the District Court held an evidentiary hearing related to the injunctive
relief sought. In its Opinion and
Order of October 29, 2001, the District Court
ordered Sprint to “immediately cease and desist from using SID 5142 and/or any
other SID which similarly interferes with plaintiff’s operations in Puerto
Rico.”
On October 30, 2001,
Centennial filed a Motion of Intervention of Right in which
it requested leave from the District Court to join the Sprint litigation. Despite MoviStar’s opposition, the District
Court granted Centennial’s motion on November 5, 2001. Both Sprint and Centennial are currently
appealing, in the First Circuit Court of Appeals, the injunctive relief granted
by the District Court of Puerto Rico.
On April 6, 2002, the First Circuit Court of Appeals issued an order
reversing the injunction release. On or
about April 20, 2002, MoviStar plans to file a Petition for a Re-Hearing.
PRAICO
This is a civil
action for breach of contract and collection of moneys before the Superior
Court of San Juan on September 17, 2001, wherein the NewComm is suing the
Puerto Rican American Insurance Company (“PRAICO”) demanding the payment of
claims made by NewComm under insurance policies issued by PRAICO. NewComm attempts to recover four million
dollars ($4,000,000) against PRAICO to recover from PRAICO under an insurance
policy issued by that company to cover theft and damages of handsets sold to
the public. The four million dollar
claim covers approximately four thousand (4,000) phones reported as either lost
or stolen. The complaint has been filed
but no answer has been filed to date.
The parties are currently in negotiations for a settlement of the
subject claim. PRAICO has offered the
sum of two million dollars ($2,000,000) as settlement. NewComm has made a counteroffer of three
point eight million dollars ($3,800,000).
Puerto Rico
Telecommunications Regulatory Board
On January 31, 2002,
NewComm Wireless Services, Inc. (“NewComm”) filed a Petition for Arbitration
before the Puerto Rico Telecommunications Regulatory Board (“PRTRB”) whereby
NewComm petitions PRTRB for arbitration of rates, terms and conditions for
interconnection and related arrangements in conjunction with a revised
interconnection agreement between NewComm and the Puerto Rico Telephone Company
(“PRTC”).
Jaime L. Santiago
On February 22, 2002,
MoviStar answered a complaint filed by Jaime Luis Santiago Cajigas alleging
damages based on Law 44 of December 20, 1991, 1 L.P.R.A. § 501 et. seq., which
is Puerto Rico’s Law Against Discrimination Based on Disability. The plaintiff is also alleging damages under
the Americans With Disabilities Act (ADA).
The damages alleged against all defendants amounts to $1,000,000. The plaintiff is also claiming equitable remedies
such as reinstatement to his former employment, with reasonable accommodation,
costs and attorneys fees. The next step
for the parties is to initiate discovery in this case. Once discovery is completed, MoviStar will
be in a much better position to assess the case and provide more detailed
information as to the possibilities of prevailing or opting for settlement.
Complaint
A complaint was filed
against Movistar on December 7, 2001. It alleges discrimination based on
national origin against the Plaintiff, who was allegedly terminated from his
employment for being from the Dominican Republic. Additionally, it claims
unjust termination. The Plaintiff requests $100,000 to compensate for his
emotional damages, $6,000 for his alleged unjust dismissal and $10,000 as
special damages for alleged unpaid compensation.
Movistar filed answer to
the complaint on December 31, 2001. Therein they denied the allegations set
forth in the complaint and plead as an affirmative defense, inter alia, that
the Plaintiff was terminated, not for his national origin, but after it was
discovered that he had lied in his employment application process when he
furnished a resume to the Defendants where he claimed that he had earned a
Bachelor in Science of Civil Engineering.
On January 23, 2002,
MoviStar filed a Motion to Dismiss for the insufficiency of the process and the
service of the process. On February 6, 2002, the court ordered the Plaintiff to
show cause as to why the Motion to Dismiss should not be granted. The Plaintiff
complied with the Court’s order and on February 19, 2002, filed a Motion in
Compliance with the Order to Show Cause. The Court’s decision is still pending.
In the meantime, the Court has scheduled a Status Conference to be held on
April 26, 2002.
