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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
For Annual and Transition Reports to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(Mark one)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended December 31, 1998 or
-----------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from _______________________ to _______________
Commission file number 0-28362
ClearComm, L.P.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 66-0514434
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
221 Ponce de Leon Avenue
Suite 1401
Hato Rey, Puerto Rico 00917-1825
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (787) 756-0840
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The Registrant's outstanding securities consist of units of limited
partnership interests which have no readily ascertainable market value since
there is no public trading market for these securities on which to base a
calculation of aggregate market value.
Documents incorporated by reference. None.
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TABLE OF CONTENTS
Part I
Page
Item 1. Business.................................................................................. 3
Item 2. Properties................................................................................ 8
Item 3. Legal Proceedings......................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders....................................... 9
Part II
Item 5. Market for the Partnership's Limited Partnership Units and Related Security Holder
Matters................................................................................... 9
Item 6. Selected Financial Data................................................................... 10
Item 7. Management's Discussion and Analysis of Financial Consideration and Results of
Operations................................................................................ 13
Item 8. Financial Statements and Supplementary Data............................................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 43
Part III
Item 10. Directors and Executive Officers of the Registrant........................................ 43
Item 11. Executive Compensation.................................................................... 45
Item 12. Security Ownership of Certain Beneficial Owners and Managements........................... 46
Item 13. Certain Relationships and Related Transactions............................................ 47
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 48
SIGNATURES .......................................................................................... 50
2
PART I
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 meet 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 owns two C-Block PCS licenses covering the entire
island of Puerto Rico (the "Puerto Rico Licenses"). The Partnership expects to
build its PCS network in Puerto Rico and offer PCS services by the end of 1999.
The Partnership also owns five licenses in California (the "California
Licenses," and together with the Puerto Rico Licenses, the "Licenses"). SuperTel
Communications Corp., the general partner of the Partnership (the "General
Partner") is actively engaged in the pursuit of business alliances and strategic
partners to develop the California Licenses.
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
General Partner anticipates that it will have developed the Licenses by such
date, and depending upon business considerations, will have restructured itself
or transferred or sold the Licenses and its PCS operations.
Markets
The following table sets forth as of December 31, 1998, with respect to
each Market in which the Partnership owns a PCS license, the estimated persons
of population ("POPs").
-------------------------------------------------------------
Market Name POPs*
-------------------------------------------------------------
San Juan, PR 2,170,250
-------------------------------------------------------------
Mayaguez-Aguadilla, PR 1,325,600
-------------------------------------------------------------
Modesto, CA 418,980
-------------------------------------------------------------
Visalia-Porterville, CA 413,390
-------------------------------------------------------------
Redding, CA 253,260
-------------------------------------------------------------
Merced, CA 192,710
-------------------------------------------------------------
Eureka, CA 142,580
-------------------------------------------------------------
Total: 4,916,770
-------------------------------------------------------------
----------
* Based on the 1990 census figures used by the FCC.
3
Company Strategy in Puerto Rico
Through its wholly-owned subsidiary, NewComm Wireless Services, Inc.
("NewComm"), the Partnership intends to build a high quality digital wireless
telecommunications network to serve the Puerto Rico markets, and become a
leading provider of PCS in Puerto Rico. The Partnership owns two C-Block PCS
licenses covering the entire island of Puerto Rico which contains approximately
3.8 million contiguous POPs. The Partnership believes that Puerto Rico is a
unique, attractive market for the development of a wireless telecommunications
business due to its (i) current low penetration rate of wireless
telecommunications service relative to most other U.S. markets, particularly in
the consumer market segment; (ii) attractive competitive environment, with only
three currently operating wireless service providers; (iii) high population
density in key markets yielding efficiencies in marketing and network deployment
costs; and (iv) low teledensity rate and unmet demand for basic telephone
service relative to other U.S. markets.
To build and operate its Puerto Rico network, the Partnership entered
into a Joint Venture Agreement, dated February 4, 1999 (the "TLD Agreement")
with Telefonica Larga Distancia de Puerto Rico, Inc. ("TLD"). TLD is a
subsidiary of Telefonica Internacional, S.A. which is a member of the Telefonica
S.A. group (the "Telefonica Group"), Spain's largest traded company and one of
the world's largest telecommunication companies. Pursuant to the terms of the
TLD Agreement, the Partnership transferred the Puerto Rico Licenses and
associated business plans and studies to NewComm. TLD invested approximately
$19.96 million in NewComm and received a convertible promissory note (the
"Note") and is entitled 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. Once the Note is converted, TLD
will be entitled to three of six Board positions. NewComm and TLD will enter
into a management agreement whereby TLD will provide day-to-day management
services for NewComm, subject to the supervision of NewComm's Board. TLD also
received an option (the "Option") to buy an additional 0.2%, which would bring
its ownership to 50.1%, subject to a third-party valuation and FCC approval. The
Option cannot be exercised prior to January 22, 2002, unless the ownership
restrictions on the Puerto Rico Licenses are eliminated by the FCC. NewComm,
however, has the option to buyout TLD in the last year before the restrictions
on the Puerto Rico Licenses lapse.
The Partnership's Puerto Rico PCS operations will operate under the
image and brand of TLD, and will benefit from the experience and knowledge of
the Telefonica Group. The Partnership is planning to be commercially in service
in Puerto Rico by the second half of this year with a state-of-the-art CDMA
(Code Division Multiple Access) network that will be combined with the
telecommunications services that are already being offered in Puerto Rico to TLD
customers. TLD offers a variety of telecommunications services in Puerto Rico
ranging from long distance for local clients and "carriers" to data transmission
and internet. Since February 1999, it has also been offering intra-island
telephone services.
Work on the PCS network began during the first quarter of 1999. NewComm
is finalizing an agreement with Lucent Technologies, Inc. ("Lucent") to build
an island wide PCS network within 12 months. The build out costs represent an
investment of approximately $100 million which, as a turn-key project, includes
the operation and maintenance of the network by Lucent during the first year.
4
Competition
The success of the Partnership's PCS business in Puerto Rico will
depend upon its ability to compete with the two cellular operators, at least
three 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 will also face 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 could potentially compete more directly with traditional landline telephone
service providers and other technologies including mobile satellite systems. In
addition, the availability of new spectrum (such as wireless communications
service and general wireless communications services and resale opportunities)
and the entry of new participants, may result in increased competition in the
Puerto Rico market.
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. Since PCS will be digital, it is 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.
In addition, if such features are incorporated into a given PCS network, PCS
subscribers will have E-mail access and personal computer compatibility.
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. See "Item 1 -- Reconsideration Order."
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
5
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 has less than $40 million of aggregate annual gross revenue averaged
over the last three years.
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.
Reconsideration Order
The Reconsideration Order provided the following options designed to
assist C Block licensees in obtaining financing to build their systems:
DISAGGREGATION. This option allowed a C Block licensee to elect to
disaggregate all of its 30 MHz licenses within a major trading area
("MTA") and return 15 MHz of each license to the FCC in exchange for
forgiveness of 50% of the outstanding debt associated with those
licenses. For licensees who elected to disaggregate, there were two
options: resume payments on the disaggregated licenses under the terms
of the installment payment plan or prepay the outstanding loan balance
on the disaggregated license. Licensees who elected to continue
installment payments for the disaggregated licenses received a total
credit equal to 70% of the original down payment made on the 30 MHz
disaggregated licenses. One half of the credit would be applied as a
down payment on the outstanding debt and 40 percent of the downpayment
associated with the disaggregated spectrum returned to the FCC could be
used to prepay the interest that had accrued during the payment
suspension period or reduce principal at the licensee's option.
Licensees who elected to prepay outstanding debt on the disaggregated
licenses received a credit equal to 85% of the original down payment
made on the 30 MHz disaggregated
6
licenses. Consistent with the prepayment option for 30 MHz licenses,
this credit represented 70% of the down payment associated with the 15
MHz returned spectrum.
AMNESTY. This option allowed a C-Block licensee to surrender any of its
licenses, so long as all licenses within an MTA were returned in
exchange for the FCC forgiving all outstanding debt on the returned
licenses. For licenses that were returned, the licensee had two
choices: (i) the licensees could opt to re-bid on those licenses in the
reauction; or (ii) the licensee could opt to forgo the opportunity to
re-acquire its returned licenses in exchange for a credit of 70% of the
down payment already made on the returned licenses. The same choice had
to be made for all licenses within an MTA. The 70% credit had to be
used to prepay either a 30 MHz or 15 MHz disaggregated licenses
retained by the licensee.
PREPAYMENT. This option allowed a C-Block licensee to prepay any of its
outstanding notes and the interest accrued from the date of the
conditional license grant through the election date would be forgiven.