From time to time
the Partnership is involved in litigation arising in the ordinary course of
business, some of which is ongoing. The
General Partner does not believe that any litigation involving the Partnership
will have a material adverse effect on the Partnership’s business or financial
condition.
18. Commitments:
The Partnership through
NewComm is committed under various operating lease agreements for its office
space and retail outlets, as well as various sites for communication equipment
and towers under different terms and conditions. Minimum future annual rental commitments at December 31, 2001,
are as follows:
Rent expense for the
years ended December 31, 2001, 2000 and 1999, was approximately $7,956,000,
$7,415,000 and $1,825,000, respectively.
All PCS license holders
are required to meet certain requirements imposed by the FCC relating to the
provision of service in each license area. Block C license holders must provide
coverage to one-third of the POPs in each license service area within five
years of license grant and two-thirds of the POPs in each license service area
within ten years of license grant.
These periods were rescheduled by the FCC to begin on June 8, 1998. Failure to comply with the build-out
requirements could subject the Partnership to license forfeiture or other
penalties, and may have a material adverse effect on the financial condition of
the Partnership. The Partnership has
complied with its build out requirements for the Puerto Rico Licenses, and the
California Licenses.
19. Supplementary Cash Flows Information:
Interest paid
during the years ended December 31, 2001 and 2000 and 1999, were approximately
$12,279,000, $5,526,000 and $3,700,000, respectively.
Non-cash investing
and financing activities include the following:
• Network construction costs, not yet paid,
financed through note payable to Lucent and Alcatel of approximately
$73,322,000, $71,055,000 and $88,04,7000 in 2001, 2000 and 1999, respectively.
• Limited partners’ capital contribution
not yet collected of $981,000 in 1999.
20. Quarterly Financial Information (Unaudited):
Certain unaudited quarterly financial information for
the years ended December 31, 2001, 2000 and 1999, follows:
During the third and fourth quarters of 2000, the Partnership recorded
increases to the provision for doubtful accounts of approximately $6,000,000
and $8,200,000, respectively. In
addition, during the fourth quarter of 2000, the Partnership recorded inventory
adjustments related to valuation and existence of approximately
$4,900,000. The Partnership cannot
determine what the effect of these expense items on previous quarters of 2000
may have been, if any.
Report of Independent Public Accountants
To the Board of Directors
of SuperTel
Communications Corp.:
We have audited the
accompanying balance sheets of SuperTel Communications Corp. as of December 31,
2001 and 2000, and the related statements of revenues and expenses and deficit,
and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s
management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits
in accordance with auditing standards generally accepted in the United
States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the
financial statements referred to above present fairly, in all material
respects, the financial position of SuperTel Communications Corp. as of
December 31, 2001 and 2000, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN
LLP
San Juan, Puerto Rico,
April 16, 2002.
Revenue Stamp Number
has been affixed to the original
copy of this report.
SuperTel
Communications Corp.
Balance
Sheets-December 31, 2001 and 2000
The accompanying notes are an integral part of these balance sheets.
SuperTel
Communications Corp.
Statements
of Revenues and Expenses and Deficit
For the
Years Ended December 31, 2001 and 2000
The accompanying notes are an integral part of these statements.
SuperTel
Communications Corp.
Statements
of Cash Flows
For the
Years Ended December 31, 2001 and 2000
The accompanying notes are an integral part of these statements.
SuperTel
Communications Corp.
Notes to
Financial Statements
December
31, 2001 and 2000
1. Reporting Entity:
SuperTel Communications
Corp. (the “Company” ) was organized on June 7, 1996 under the laws of the
Commonwealth of Puerto Rico. The
Company was created to serve as general partner (the “General Partner”) of
ClearComm, L.P. (the “Partnership”).
Most of the Company’s
transactions are related to the administration of the Partnership, a limited
partnership organized on January 24, 1995 under the laws of the State of
Delaware, for which the Company has served as General Partner since June 18,
1996. On January 22, 1997, the
Partnership was granted the PCS Block C licenses for Puerto Rico and certain
western states of the United States. On
February 4, 1999, the Partnership entered into an agreement with Telefónica
Larga Distancia de Puerto Rico, Inc. (“TLD”).
Some relevant provisions of this agreement are the following:
• The Partnership transferred all of its
Puerto Rico licenses including its related debt with the FCC (the Partnership’s
contribution) to NewComm Wireless Services, Inc. (“NewComm”), a newly organized
Puerto Rico corporation owned by the Partnership, in exchange for all of NewComm’s
issued and outstanding common stock.
• TLD lent approximately $20 million to
NewComm by means of a secured convertible promissory note payable (the
Promissory Note). The Promissory Note
is secured by a security agreement pursuant to which a security interest is
imposed upon NewComm’s assets, a Partnership’s guarantee and a pledge
agreement, as defined.
• Once certain regulatory and other
requirements are met, the Promissory Note will be converted to NewComm’s common
stock representing approximately 49.9% of NewComm’s equity at the time of the
exchange.
• On March 12, 2002, the Partnership agreed
to sell 0.2% of its share in NewComm to bring TLD’s ownership to 50.1% subject
to a third party valuation of NewComm’s stock and approval by the FCC.
• NewComm and TLD entered into certain
management and technology transfer agreements.
In September 1999, NewComm commenced providing PCS services in Puerto
Rico.
The Company is entitled to 25% of all distributions made by the
Partnership.
Reference should be made to the Partnership agreement for complete
description of its’ provisions.
2. Summary of Significant Accounting Policies: The following summarizes the most significant accounting policies
followed in the preparation of the accompanying financial statements:
Use of Estimates The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
Basis of Accounting The accounting and
reporting policies of the Company conform to accounting principles generally
accepted in the United States.
Cash Equivalents The Company considers all
highly liquid investment instruments purchased with an original maturity of
three months or less to be cash equivalents.
The Company had no cash equivalents as of December 31, 2001 and 2000.
Income Taxes In accounting for income taxes,
the Company uses the asset and liability approach that requires the recognition
of deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of
assets and liabilities. A valuation
allowance is recognized for any deferred tax asset for which, based on
management’s evaluation, it is more likely than not (a likelihood of more than
50%) that some portion of all the deferred tax asset will not be realized.
3. Investment in Partnership:
Originally,
the Company acquired its investment in the Partnership for $100,000. Such investment was carried following the
equity method and was written-down to zero in 1996. As of December 31, 2001 and 2000, the Company’s share of the
undistributed losses of the Partnership amounted to approximately $35,093,000
and $28,428,000, respectively. The
Company would have to first recover its share of the Partnership undistributed
losses before it could pick-up its share of the Partnership’s gains.
4. Related Party Transactions:
The partnership agreement
with ClearComm, L. P., as amended, provides for payment of a management fee to
its General Partner, equal to the reasonable costs of operating the business of
the Partnership, plus 10% of such aggregate amount, which fee shall be payable
monthly, on the first day of each month during the year. Expenses reimbursed include, but are not
limited to, compensation costs, and expenses related to officers, directors, and
employees in the performance of their duties.
During 2001 and 2000, fees billed amounted to approximately $139,000 and
$130,000, respectively.
All other related party
transactions are advances from/to affiliated companies made in the ordinary
course of business.
5. Income Tax:
Under the provisions of
the Puerto Rico Tax law, the realized loss on the investment in the Partnership
is not deductible until it is finally determined that the investment is
worthless for tax purposes. No deferred
tax asset has been recognized for this loss due to uncertainty as to its
realization within the carryforward period.
6. Preferred Stock:
The Company is authorized
to issue 1,000 shares of restricted non-voting preferred stock without par
value. The preferred shares are divided
into classes, from A to J with 100 shares each class and upon their issuance
the Company has the option to redeem them at their issuance price plus accrued
dividends. At December 31, 2001, none
of the preferred shares had been issued.
7. Contingencies:
From time to time the
Company or the Partnership is involved in litigation arising in the ordinary
course of business, some of which is ongoing.
The General Partner does not believe that any litigation involving the
Company or the Partnership will have a material adverse effect on the Company’s
or the Partnership’s business or financial condition.
ITEM 9.
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10.