Also, licensees could surrender licenses and use 70% of their total
down payments as a credit towards the prepayment of any of the licenses
they retained. The licensee had to pay off the outstanding principal
debt obligations for all basic trading area ("BTA") licenses it held
within a single MTA and prepay as many of its notes it desires. The
remaining 30% of the down payments plus any unapplied portions of the
first 70% of the down payments were not returned. The licensee is not
allowed to rebid in the reauction for any of the licenses surrendered,
and cannot acquire these licenses in the secondary market for a period
of two years from the reauction commencement start date which was March
23, 1999.
On June 8, 1998, the date established by the FCC to file the elections
available to C Block licensees under the Reconsideration Order, the Partnership
made the following elections on its licenses:
o The following licenses were returned to the FCC under the
amnesty choice: Bakersfield, CA, Boise-Nampa, ID; Fresno, CA;
Lewinston-Moscow, ID; Logan, UT; Provo - Orem, UT; Reno, NV
and Salt Lake City, UT. As a result the entire outstanding
debt on these markets was forgiven, amounting to $179,368,965
of principal and $13,861,237 in accrued interest.
o For the remaining Western licenses the election made was to
disaggregate (return 15 MHz of the original 30 MHz). The funds
available as the result of the amnesty indicated above were
utilized to prepay the remaining licenses. As a result the
following licenses are now paid for in its entirety: Eureka,
CA; Merced, CA: Modesto, CA; Redding, CA; and
Visalia-Porterville all are part of the San Francisco MTA.
o For the Puerto Rico licenses, the Partnership elected to
disaggregate (return 15 MHz of the original 30 MHz). This
decision resulted in a reduction in debt of $51,339,555 in
principal and $3,967,407 of accrued interest.
7
As a result of the foregoing, the Partnership recorded a license cost
forfeiture of $10,989,972 after disaggregation, prepayment, and amnesty options
offered by the FCC. In addition, $2,281,758 was available as a prepayment credit
and was applied to accrued interest balance. This decision resulted in a
substantial reduction in debt, the regular quarterly interest installments of
$5,035,284 are now $834,268 and the suspension interest installments of
$2,993,199 are now $210,706.
Employees
The Partnership had three employees in California and two employees in
Puerto Rico until August 1998. As of December 31, 1998, the Partnership has one
employee who is located in Puerto Rico.
ITEM 2. PROPERTIES
The Partnership leases office space in Hato Rey, Puerto Rico. The
Partnership expects NewComm will embark on a build-out phase which includes
leasing sites where its telephone switching equipment, relay stations and other
equipment will be located.
ITEM 3. LEGAL PROCEEDINGS
In 1996, the Partnership, through its bidding agent inadvertently
submitted to the FCC an erroneous bid for one of the PCS licenses being
auctioned (Norfolk, Virginia) (the "Bidding Error"). The Bidding Error resulted
in the following claims and actions: (i) on June 6, 1996, the Partnership filed
suit in San Juan, Superior Court for the Commonwealth of Puerto Rico and
attached the account which held approximately $6.5 million which would be
payable to Romulus Telecommunications, Inc. ("Romulus") under its agreement with
the Partnership (the "Romulus Account"); (ii) on July 26, 1996, Romulus and Mr.
Easton each filed a demand for arbitration with the American Arbitration
Association (the "AAA") at its Miami, Florida office seeking to arbitrate all
matters relating to the Bidding Error, including the attachment of the Romulus
account; (iii) on January 27, 1997, in the Superior Court of the State of
California for the County of San Mateo, the trustee of the SDE Trust (a
shareholder in Unicom Corporation) filed a complaint for damages of $300 million
and equitable relief against Unicom Corporation, the former general partner of
the Partnership, the General Partner, the Partnership and certain officers and
directors, trustees of trusts holding Unicom shares and attorneys for breach of
fiduciary duty; and (iv) the Partnership was subject to three petitions to deny
the award of any of the Licenses to the Partnership.
On November 16, 1998, the parties to the above referenced actions
entered into a settlement agreement (the "Settlement Agreement") whereby all
such actions were settled. The Memorandum Opinion and Order approving the
Settlement Agreement was released on January 11, 1999 and became effective on
February 11, 1999. Pursuant to the Settlement Agreement, the Partnership
received $1,513,000 in cash from the Romulus Account and was released of
approximately $500,000 in payables owed to Romulus. Also pursuant to the
Settlement Agreement, the General Partner issued 19,600 shares of its voting
common stock to the Breen Family Trust and 15,900 shares of non-voting Class A-1
common stock to the California Theological Charitable Trust, Inc. All the
parties to the Settlement Agreement released each other from all claims, both
past and future.
8
In addition, two separate civil actions were filed in the Circuit Court
of the State of Oregon for Multnomah County that have now been consolidated. The
first was filed in November 1996 and amended in August 1997. The second was
filed in August 1997. In both cases certain officers, directors, employees, and
consultants of the General Partner, as well as persons unrelated to the General
Partner and the Partnership have been named as defendants. Both lawsuits alleged
certain securities law violations, common law fraud, and activities violating
Oregon's racketeering laws in connection with the Partnership's initial sale of
Units. In February 1998, the court dismissed the racketeering claim dismissed
the other claims in August 1998. On or about October 20, 1998, the Partnership
was notified that the plaintiffs had filed a request for arbitration of some of
these claims underlying these actions with the American Arbitration Association.
In addition, the plaintiffs have noticed an appeal of the dismissal order. The
Partnership believes the suit is without merit and is vigorously defending this
lawsuit.
Further, on February 4, 1999, the Partnership and NewComm filed an
application with the FCC for a pro forma assignment of the Puerto Rico Licenses
to NewComm, and the FCC granted the application on February 18, 1999. On
March 22, 1999, Centennial Communications Corp. ("Centennial") filed a Petition
for Reconsideration (the "Petition") with the FCC seeking to rescind the
assignment of the Licenses to NewComm or to stay the effectiveness of the
assignment pending resolution of the issues raised in the Petition. Centennial
alleges that there are facts warranting an investigation into whether TLD is
exercising de facto, if not de jure, control over the Puerto Rico NewComm
licenses in violation of the FCC's broadband PCS DE rules. The Partnership
believes that all of its actions were in conformity with FCC rules, and that the
allegations are without merit. The Partnership will vigorously oppose the
Petition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE 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. 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, 1998 only the General Partner holds a general
partnership interest and 1,634 Investors hold an aggregate of 2,826.1 Units of
limited partnership interest.
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 is filed
as an Exhibit to this 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
9
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. SELECTED FINANCIAL DATA
Selected Financial Data for the years ended December 31, 1997 and December 31,
1998
The following table summarizes selected consolidated financial data of
the Partnership from the period from inception (January 24, 1995) to December
31, 1995, and from January 1, 1996 to December 31, 1996, from January 1, 1997 to
December 31, 1997, and from January 1, 1998 to December 31, 1998. This
information should be read in conjunction with the Partnership's consolidated
financial statements and related notes thereto and management discussion
contained herein.
10
Statement of Operations Data
January 24, 1995
(Date of Inception)
to December 31, December 31, December 31, December 31,
1995 1996 1997 1998
---- ---- ---- ----
Total Revenues:
Interest Earnings...................... $ 1,469,099 $ 66,767 $ 495,614 $ 324,232
----------- ------------ ------------ ------------
Total Expenses:
Consulting and legal services rendered
by related parties (1)................. 6,756,250 744,862 8,291,492 757,785
Management Fee to General Partner...... 513,288 424,334 369,643 360,452
Other Legal Fees....................... 368,704 1,283,356 1,546,887 1,833,402
Miscellaneous Consulting Services...... 325,604 557,353 1,506,310 254,726
Travel................................. 118,850 282,890 421,048 325,844
Insurance.............................. 32,000 133,784 130,332 130,132
Salaries and bonuses................... 68,769 730,828 1,331,605
Other Administrative Expenses.......... 183,890 443,381 708,242
Omaha Withdrawal Fee................... 1,257,771
Norfolk Bid Withdrawal................. 3,273,374
Forfeiture Imposed by FCC.............. 1,000,000
Settlement credit on legal disputes.... (2,090,876)
Norfolk bid withdrawal credit.......... (2,848,374)
License cost forfeiture after
disaggregation, prepayment and amnesty
options offered by FCC................. 10,989,972
----------- ------------ ------------ ------------
Subtotal:................................... $ 8,183,465 $ 9,141,614 $ 13,439,921 $ 11,752,910
----------- ------------ ------------ ------------
Net Income (Loss)........................... $(6,714,366) $ (9,074,847) $(12,944,307) $(11,428,678)
=========== ============ ============ ============
Net Income (Loss) Attributable to General
Partner..................................... $(1,678,592) $ (2,268,712) $ (3,236,077) $ (2,857,169)
=========== ============ ============ ============
Net Income (Loss) Attributable to
Unitholders ($1,933.49) in 1995, ($2,609.71)
in 1996, ($3,495.94) in 1997 and ($3,033.08)
in 1998 per Unit respectively............... $(5,035,774) $ (6,806,135) $ (9,708,230) $ (8,571,509)
=========== ============ ============ ============
- ---------------
(1) The 1997 includes payments of $6,511,250 to Romulus for its services in
preparation of the Application and bidding at Auctions, see "Item 13 -
Payments to Romulus," and other consulting fees.