ITEM 10. DIRECTORS AND
EXECUTIVE OFFICERS SuperTel Communications
Corp. was incorporated in Puerto Rico in June 1996 for the purpose of acting as
the general partner of the Partnership (the “General Partner”). SuperTel was structured to ensure that the
Partnership would receive the maximum benefits eligible to Entrepreneurs. The Partnership has no employees and is
managed and controlled by the Board of Directors and executive officers of the
General Partner.
Fred H. Martinez, Director and Chairman of the Board, age 57, has been chairman of the board
of trustees of the University of Puerto Rico from 1993 to 1999. Mr. Martinez is co-managing partner of
Puerto Rico’s third largest law firm.
During 1977 to 1979, Mr. Martinez was director of the Puerto Rico Income
Tax Bureau, member of the Governor’s Economic Advisory Council, chairman,
Committee on Section 936, Government of Puerto Rico, assistant secretary of the
treasury, Internal Revenue, PR Treasury Department (1978- 1979), president, Tax
Committee, PR Chamber of Commerce (1978-1979).
In 1993 he was chairman of the board of the Solid Wastes Management
Authority, Government of PR. Mr.
Martinez has extensive experience in contract negotiations, corporate and tax
law, and in directing major institutions.
He holds a B.S. in Economics from Villanova University (1967), an LL.B.
(law) from the University of Puerto Rico (1971), and an LL.M (taxation) from
Georgetown University (1972).
Javier O. Lamoso, President, age 37, has had extensive experience in the
telecommunications industry and has been responsible for developing,
negotiating and overseeing numerous strategic operational, economic and
political aspects of the cellular telephone industry, including cell-site
acquisition, environmental impacts, leasing contractual arrangements and inter-company
relations with other operating telecommunications organizations, including
interexchange carriers and local telephone companies. Until 1994, Mr. Lamoso acted as counsel to the Puerto Rico Cable
Operators Association in various matters which include the negotiation of rates
and levies and the drafting of new legislation. From 1986 to 1987 Mr. Lamoso held a non-legal position in the
corporate finance department of Simpson, Thacher & Bartlett, and was involved
with the 1987 successful external debt restructuring of Chile. He holds a B.A. in Political Science/
Economics from Fordham University (1986), and a J.D. in law from the University
of Puerto Rico (1990).
Gary H. Arizala, Director, age 63, is an entrepreneur and successful
businessman. Mr. Arizala has experience
in the cellular telephone industry serving as chairman of United Cellular
Associates from 1988 to the present and of Aikane Cellular from 1991 to the
present. In these capacities he
directed the executive committee activities to oversee the development of the
ME-3 RSA cellular telephone system which was successfully acquired by Telephone
& Data Systems in early 1994. In
1972 Mr. Arizala founded Alphabetland Preschool and Kindergarten, which he owns
and operates. Alphabetland provides
high-quality child care and preschool education services to 350 to 400 families
annually through four child care centers located on Oahu, Hawaii, and employs
approximately 60 people. From 1963 to 1971,
Mr. Arizala was an assistant civil engineer with the State of California
responsible for utilities relocation for the State Water Project. His duties included negotiating plans and
agreements with Southern California Edison, Southern California Gas, the United
State Forest Service among other major private and public agencies. He is on the Guardian Advisory Council of
the National Federation of Independent Businesses Hawaii Chapter, and an active
member of the Chamber of Commerce and Small Business Hawaii organizations. Mr. Arizala holds a B.S. in Civil
Engineering from the University of Hawaii (1963).
Margaret W. Minnich, Director, age 47, has held management and supervisory
positions in finance and accounting over a 20-year period in the non-profit,
manufacturing and public accounting field.
In the past, she has been a member of the board of several
privately-held companies and a private foundation. From 1992 to the present, she has worked for The California
Wellness Foundation and since December 1997 is serving as Treasurer and Chief
Financial Officer, and is responsible for all financial reporting, accounting,
budgeting and tax functions including investment performance and asset
allocation review of a $900 million investment portfolio, and managing cash
flow for an annual budget exceeding $45 million. From 1984 through 1990, Ms. Minnich held several key positions
with MICOM Communications Corporation, including manager of financial planning
where she directed all accounting and financial functions. From 1981 to 1984, Ms. Minnich was a senior
accountant with Ernst & Young, Los Angeles, specializing in electronics,
aerospace and heavy industry fields.