11
Balance Sheet Data
December 31, December 31, December 31, December 31,
1995 1996 1997 1998
---- ---- ---- ----
ASSETS:
Cash and Cash Equivalents......... $ 2,727,541 $ 2,492,851 $ 9,761,729 $ 4,246,412
Prepaid Expenses.................. 69,000 100,538 108,700 125,388
Accounts Receivable............... -- -- -- 1,633,024
Deposits.......................... 50,000,000 45,468,855 --
Restricted Cash................... 6,511,250 6,511,250 --
Other Assets...................... 0 14,535 80,258 18,495
PCS Licenses...................... 270,245,139 64,757,512
Deposits.......................... 25,000
----------- ----------- ------------ -----------
Total:............................ $59,334,791 $54,588,029 $280,220,826 $70,780,831
=========== =========== ============ ===========
LIABILITIES AND PARTNERS'
CAPITAL:
Accounts Payable and Accrued
Liabilities....................... $ 836,657 $ 287,242 $ 2,069,520 $ 1,398,231
Current Accrued Interest-FCC...... 4,399,837 919,450
License Loan Payable.............. 231,415,989 37,550,348
Unitholders' Equity (2,604.5
Units in 1995, 2,719.6 Units
in 1996, 2,825.9 Units in 1997
and 2,826.1 Units in 1998; and
1 general partnership interest)... $58,498,134 $52,300,787 $ 42,335,480 $30,912,802
----------- ----------- ------------ -----------
Total:............................ $59,334,791 $54,588,029 $280,220,826 $70,780,831
=========== =========== ============ ===========
Book Value Per Unit............... $ 22,452 $ 19,224 $ 14,976 $ 10,934
=========== =========== ============ ===========
12
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 the
General Partner. The Partnership was organized to acquire, own and operate PCS
licenses in frequency Block C, and to take advantage of the benefits that the
FCC has set aside for Entrepreneurs. The Partnership's income to date has
consisted only of interest earnings as the Partnership was awarded the Licenses
on January 22, 1997 and has not yet established operations. The Partnership
entered into the TLD Agreement with TLD on February 4, 1999, whereby the
Partnership contributed its Puerto Rico Licenses to its wholly owned
subsidiary NewComm and TLD contributed $19.96 million in capital.
Results of Operations - 1998 Compared to 1997
Revenues
The Partnership's sole source of revenue continued to be interest
income for the year ended December 31, 1998. Interest income for this year was
$324,232. In 1997, the Partnership had interest earnings of $495,614. The
decrease in interest earnings is primarily due to a decrease in interest rates
and a reduction in available cash used to pay the Partnership expenses.
Expenses
Expenses for the year ended December 31, 1998 totaled $11,752,910. This
amount included an accrual for $360,452 of expenses to be reimbursed to the
General Partner, including its management fee, and a license cost forfeiture of
$10,989,972 after disaggregation, prepayment, and amnesty options offered by the
FCC.
Expenses for the year ended December 31, 1997 totaled $13,439,921. This
amount included an accrual for $369,643 of expenses to be reimbursed to the
General Partner, including its management fee. Also 1997 expenses include the
$6,511,250 classified in the 1996 financial statements as Restricted Cash
expensed in 1997 and advanced to Romulus under its agreement with the
Partnership.
Expenses for the year ended on December 31, 1998 are lower than the
expenses for the same period of 1997 because the 1998 expenses include a
$2,090,876 credit in connection with the Settlement Agreement and a $2,848,374
credit in connection with the Norfolk bid withdrawal penalty net of the license
cost forfeiture referenced above.
Liquidity and Capital Resources
As of December 31, 1998, the Partnership had assets totaling
$70,780,381, consisting of $4,246,412 in cash and cash equivalents, $1,630,024
in accounts receivable, $125,388 in prepaid expenses, $64,757,512 in PCS
Licenses, including $8,782,000 in capitalized interest, $18,495 in other assets,
and current liabilities of $2,317,681. As of December 31, 1997, the Partnership
had assets totaling $280,220,826, consisting of $9,761,729 in cash and cash
equivalents, $108,700 in prepaid expenses, $270,245,139 in PCS Licenses,
including $25,672,000 in capitalized interest, $25,000 in deposits, $80,258 in
other assets and current liabilities of $6,469,357 and long-term liabilities due
to the FCC including accrued interest of $231,415,989. The Partnership assets
decreased during 1998 because of the return and the disaggregation of certain
PCS licenses pursuant to the Reconsideration Order. See "Item 1 -
Reconsideration Order."
13
Results of Operations - 1997 Compared to 1996
Revenues
The Partnership's sole source of revenue continued to be interest
income for the year ended December 31, 1997. Interest income for this year was
$495,614. In 1996, the Partnership had interest earnings of $66,767. The
increase in interest earnings is primarily due to the FCC refunding to the
Partnership approximately $11,039,543, which the Partnership had placed on
deposit with the FCC in connection with the acquisition of its PCS licenses and
the interest earned by the additional capital invested by the limited partners
during 1997.
Expenses
Expenses for the year ended December 31, 1997 totaled $13,439,921. This
amount included an accrual for $369,643 of expenses to be reimbursed to the
General Partner, including its management fee. Also 1997 expenses includes the
$6,511,250 classified in the 1996 financial statements as Restricted Cash
expensed in 1997 under the Services Agreement and advanced to Romulus. Expenses
for the period ended December 31, 1996 were $9,141,614. The 1996 expenses
includes the Omaha withdrawal fee of $1,257,771, the Norfolk bid withdrawal fee
of $3,273,374, the $1,000,000 forfeiture imposed by the FCC, and the management
fee of the General Partner. Expenses for the year ended on December 31, 1997 are
higher than the expenses for the same period of 1996 because the 1997 expenses
include the amount expensed under the Services Agreement advanced to Romulus.
Liquidity and Capital Resources
As of December 31, 1997, the Partnership had assets totaling
$280,220,826, consisting of $9,761,729 in cash and cash equivalents, $108,700 in
prepaid expenses, $270,245,139 in PCS Licenses, including $25,672,000 in
capitalized interest, $25,000 in deposits, $80,258 in other assets and current
liabilities of $6,469,357 and long-term liabilities due to the FCC including
accrued interest of $231,415,989. As of December 31, 1996, the Partnership had
assets totaling $54,588,029, consisting of $2,492,851 in cash and cash
equivalents, $45,468,855 on deposit with the FCC, prepaid expenses of $100,538,
other assets of $14,535, $6,511,250 in restricted cash and current liabilities
of $2,287,242. The Partnership assets increased during 1997 because of the
issuance of PCS licenses on January 22, 1997 and additional capital invested by
its existing investors.
During the year ended on December 31, 1997 the Partnership raised
$2,979,000 of additional capital from two capital offerings the first one
commenced September 30, 1996 and ended on January 22, 1997 the amount raised in
1997 was $1,050,000. In addition on March 26, 1997, the Partnership commenced a
second capital offering to its existing investors of one-fifth units at a price
of $6,000 per one fifth-unit. This offering ended on October 30, 1997 and the
Partnership sold 323.5 one-fifth Units for an aggregate price of $1,929,000.
14
Results of Operations - 1996 Compared to 1995
Revenues
The Partnership's sole source of revenue was interest income for the
year ended December 31, 1996. In 1995, the Partnership had interest earnings of
$1,469,099. Interest income for 1996 was $495,614. Interest income in 1997 was
greater because the Partnership had invested the capital contributions of its
Investors until it placed its $50 million deposit with the FCC in November 1995.
Expenses
Expenses for the year ended December 31, 1996 totaled $9,141,614.
General and administrative expenses for the period that ended December 31, 1995
were $8,183,465, which included amounts paid to Romulus under Services Agreement
and the expenses and the management fee of the General Partner. Expenses for the
year that ended December 31, 1996 were higher than the expenses for the same
period of 1995 because the 1996 expenses includes the Omaha withdrawal fee of
$1,257,771, the Norfolk bid withdrawal fee of $3,273,374, the $1,000,000
forfeiture imposed by the FCC, and related legal fees and certain consulting
expenses amounting to $1,373,547 which were incurred in connection with the
result of the Bidding Error.