Ms. Minnich is a member of the California Society of Certified Public
Accountants and Southern California Association for Philanthropy. She holds a B.A. in Philosophy from the
University of Southern California (1978) and an MBA in accounting from USC
(1981).
Lawrence Odell, Director and Secretary, age 53, is the co-managing partner of
Puerto Rico’s third largest law firm with substantial expertise in the fields
of corporate finance, administrative law, securities and banking. He is a member of the Trial Lawyers
Association of America, served as a member of the Inter-American Law Review
from 1973 to 1974, and has written for that publication in the past. He holds a B.A. (1971) and a J.D. (1974)
from the Inter-American University of Puerto Rico, and an LL.M. in labor law
from New York University (1975). Mr.
Odell has served in the capacity of secretary for several major corporations,
including Buenos Aires Embotelladora, S.A. (BAESA).
James T. Perry, Director, age 69, is a successful entrepreneur and businessman
with substantial experience in the real estate and retail foods industries.
Since 1993, Mr. Perry has purchased and sold a two-way radio license, and has
been involved in several wireless communication partnerships. From 1987 to 1993, he has been general
partner of Telenode Rincon, the original owner and developer of the RSA
cellular telephone system for PR-1, which was successfully acquired by Cellular
Communications, Inc., as well as managing other cellular telephone and
telecommunications holdings. From 1959
to 1975, Mr. Perry was the president and/or owner of several successful
licensed real estate firms including United Realty Group, Milwaukee, the
largest black-owned real estate firm in Wisconsin, and Perry and Sherard
Realty, Milwaukee, which specialized in rehabilitating and selling between 75
to 100 properties per year utilizing a staff of approximately 30 people. From 1975 to 1992, Mr. Perry owned and
operated a McDonald’s franchise in Saint Louis, Missouri, and was responsible
for all operations of this successful business. Mr. Perry served in the U.S.
Army in Korea, and has taken extensive courses in the fields of general
business and real estate. From 1988 to
1992 he was vice president of the Ronald McDonald Children’s Charities, and from
1980 to 1984 he served as a member of the McDonald’s Advertising
Committee. His memberships include the
board of directors of the Skinker DeBaliviere Business Association, Hamilton
Community Schools, Saint Louis, and the admissions committee of the Milwaukee
Board of Realtors. He is a past president
of the Urban Brokers Association, and a director of the Multiple Listing
Service.
Section 16(a) Beneficial Ownership Reporting
Compliance Based solely upon review
of Forms 3, 4 and 5 and any amendments thereto furnished to the Registrant
pursuant to Rule 16a-3(e) of the Rules of the Securities and Exchange
Commission, the Registrant is not aware of any failure of any officer or
director of the General Partner or beneficial owner of more than ten percent of
the Units to timely file with the Securities and Exchange Commission any Form
3, 4 or 5 relating to the Registrant for 2001.
ITEM 11.
ITEM 11. EXECUTIVE
COMPENSATION The Partnership is
managed by the General Partner’s Board of Directors and executive officers of
the General Partner. The Partnership
reimburses the General Partner for all reasonable expenses incurred by it in
connection with managing the Partnership, including salaries and expenses of
the General Partner’s employees who manage the Partnership.
The following Summary
Compensation Table sets forth certain information concerning the cash and
non-cash compensation earned by or awarded to the chief executive officer of
the Partnership’s General Partner.
Other than the chief executive officer, no executive officer of the
General Partner received compensation of $100,000 or more in 2001.
SUMMARY COMPENSATION TABLE
(1) Consists of director’s fees for ClearComm
and NewComm.
(2) Consists of $155,000 paid in 1999 in
connection with the termination of his employment agreement.
On August 30, 2001, the
Partnership loaned $100,000 to Javier Lamoso.
Mr. Lamoso signed a promissory note whereby he promised to pay the
$100,000 plus six percent (6%) annual interest rate, on the earlier of August
30, 2005 or on the date of termination of his employment with the Partnership.
Effective the
second quarter of 1999, the director fees were reduced by half so that
directors receive an annual fee of $12,500 each, other than the Chairman of the
Board, Mr. Martinez, who receives an annual fee of $50,000 and Mr. Odell, who
receives an annual fee of $17,500.