Liquidity and Capital Resources
As of December 31, 1996, the Partnership had assets totaling
$54,588,029, consisting of $2,492,851 in cash and cash equivalents, $45,468,855
($50 million less bid withdrawal penalty) on deposit with the FCC, $6,511,250 in
restricted cash, $100,538 in prepaid expenses, $14,535 in equipment and current
liabilities of $2,287,242. As of December 31, 1995, the Partnership had assets
totaling $59,334,791, consisting of $2,727,541 in cash and cash equivalents, $50
million on deposit with the FCC, other assets of $96,000, $6,511,250 in
restricted cash and current liabilities of $836,657. The Partnership assets
decreased during 1996 because of expenses associated with securing the Licenses
and a forfeiture and bid withdrawal penalty associated with the Bidding Error.
During 1995, the Partnership assets increased as the result of the Private
Placement begun in 1995, which ended during the fourth quarter of 1995.
Year 2000 Disclosure
The Partnership is aware of the Year 2000 ("Y2K") problem, which is the
result of a widespread programming technique that causes computer systems to
identify a date based on the last two numbers of a year, with the assumption
that the first two numbers of the year are "19." As a result, the year 2000
would be stored at "00," causing computers to incorrectly interpret the year as
1900. Left uncorrected, the Y2K problem may cause information technology systems
such as computer databases ("IT Systems"), and non-information technology
systems, such as elevators ("Non-IT System") to produce incorrect data or cease
operating completely.
As the Partnership does not yet have operations, it has minimal IT and
non-IT systems. The Partnership has retained a certified Y2K consultant who has
reviewed the Partnership's IT and non-IT systems, and will issue a certificate
to certify that those systems are Y2K compliant.
15
All of the equipment required to build out the Puerto Rico network will
be purchased from third party vendors. The Partnership will require such
suppliers to warrant that products sold or licensed to the Partnership are Y2K
compliant.
Since the Partnership does not yet have operations, total costs
incurred to date specifically associated with becoming Y2K compliant have not
been material. The total estimated specific costs of becoming Y2K compliant is
not material.
Once the Partnership begins operations, it recognizes that the Y2K
problem will impose certain risks, including the possibility of a failure of the
Partnership's signal, computer, and non-information technology systems. Such
failures could have a material adverse effect upon the Partnership and may cause
systems malfunctions, signal loss, incorrect or incomplete transaction
processing, the inability to reconcile accounting books and records, and the
inability for the Partnership to manage its business. In addition, the
Partnership, once it begins operations, can be materially and adversely affected
by failures of third parties to become Y2K compliant. The failure of third
parties with which the Partnership then has financial or operational
relationships such as network maintenance contractors, roaming partners, handset
and accessory providers, financial institutions, payroll contractors, regulatory
agencies and utility companies, to become Y2K compliant in a timely manner could
result in material adverse effects on the Partnership's results of operations.
16
The Partnership's expectations about future costs and timely completion
of its Y2K modifications are subject to uncertainties that could cause actual
results to differ materially from what has been discussed above. Factors that
could influence the amount of future costs and the effective timing of
remediation efforts include the success of the Partnership in identifying non-IT
Systems and IT Systems that contain two-digit year codes, the nature and amount
of programming and testing required to upgrade or replace each of the affected
systems and equipment, the nature and amount of testing, verification, the rate
and magnitude of related labor costs, and the success of the Partnership's
suppliers, in addressing the Y2K issue.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements
Page
----
ClearComm, L.P.
---------------
Report of Independent Accountants 19
Consolidated Statements of Assets, Liabilities and Partners' Capital as
of December 31, 1997 and 1998 20
Consolidated Statement of Revenues and Expenses for years ended
December 31, 1996, 1997 and 1998 and period from inception to
December 31, 1998 21
Consolidated Statement of Cash Flows for years ended December 31, 1996,
1997 and 1998 and period from inception to December 31, 1998 22
Consolidated Statement of Changes in Partners' Capital Accounts from
inception to December 31, 1998 23
Notes to Consolidated Financial Statements 24
SuperTel Communications Corp.
-----------------------------
Report of Independent Accountants 34
Balance Sheet for December 31, 1997 and 1998 35
Statement of Revenues and Expenses and deficit for the years ended
December 31, 1997 and 1998 36
Statement of Cash Flows for the years ended December 31, 1997 and 1998 37
Notes to Financial Statements 38
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
17
CLEARCOMM, L.P.
(a development stage enterprise)
Report and Consolidated Financial Statements
December 31, 1998 and 1997
18
Report of Independent Accountants
To the Partners of ClearComm, L.P.
In our opinion, the accompanying consolidated statement of assets, liabilities
and partners' capital, and the related consolidated statements of revenues and
expenses, of cash flows and of changes in partners' capital accounts present
fairly, in all material respects, the financial position of ClearComm, L.P. (the
Partnership), a development stage enterprise, at December 31, 1998 and 1997 and
the results of its operations and its cash flows for the years ended December
31, 1998, 1997 and 1996, and for the period from inception (January 24, 1995)
through December 31, 1998, in conformity with generally accepted accounting
principles. 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 of these
statements in accordance with generally accepted auditing standards 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 audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has not yet obtained the
financing required to develop and construct the infrastructure necessary to
begin commercial operations which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to this matter are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
San Juan, Puerto Rico
March 5, 1999
Stamp 1537595 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report
19
CLEARCOMM, L.P.
(a development stage enterprise)
Consolidated Statements of Assets, Liabilities and Partners' Capital
December 31, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------------
1998 1997
---- ----
Assets
Current assets:
Cash and cash equivalents $ 4,246,412 $ 9,761,729
Accounts receivable, including $1,551,362
from related parties 1,633,024
Prepaid expenses 125,388 108,700
------------ ------------
Total current assets 6,004,824 9,870,429
============ ============
Licenses, including capitalized interest of $8,782,000
(1997 - $25,672,000) 64,757,512 270,245,139
Other assets 18,495 105,258
------------ ------------
$ 70,780,831 $280,220,826
============ ============
Liabilities and Partners' Capital
Current liabilities:
Accounts payable and accrued liabilities $ 352,670 $ 1,195,145
Accounts payable for legal fees, including
$68,460 to related parties (1997 - $63,329) 633,021 184,257
Accounts payable to related parties 412,540 690,118
Accrued interest - FCC 919,450 4,399,837
------------ ------------
Total current liabilities 2,317,681 6,469,357
------------ ------------
Long-term liabilities:
Notes payable - FCC 37,126,985 216,856,476
Accrued interest - FCC 423,363 14,559,513
------------ ------------
Total long-term liabilities 37,550,348 231,415,989
------------ ------------
Commitments and contingencies (Notes 8 and 9)
------------ ------------
Partners' capital:
Limited partners' capital (2,826.1 units issued
and outstanding in 1998 and 2,825.9 in 1997) 70,975,000 70,969,000
General partners' capital 100,000 100,000
Undistributed losses accumulated during
development stage (40,162,198) (28,733,520)
------------ ------------
Total partners' capital 30,912,802 42,335,480
============ ============
Total liabilities and partners' capital $ 70,780,831 $280,220,826
============ ============
The accompanying notes are an integral part of these financial statements.
20
CLEARCOMM, L.P.
(a development stage enterprise)
Consolidated Statement of Revenues and Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
January 24, 1995
Year ended Year ended Year ended (inception) to
December 31, December 31, December 31, December 31,
1998 1997 1996 1998
------------ ------------ ------------ ----------------
Revenues:
Interest income $ 324,232 $ 495,614 $ 66,767 $ 2,355,712
------------ ------------ ------------ ------------
Expenses:
Consulting and legal services
rendered by related parties 757,785 8,291,492 744,862 16,550,389
Settlement credit on legal disputes
with related parties (2,090,876) (2,090,876)
Management fee to General Partner 360,452 369,643 424,334 1,667,717
Other legal fees 1,833,402 1,546,887 1,283,356 5,032,349
Consulting services 254,726 1,506,310 557,353 2,643,993
Travel 325,844 421,048 282,890 1,148,632
Insurance 130,132 130,332 133,784 426,248
Salaries and bonuses 1,331,605 730,828 2,062,433
Other administrative expenses 708,242 443,381 183,890 1,404,282
Bid withdrawal penalty (Omaha, Nebraska) 1,257,771 1,257,771
Bid withdrawal penalty (credit) (Norfolk,
Virginia) (2,848,374) 3,273,374 425,000
Forfeiture imposed by the FCC 1,000,000 1,000,000
License cost forfeiture after
disaggregation, prepayment
and amnesty options offered
by the FCC 10,989,972 10,989,972
------------ ------------ ------------ ------------
11,752,910 13,439,921 9,141,614 42,517,910
------------ ------------ ------------ ------------
Net loss $(11,428,678) $(12,944,307) $ (9,074,847) $(40,162,198)
============ ============ ============ ============
Net loss attributable to general Partner $ (2,857,169) $ (3,236,077) $ (2,268,712)
============ ============ ============
Net loss attributable to limited
Partners ($3,033.08, $3,495.94,
and $2,609.71 per limited
partnership unit in 1998, 1997 and
1996, respectively) $ (8,571,509) $ (9,708,230) $ (6,806,135)
============ ============ ============
The accompanying notes are an integral part of these financial statements.