Directors are reimbursed for their reasonable expenses in attending
board meetings.
ITEM
12.
ITEM
12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Exclusive management and
control of the Partnership’s business is vested in the General Partner. The Partnership has no employees and is
managed and controlled by the Board of Directors and executive officers of the
General Partner. The General Partner
owns 100% of the Partnership’s general partnership interest. The shares of General Partner are held by certain
individuals and Puerto Rico trusts.
The following table sets
forth, as of December 31, 2001, information with respect to beneficial
ownership of the Partnership’s Units by: (i) all persons known to the General
Partner to be the beneficial owner of 5.0% or more thereof; (ii) each Director
of the General Partner; (iii) each of the executive officers of the General
Partner; and (iv) all executive officers and Directors as a group of the
General Partner. All persons listed
have sole voting and investment power with respect to their Units unless
otherwise indicated.
• * Less than 1.0%.
(1) Mr. Martínez is Chairman of the Board of
Directors of the General Partner. Mr. Martínez and Mr. Odell are Trustees of
Martinez Odell & Calabria Pension Fund, which owns 2.4 Units reflected in
the table.
(2) Mr. Lamoso is President and acting Chief
Executive Officer of the General Partner and a member of the Board of
Directors.
(3) Mr. Arizala is a Director.
(4) Ms. Minnich is a Director.
(5) Mr. Perry is a Director.
(6) Mr. Odell is a Director and Secretary of the
General Partner. Mr. Martínez and Mr.
Odell are trustees of Martínez Odell & Calabria Pension Fund, which owns
2.4 Units reflected in the table.
ITEM 13.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS General Partnership Interest SuperTel contributed
$100,000, which entitled it to receive 100% of the Partnership’s general
partner interest. The general partner
interest entitles the General Partner to 25% of the equity of the
Partnership. See “Item 5.”
Management Fee The Partnership Agreement
provides that the General Partner is entitled to a management fee for all
reasonable operating expenses, plus 10% of such expenses. The total management fee for 2001 was
approximately $139,000. The management
fee is paid on a monthly basis.
Other Relationships and Transactions Mr. Martínez and Mr.
Odell are partners of Martínez, Odell & Calabria, a law firm, which
provides legal services to the General Partner and the Partnership.
ITEM
14.
ITEM
14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following
documents are filed as part of this report:
(1) Financial
Statements (See Item 8 hereof)
ClearComm, L.P.
Report of Independent Public Accountants - December
31, 2001 and 2000
Report of Independent Public Accountants - December
31, 1999
Consolidated Statements
of Assets, Liabilities and Partners’ Capital (Deficit) - December 31, 2001 and
Consolidated Statements
of Revenues and Expenses - December 31, 2001, 2000 and 1999
Consolidated Statements
of Changes in Partners’ Capital (Deficit) - December 31, 2001, 1999 and 1998
Consolidated Statements
of Cash Flows - December 31, 2001, 2000 and 1999
Notes to Consolidated
Financial Statements
SuperTel
Communications Corp.
Report of Independent
Public Accountants
Balance Sheets - December
31, 2001 and 2000
Statements of Revenues
and Expenses and Deficit for the years ended December 31, 2001 and 2000
Statements of Cash Flows
for the years ended December 31, 2001 and 2000
Notes to Financial
Statements
(2) Financial
Statement Schedules - None
(3) Exhibits- None
(b) Reports on
Form 8-K
No reports on Form
8-K were filed during the last quarter of fiscal 2001.
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ClearComm,
L.P.
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
Capacity in Which Signed
Date
/s/ Fred H. Martínez
Director and Chairman
of the Board
April , 2002
Fred H. Martínez
/s/ Javier O. Lamoso
Director and President
April , 2002
Javier O. Lamoso
/s/ Gary H. Arizala
Director
April , 2002
Gary H. Arizala
/s/ Margaret W. Minnich
Director
April , 2002
Margaret W. Minnich
/s/ Lawrence Odell
Director
April , 2002
Lawrence Odell
/s/ James T. Perry
Director
April , 2002
James T. Perry