21
CLEARCOMM, L.P.
(a development stage enterprise)
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended January 24, 1995
December 31, December 31, December 31, (inception) to
1998 1997 1996 December 31, 1998
------------ ------------ ------------ -----------------
Cash flows from operating activities:
Net loss $(11,428,678) $(12,944,307) $ (9,074,847) $(40,162,198)
------------ ------------ ------------ ------------
Adjustments to reconcile net loss for the period
to net cash used by operating activities:
Depreciation 71,625 26,192 97,817
License cost forfeited after disaggregation,
prepayment and amnesty options offered
by the FCC 10,989,972 10,989,972
Increase in accounts receivable (1,633,024) (1,633,024)
Decrease (increase) in prepaid expenses 8,312 (8,163) (4,538) (100,389)
Increase in deposits (25,000) (25,000)
Decrease in bank overdraft (46,173)
(Decrease) increase in payable to FCC (1,000,000) 1,000,000
(Decrease) increase in accounts payable
and accrued liabilities (842,475) 990,218 74,293 352,670
Increase (decrease) in accounts payable
for legal fees 448,764 (256,590) 440,847 633,021
(Decrease) increase in accounts payable
to related parties (277,578) 48,650 (18,382) 412,540
------------ ------------ ------------ ------------
Total adjustments 8,765,596 (224,693) 1,446,047 10,727,607
============ ============ ============ ============
Net cash used by operating activities (2,663,082) (13,169,000) (7,628,800) (29,434,591)
============ ============ ============ ============
Cash flows from investing activities:
FCC auction deposit returned (paid) 11,039,543 (38,960,457)
Bid withdrawal (credit) payment (2,848,374) 4,531,145 1,682,771
Other assets (9,861) (91,915) (14,535) (116,311)
------------ ------------ ------------ ------------
Net cash (used) provided by
investing activities (2,858,235) 10,947,628 4,516,610 (37,393,997)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Capital investment by partners 6,000 2,979,000 2,952,500 71,150,000
Capital repurchased from partner (75,000) (75,000)
Decrease in restricted cash 6,511,250
------------ ------------ ------------ ------------
Net cash provided by financing
activities 6,000 9,490,250 2,877,500 71,075,000
------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents (5,515,317) 7,268,878 (234,690) 4,246,412
------------ ------------ ------------ ------------
Cash and cash equivalents at beginning of
period 9,761,729 2,492,851 2,727,541
============ ============ ============ ============
Cash and cash equivalents at end of period $ 4,246,412 $ 9,761,729 $ 2,492,851 $ 4,246,412
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
22
CLEARCOMM, L.P.
(a development stage enterprise)
Consolidated Statement of Changes in Partners' Capital Accounts
- -------------------------------------------------------------------------------------------------------------------------
Limited Partners General
Units Amount Partner Total
----- ------ ------- -----
Capital invested 2,604.5 $65,112,500 $ 100,000 $65,212,500
Share of undistributed losses -- (5,035,774) (1,678,592) 6,714,366
------- ----------- ------------ -----------
Balance (deficit) at December 31, 1995 2,604.5 60,076,726 (1,578,592) 58,498,134
======= ========== ========== ==========
Repurchase of limited partners units (3.0) (75,000) (75,000)
Capital invested in 1996 118.1 2,952,500 2,952,500
Share of undistributed losses (6,806,135) (2,268,712) (9,074,847)
------- ----------- ------------ -----------
Balance (deficit) at December 31, 1996 2,719.6 56,148,091 (3,847,304) 52,300,787
======= ========== ========== ==========
Capital invested in 1997 106.3 2,979,000 2,979,000
Share of undistributed losses (9,708,230) (3,236,077) (12,944,307)
------- ----------- ------------ -----------
Balance (deficit) at December 31, 1997 2,825.9 49,418,861 (7,083,381) 42,335,480
======= ========== ========== ==========
Capital invested in 1998 0.2 6,000 6,000
Share of undistributed losses (8,571,509) (2,857,169) (11,428,678)
------- ----------- ------------ -----------
Balance (deficit) at December 31, 1998 2,826.1 $40,853,352 $ (9,940,550) $30,912,802
======= =========== ============ ===========
The accompanying notes are an integral part of these financial statements.
23
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1. Reporting Entity and Summary of Significant Accounting Policies
ClearComm, L.P. (the "Partnership"), a development stage enterprise, 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. The Partnership has not yet
generated revenues from commercial operations.
In 1996, the Partnership's former general partner, Unicom Corporation,
sold its interest in the Partnership to SuperTel Communications Corp.
("SuperTel"), a Puerto Rico corporation (the "General Partner"). The
General Partner's total share of the income and losses of the
Partnership is 25% as per the Partnership's Agreement. Approximately
1,600 limited partners also invested in the Partnership through a
private placement.
As discussed in Note 6, on January 22, 1997, the Partnership was
granted the PCS Block C licenses for Puerto Rico and certain western
states of the United States.
During 1997 the Partnership organized the following wholly-owned
subsidiaries: ClearComm West, LLC, ClearCorp., LLC, CommClear, LLC and
ClearComm de Puerto Rico. These companies are also in a development
stage and their assets, liabilities and expenses have been included in
the Partnership's financial statements. All significant intercompany
accounts and transactions have been eliminated.
On March 3, 1999, the Partnership entered into a Joint Venture
Agreement with Telefonica Larga Distancia De Puerto Rico, Inc. ("TLD").
Among the most important provisions of this Joint Venture Agreement are
the following:
o The Partnership transfered all of its Puerto Rico Licenses,
including its related FCC debt to NewComm Wireless Services, Inc.
("NewComm"), a newly organized company owned by the Partnership.
o TLD contributed approximately $20 million dollar to NewComm by means
of a secured convertible promissory note payable ("promissory
note"). The promissory note is secured by a security agreement
pursuant to which a security interest is imposed upon NewComm
assets, a Partnership's guarantee and a pledge agreement.
o Once certain regulatory and other requirements are met, the note
will be exchanged for NewComm's common stock shares representing
approximately 49.9% of NewComm equity. TLD has the option to buy
an additional .2%, which would bring its ownership to 50.1%,
subject to certain conditions.
o Entered into certain management and technology transfer agreements.
24
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
The following unaudited proforma information shows how the
Partnership's balance sheet at December 31, 1998 would have been
affected if this transaction had taken place as of such date:
Amount Proforma Adjusted
as reported adjustment balance
Cash $ 4,246,412 $19,960,000 $24,206,412
Secured convertible promissory
note payable 19,960,000 19,960,000
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
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, 1998 consist of shares in
a money market account of $4,217,000 (1997 - $9,737,000).
PCS Licenses
PCS licenses are recorded at cost, and will be amortized over the
estimated life of the licenses (forty years) once the PCS network is
ready for its intended use. The licenses expire in January 2007,
however, FCC rules provide for renewal expectancy provisions. The
Company expects to exercise the renewal provisions. The Partnership
will capitalize the interest related to the debt pertaining to the PCS
licenses during the network construction period.
Other Assets
Other assets consist of computer and office equipment and are carried
at cost. Major additions or renewals which extend the useful lives of
the respective assets are capitalized, while repairs and maintenance
are charged to expense as incurred. When equipment is retired or
otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts and any gain or loss is credited or
charged to income.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets. Net Loss Per Limited Partnership Unit
25
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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 for 1998 was 2,826 (2,777 and
2,608 in 1997 and 1996, respectively).
Fair Value of Financial Instruments
The carrying amount of the Partnership's financial instruments (cash
and cash equivalents, 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 and interest payable to the FCC approximates the
carrying amount.
Reclassifications
Certain reclassifications have been made to the 1997 financial
statements to conform with the 1998 presentation.
2. Financing Requirements
The Partnership has no revenues (other than interest income) and is
likely to incur operating losses after commencing commercial operations
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 other means than its revenues. Consequently,
following the grant of the licenses, the Partnership needs additional
debt or equity financing to develop and construct the infrastructure
necessary to operate wireless telephone systems, introduce and market a
new range of service offerings on a commercial basis and otherwise
operate its licensed PCS systems.
As discussed in Note 1, the Partnership entered into a joint venture
agreement with TLD. TLD is a licensed telecommunication carrier engaged
in business in Puerto Rico, has a subscriber base and is part of a
major telecommunication company in Spain. Management believes that the
joint venture with TLD is a major step toward obtaining the financing
required to develop and construct the infrastructure necessary to
commence commercial operations.
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-third of the population within
ten years following the grant. Although the Partnership's buildout plan
calls for 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.
Therefore, delays in constructing its PCS network could have a material
adverse effect on the Partnership's financial conditions and results of
operations.
26
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
3. Bid Withdrawal Payment and Penalty
In 1996, the Partnership, through its bidding agent, inadvertently
submitted to the FCC an erroneous bid for one of the PCS licenses being
auctioned (Norfolk, Virginia). Although the Partnership withdrew the
bid immediately, the FCC could have imposed a substantial penalty for
withdrawal of the then highest submitted bid, which penalty is based on
the difference between the bid withdrawn and the eventual highest bid.
The General Partner met with FCC officials and filed a petition for a
waiver of the penalty or, in the alternative, a substantial reduction
in the penalty amount, as the FCC's rules were intended to deter
frivolous and manipulative bids, and not errors.
On December 20, 1996, the FCC issued an order (the "Order") resolving
the request for waiver of the related bid withdrawal payment for the
license applicable to Round 11 of the Broad Band PCS Block C auction
(Norfolk, Virginia) for which the FCC ordered the Partnership to pay a
penalty of approximately $3,273,000. This Order also assessed a bid
withdrawal payment of approximately $1,258,000 for license B332 (Omaha,
Nebraska) for the Broad Band PCS Block C auction. In accordance with
the Order, these amounts were deducted from the Partnership's deposit
with the FCC. In addition to the December 20, 1996 Order, the FCC
issued a Notice of Apparent Liability and Forfeiture dated January 22,
1997, finding the Partnership liable for $1,000,000 for
misrepresentations made to the FCC Commission by its bidding agent.
These amounts were charged to operations in 1996.
On May 19, 1998, the Partnership filed a request with the FCC for
further reduction in the penalty amount. On June 12, 1998, the FCC
granted the Partnership's request for reduction of the penalty payment
to $425,000. The reduction in the penalty of approximately $2,850,000
was credited to operations in 1998.
The Partnership and its General Partner filed several actions in court
to recover from the bidding agent the FCC assessments made in
connection with the bidding error as well as other related expenses
incurred. One of the actions filed resulted in the attachment by the
Partnership of a $6.5 million escrow account deposited in the name of
the bidding agent, Romulus Telecommunications, Inc. ("Romulus"), with a
local bank, which would have been payable upon obtaining the PCS
licenses.
On November 16, 1998 (the "Effective Date"), the Partnership, SuperTel,
Romulus and other parties signed a Settlement Agreement (the
"Settlement Agreement"). The Settlement Agreement seeks to resolve
certain legal actions, claims and controversies among the parties. On
January 11, 1999, the FCC approved the Settlement Agreement which
provides, among other things, for the following:
1. At closing date, Romulus and all other appropriate parties shall
cause to pay the Partnership from the escrow trust account
maintained in Romulus' name the amount of $1,500,000.
27
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
2. SuperTel will issue to the Breen Family Trust 19,600 shares of its
voting Common Stock pursuant to the terms of certain warrant
agreement.
3. From the Effective Date, no additional shares of stock of
SuperTell shall be issued except with the written consent of at
least 60% of the voting securities of SuperTel.
4. SuperTel shall not enter into any contract, whether written or
oral, providing for the employment of any person or the engagement
of any person as a consultant for an amount in excess of $100,000
per year, except that two such contracts may provide for payment
up to $150,000 per year, without first obtaining a super majority
consent; provided however that this limitation shall not apply to
officers and employees of SuperTel as of September 1, 1998.
5. In exchange for all the interests held in Unicome by the SDE
Trust, the California Theological Charitable Trust and California
Theological Charitable Trust, Inc. ("CTCT"), SuperTel shall issue
to CTCT, 15,900 shares of non-voting Class A-1 common stock
representing 15.9 percent equity interest in SuperTel. The stock
will be non-voting, but will be equal in all other respects to the
existing common stock of SuperTel.
6. The parties and other signatories to the Settlement Agreement
release each other from various claims and causes of action.
On February 23, 1999, the Partnership collected the $1,500,000 from
Romulus. This amount plus certain accounts payable to Romulus deemed
settled have been recorded as a settlement credit in the accompanying
statement of revenues and expenses for the year ended December 31,
1998.
4. Partners' Capital
At December 31, 1998, the limited partners' capital consisted of
2,826.1 units (consisting of 2,601.5 units and 1,123 one-fifth units)
(1997 - 2,825.9 units, consisting of 2,601.5 units and 1,122 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.
28
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
5. Related Party Transactions
In 1998, the Partnership 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 $1,428,000 (1997 -
$8,291,000 including $6.5 million recognized as a result of obtaining
the PCS licenses; 1996 - $745,000).
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 $360,000 in
1998 (1997 - $370,000; 1996 - $424,000) for these services.
During the year ended December 31, 1997, the General Partner issued
5,600 shares of its restricted voting common stock to certain employees
and consultants of the Partnership at no cost. The shares were issued
by the General Partner in consideration of their valuable collaboration
in obtaining the Partnership's PCS licenses. These individuals were not
employees of the General Partner at the time the services were
provided. The fair value, of the shares granted is deemed insignificant
and, therefore, has not been recognized.
During the year ended December 31, 1998 approximately $670,000 of
severance charges related to certain terminated employees were charged
to operations. This amount is included in salaries and bonuses in the
accompanying statement of revenues and expenses.
6. Licenses and Long-Term Notes Payable
On January 22, 1997, the Partnership was granted the PCS Block C
licenses for $344,293,125. A down payment, or 10% of the bid amount,
was deducted by the FCC from the deposit held.
The remaining balance or $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 only interest for the
first six years starting in April 1997 and both interest and principal
for the remaining four years starting in April 2003. In March 1997, the
FCC suspended the deadline for commencing the payments. The Company
accrued the interest on the notes.
In September 1997, the FCC ended the 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.
29
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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 approximately undiscounted cost of
$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
approximately undiscounted cost of $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 licenses. As a result, the
Partnership returned 15 MHz in licenses with an approximately
undiscounted cost of $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 result of the elections made by the Partnership, the FCC
forfeited approximately $10,990,000 which has been charged to
operations in 1998.
The notes payable to the FCC are payable as follows:
o Quarterly interest payments of $834,268 through January 2003.
o Quarterly principal and interest payments of $3,669,768 from
April 2003 through January 2007.
At December 31, 1998, future principal installments due on notes
payable to the FCC are as follows:
Year Amount
2003 $ 10,872,000
Thereafter 40,467,555
------------
51,339,555
Less - Discount (14,212,570)
---- ------------
$ 37,126,985
============
30
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
7. Income Tax
The Partnership, as a limited partnership, is not subject to income tax
and the tax effect of its activities accrues to the partners.
Taxable income to the General and Limited Partners differs from that
reported in the statement of revenues and expenses mainly due to
different treatment of operational expenses incurred since inception
for tax and book purposes. Since the partnership has not operated any
PCS licenses yet, all operating expenses were deferred for tax purposes
creating a temporary difference for the partners.
These expenses will be amortized over a period not exceeding 5 years.
The taxable income for the partners is determined as follows:
1998 1997 1996
Net loss per books $(11,428,678) $(12,944,307) $(9,074,847)
Add - Operating expenses deferred until
The Partnership begins operations 11,752,910 13,439,921 9,141,614
------------ ------------ -----------
Taxable income $ 324,232 $ 495,614 $ 66,767
============ ============ ===========
Total operating expenses deferred through December 31, 1998 amounted to
approximately $42.3 million. There are no other significant differences
between taxable income for the partners and the net loss reported in
the statement of revenues and expenses.
8. Contingency
In November 1996, certain limited partners of the Partnership filed a
suit in the Circuit Court of the State of Oregon against the
Partnership, the General Partner, certain of their officers, directors,
employees and consultants. The suit alleges that defendants employed
misstatements and omissions of fact in connection with the sale of
limited partnership units of the Partnership and seeks the return of
the investment of $25,000 per unit for approximately 22 units, plus
interest and attorney fees. In August 1997 a suit brought by
approximately 30 additional plaintiffs was filed. The two suits contain
virtually identical allegations and were consolidated for all purposes.
On April 1998, the Court entered an order dismissing both cases. In one
pre-trial ruling, a judge dismissed plaintiffs' racketeering claims.
Plaintiffs have filed a notice of appeal to the Oregon Court of
Appeals. In addition, plaintiffs have filed a demand for arbitration
with the American Arbitration Association ("AAA"). The AAA has ruled,
over plaintiffs' objections, that the arbitration should proceed in
Puerto Rico.
The Partnership intends to resist vigorously plaintiffs' arbitration
claims. The Partnership's insurance carrier has assumed responsibility
for the expenses associated with these cases. Management believes,
based on the opinion of legal counsel, that the final outcome of the
above legal actions will not have a material adverse effect on the
Partnership's financial statements.
31
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
9. Commitments
The Partnership leases an office facility under a month by month lease
agreement. Rent expense for the year ended December 31, 1998 was
approximately $225,000 (1997 - $100,000, 1996 - $12,000).
10. Supplementary Cash Flows Information
Non-cash investing and financing activities during 1998 include the
following:
o Capitalization of interest paid with FCC disaggregation and bid
withdrawal credits of approximately $3,335,000.
o Capitalization of interest not yet paid of approximately
$1,191,000.
o Forgiven FCC notes payable and accrued interest after
disaggregation, prepayment and amnesty options elected for
approximately $160,301,000 and $15,826,000, respectively.
o Payment of FCC notes payable with FCC amnesty credit of
approximately $13,908,000.
During the year ended 1997, the Partnership acquired licenses with
notes payable amounting to $210,143,476 and capitalized interest not
yet paid of approximately $25,672,000.
32
SUPERTEL
COMMUNICATIONS CORP.
Report and Financial Statements
December 31, 1998 and 1997
33
Report of Independent Accountants
To the Board of Directors of
SuperTel Communications Corp.
In our opinion, the accompanying balance sheet and the related statements of
revenues and expenses and deficit and of cash flows present fairly, in all
material respects, the financial position of SuperTel Communications Corp. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards 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 audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
San Juan, Puerto Rico
March 5, 1999
Stamp 1537594 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report
34
SUPERTEL COMMUNICATIONS CORP.
Balance Sheet
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
---- ----
Assets
Assets:
Cash $ 4,143 $ 291
Accounts receivable from affiliated company 103,057 150,604
--------- ---------
Total assets $ 107,200 $ 150,895
========= =========
Liabilities and Stockholders' Deficiency
Liabilities:
Accounts payable to officers and directors $ 369 $ 71,619
Accounts payable to affiliated company 30,997 30,997
Income tax payable 5,090 3,714
Note payable to affiliate, including accrued
interest of $17,749 (1997 - $10,749) 117,749 110,749
--------- ---------
Total liabilities 154,205 217,079
========= =========
Contingencies (Note 9)
--------- ---------
Stockholders' deficiency:
Common stock, no par value, 100,000 shares authorized
86,000 shares issued and outstanding 1,000 1,000
Accumulated deficit (48,005) (67,184)
--------- ---------
Total stockholders' deficiency (47,005) (66,184)
--------- ---------
Total liabilities and stockholders' deficiency $ 107,200 $ 150,895
========= =========
The accompanying notes are an integral part of these financial statements.
35
SUPERTEL COMMUNICATIONS CORP.
Statement of Revenues and Expenses and Deficit
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
---- ----
Revenues:
Management fees $ 360,452 $ 369,643
--------- ---------
Expenses:
Directors' fees 278,680 284,000
Salaries -- 4,167
Travel expenses 40,970 37,755
Interest expense 7,000 7,000
Other general and administrative expenses 8,033 10,118
--------- ---------
Total expenses 334,683 343,040
========= =========
Income before income taxes 25,769 26,603
Provision for income taxes (6,590) (5,400)
--------- ---------
Net income 19,179 21,203
Deficit at beginning of period (67,184) (88,387)
--------- ---------
Deficit at end of period $ (48,005) $ (67,184)
========= =========
The accompanying notes are an integral part of these financial statements.
36
SUPERTEL COMMUNICATIONS CORP.
Statement of Cash Flows
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 19,179 $ 21,203
-------- --------
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Decrease (increase) in accounts receivable
from affiliated Company 47,547 (48,650)
(Decrease) increase in accounts payable (64,250) 19,064
Increase in income tax payable 1,376 437
-------- --------
Total adjustments (15,327) (29,149)
======== ========
Net cash provided (used) by operating activities and
net increase (decrease) in cash 3,852 (7,946)
Cash at beginning of period 291 8,237
-------- --------
Cash at end of period $ 4,143 $ 291
======== ========
The accompanying notes are an integral part of these financial statements.
37
SUPERTEL COMMUNICATIONS CORP.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1. Reporting Entity and Summary of Significant Accounting Policies
Reporting Entity
SuperTel Communication Corp. (the "Company" ) was organized on June 7,
1996 under the laws of Puerto Rico. It was created to serve as General
Partner of ClearComm, L.P. (the "Partnership"), a development stage
enterprise.
Most of the Company's transactions are related to the administration of
the Partnership, a limited partnership organized on February 14, 1995
under the laws of the State of Delaware, for which the Company serves
as the 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 March 3, 1999, the
Partnership entered into a Joint Venture Agreement with Telefonica
Larga Distancia Puerto Rico, Inc. ("TLD"). Among the most important
provisions of this Joint Venture Agreement are the following:
o The Partnership transfered all of its Puerto Rico Licenses,
including its related FCC debt to NewComm Wireless Services, Inc.
("NewComm"), a newly organized company owned by the Partnership.
o TLD contributed approximately $20 million dollar to NewComm by
means of a secured convertible promissory note payable
("promissory note"). The promissory note is secured by a security
agreement pursuant to which a security interest is imposed upon
NewComm assets, a Partnerhip's guarantee and a pledge agreement.
o Once certain regulatory and other requirements are met, TLD will
own approximately 49.9% of NewComm equity. TLD has the option
to buy an additional .2%, which would bring its ownership to
50.1%, subject to certain conditions.
o Entered into certain management and technology transfer
agreements.
The Company is entitled to 25% of all distributions made by the
Partnership.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles. The following summarizes the
most significant accounting policies followed in the preparation of the
accompanying financial statements:
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents
The Company considers highly liquid investments with maturity of three
months or less, at the time of purchase, to be cash equivalents. No
cash equivalents were held by the Company at December 31, 1998 and
1997.
38
SUPERTEL COMMUNICATIONS CORP.
Notes to Financial Statements -- (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
Income Taxes
Income taxes are reported under the liability method of accounting for
income taxes. Deferred tax assets and liabilities are recorded for the
expected future tax consequences of temporary differences that have
been recognized in the Company's financial statements or tax returns.
In estimating future tax consequences, all expected future events other
than enactments of changes in law or rates are considered. 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.
2. Investment Partnership
Originally the Company acquired its investment in the Partnership for
$100,000. Such investment is carried at equity and was written-down to
zero in 1996. As of December 31, 1998, the Company's investment in the
undistributed losses of the Partnership amounted to approximately
$9,940,000 (1997 -$7,083,000).
3. 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 1998, fees billed amounted to approximately $360,000 (1997 -
$370,000).
As explained in Note 6, during 1997 certain employees and consultants
of the Partnership were granted shares of the Company's common stock.
All other related party transactions are advances from/to affiliated
companies made in the ordinary course of business.
4. Note Payable
Note payable consists of a nonrecourse promissory note due to an
affiliate amounting to $100,000, bearing interest at 7%, and due on
June 18, 2003.
5. Income Tax
Under the provisions of the Puerto Rico Tax law, the loss on the
investment in 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 its
uncertainty.
39
SUPERTEL COMMUNICATIONS CORP.
Notes to Financial Statements -- (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
6. Capital
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, 1998, none of
the preferred shares had been issued.
At December 31, 1998 and 1997 the Company has 19,600 warrants
outstanding. Each warrant has the right to buy a share of the Company's
restricted voting common stock at the nominal value of ten cents (See
Note 8).
On January 25, 1999, the Company's certificate of incorporation was
amended to divide its 100,000 restricted voting common stock authorized
shares into (i) 84,100 shares of restricted voting common stock (the
"Common Stock") without par value and (ii) 15,900 shares of restricted
non-voting shares without par value, designated Class A-1 shares (the
"Class A-1 shares"). The Class A-1 shares shall be identical in all
respects to the rights, restrictions and limitations of the Common
Stock, except that the Class A-1 shares shall not vote on any matters
which are submitted by shareholder vote.
During the year ended December 31, 1997, the Company issued 5,600
shares of its restricted voting common stock to certain employees and
consultants of the Partnership at no cost in consideration of their
valuable collaboration in obtaining the Partnership PCS licenses. These
individuals were not employees of the Company at the time the services
were provided. The fair value, of the shares granted is deemed
insignificant and, therefore, has not been recognized.
7. Supplemental Cash Flow Information
During the year ended December 31, 1998, the Company paid income tax
amounting to approximately $5,200 (1997 - $5,000).
During the year ended December 31, 1997, the Company issued 5,600
shares of common stock at no cost.
8. Bid Withdrawal Payment and Penalty
In 1996, the Partnership, through its bidding agent, inadvertently
submitted to the FCC an erroneous bid for one of the PCS licenses being
auctioned (Norfolk, Virginia). Although the Partnership withdrew the
bid immediately, the FCC could have imposed a very substantial penalty
for withdrawal of the then highest submitted bid, which penalty is
based on the difference between the bid withdrawn and the eventual
highest bid. The Company filed a petition for a waiver of the penalty
or, in the alternative, a substantial reduction in the penalty amount,
as the FCC's rules were intended to deter frivolous and manipulative
bids, and not errors.
On December 20, 1996, the FCC issued an order (the "Order") resolving
the request for waiver of the related bid withdrawal payment for the
license applicable to Round 11 of the Broad Band PCS Block C auction
(Norfolk, Virginia) for which the FCC ordered the Partnership to pay a
penalty of approximately $3,273,000. This Order also assessed a bid
withdrawal payment of approximately $1,258,000 for license B332 (Omaha,
Nebraska) for the Broad Band PCS Block C auction. In accordance with
the Order, these amounts were deducted from the Partnership's deposit
with the FCC. In addition to the December 20, 1996 Order, the FCC
issued a Notice of Apparent Liability and Forfeiture dated January 22,
1997, finding the Partnership liable for $1,000,000 for
40
SUPERTEL COMMUNICATIONS CORP.
Notes to Financial Statements -- (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
misrepresentations made to the FCC Commission by its bidding agent.
These amounts were charged to operations by the Partnership in 1996.
On May 19, 1998, the Partnership filed a request with the FCC for
further reduction in the penalty amount. On June 12, 1998, the FCC
granted the Partnership's request for reduction of the penalty payment
to $425,000. The reduction in the penalty of approximately $2,850,000
was credited to operations by the Partnership in 1998.
The Partnership and its General Partner filed several actions in court
to recover from the bidding agent the FCC assessments made in
connection with the bidding error as well as other related expenses
incurred. One of the actions filed resulted in the attachment by the
Partnership of a $6.5 million escrow account deposited in the name of
the bidding agent, Romulus Telecommunications, Inc. ("Romulus"), with a
local bank which would have been payable upon obtaining the PCS
licenses.
On November 16, 1998 (the "Effective Date"), the Company, the
Partnership, Romulus and other parties signed a Settlement Agreement
(the "Settlement Agreement"). The Settlement Agreement seeks to resolve
certain legal actions, claims and controversies among the parties. On
January 11, 1999, the FCC approved the Settlement Agreement which
provides, among other things, for the following:
1. At closing date, Romulus and all other appropriate parties shall
cause to pay to the Partnership, from the escrow trust account
maintained in Romulus' name the amount of $1,500,000.
2. The Company will issue to the Breen Family Trust 19,600 shares of
its voting Common Stock pursuant to the terms of certain warrant
agreement.
3. From the Effective Date, no additional shares of stock of the
Company shall be issued except with the written consent of at
least 60% of the voting securities of the Company.
4. The Company shall not enter into any contract, whether written or
oral, providing for the employment of any person or the engagement
of any person as a consultant for an amount in excess of $100,000
per year, except that two such contracts may provide for payment
up to $150,000 per year, without first obtaining a super majority
consent; provided however that this limitation shall not apply to
officers and employees of the Company as of September 1, 1998.
5. In exchange for all the interests held in Unicom by the SDE Trust,
the California Theological Charitable Trust and California
Theological Charitable Trust, Inc. ("CTCT"), the Company shall
issue to CTCT, 15,900 shares of non-voting Class A-1 common stock,
representing 15.9 percent equity interest in the Company. The
stock will be non-voting, but will be equal in all other respects
to the existing common stock of the Company.
6. The parties and other signatories to the Settlement Agreement
release each other from various claims and causes of action.
On February 23, 1999, the Partnership collected the $1,500,000 from
Romulus.
41
SUPERTEL COMMUNICATIONS CORP.
Notes to Financial Statements -- (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
9. Contingencies
In November 1996, certain limited partners of the Partnership filed a
suit in the Circuit Court of the State of Oregon against the Company,
the Partnership and certain of their officers, directors, employees and
consultants. The suit alleges that defendants employed misstatements
and omissions of fact in connection with the sale of limited
partnership units of the Partnership and seeks the return of the
investment of $25,000 per unit for approximately 22 units, plus
interest and attorney fees. In August 1997 a suit brought by
approximately 30 additional plaintiffs was filed. The two suits contain
virtually identical allegations and were consolidated for all purposes.
On April 1998, the Court entered an order dismissing both cases. In one
pre-trial ruling, a judge dismissed plaintiffs' racketeering claims.
Plaintiffs have filed a notice of appeal to the Oregon Court of
Appeals. In addition, plaintiffs have filed a demand for arbitration
with the American Arbitration Association ("AAA"). The AAA has ruled,
over plaintiffs' objections, that the arbitration should proceed in
Puerto Rico.
The Company intends to resist vigorously plaintiffs' arbitration
claims. The Partnership's insurance carrier has assumed responsibility
for the expenses associated with these cases. Management believes,
based on the opinion of legal counsel, that the final outcome of the
above legal actions will not have a material adverse effect on the
Company's financial statements.
42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
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 one
employee 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 54, has been chairman
of the board of trustees of the University of Puerto Rico from 1993 to the
present. 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 34, 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 recently, 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).
Richard Reiss, Director and Treasurer, age 51, has been president of his own
business consulting firm since 1979, specializing in financial and management
matters. Mr. Reiss has long experience in developing, structuring and managing
corporate equity and debt placements, and in the overseeing and management of
substantial businesses. Formerly Mr. Reiss was chief financial officer and chief
operating officer of Bacardi Corporation. He has been a member of the Board of
Directors of Banco Santander, Puerto Rico for 18 years. Since February 1996, Mr.
Reiss has been a member of the Board of Directors of Pepsi Cola Puerto Rico
Bottling Co., Inc Mr. Reiss is a certified public accountant and graduated magna
cum laude from the University of Puerto Rico with B.B.A. in business
administration.
43
Gary H. Arizala, Director, age 60, 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 44, has held management and supervisory
positions in finance and accounting over a 15-year period in the non-profit,
manufacturing and public accounting field. She has been a member of the board of
several privately-held companies and a private foundation for over seven years.
From 1992 to the present, she has worked for The California Wellness Foundation
and since December 1997 is serving as Treasurer and Chief Financial, and is
responsible for all financial reporting, accounting, budgeting and tax functions
including investment performance and asset allocation review of a $750 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, the Southern California
Association for Philanthropy, and serves on the boards of The Wharton Foundation
and The Wealden Company. 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 50, 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 66, 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
44
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 1998.
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 and the other most highly
compensated executive officers who earned more than $100,000 in 1998.
45
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------------------- -------------
Securities
Fiscal Other Annual Underlying All Other
Name & Principal Position Year Salary($) Bonus($) Compensation ($) Options/SAR's Compensations ($)
- --------------------------------- ------ --------- -------- ---------------- ------------- -----------------
Javier Lamoso, President and 1998 $ 85,100 $ 0 $ 25,000(1) 0 $112,900(2)
Director 1997 $125,000 $ 0 $ 25,000(1) 0 $ 25,000(2)
1996 $125,000 $ 41,250 $ 25,000(1) 0 $ 0
John Duffy, Executive Vice 1998 $153,206 $ 0 $ 0 0 $300,000(5)
President, External Affairs(4) 1997 $150,000 $ 0 $ 0 0 $ 0
1996 $125,000 $112,250 $ 0 0 $ 0
Tyrone Brown, Senior Vice 1998 $ 0 $ 0 $221,066 0 $ 0
President, Regulatory (6)
(1) Consists of director's fee in the amount of $25,000 per year.
(2) Consists of $70,000 pursuant to the termination of his employment
agreement, $15,000 car allowance, and $27,900 other compensation in lieu of
salary.
(3) Consists of car allowance and other compensation.
(4) In November 1998, Mr. Duffy resigned as Executive Vice President, External
Affairs.
(5) Pursuant to the termination of his employment agreement, Mr. Duffy was paid
$300,000.
(6) On December 31, 1998, Mr. Brown's contract as Senior Vice President,
Regulatory expired.
Directors receive an annual fee of $25,000 each, other than the
Chairman of the Board, Mr. Martinez, who received an annual fee of $100,000 for
1998 and Mr. Odell, who receives an annual fee of $35,000. Effective the second
quarter of 1999, the director fees, including those for Mr. Martinez and Mr.
Odell are reduced by half. Directors are reimbursed for their reasonable
expenses in attending board meetings.
Mr. Daniel Parks resigned his position as General Counsel and director
on March 1, 1999. Pursuant to the termination of his employment agreement, Mr.
Parks will be paid $75,000.
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 March 30, 1999, 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)
46
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.
Name of Beneficial Owner Units Beneficially Owned Percentage Ownership
- ------------------------ ------------------------ --------------------
Fred H. Martinez(1) 1.4 *
Richard Reiss(2) 1.2 *
Javier O. Lamoso(3) 0 *
Gary H. Arizala(4) 2.4 *
Margaret W. Minnich(5) 0 *
James T. Perry(6) 2.4 *
Lawrence Odell(7) 1.4 *
All executive officers and directors of the
General Partner as a group (7 persons) 7.4 *
- --------------
* Less than 1.0%.
(1) Mr. Martinez is Chairman of the Board of Directors of the General Partner.
Mr. Martinez and Mr. Odell are Trustees of Martinez Odell & Calabria
Pension Fund, which owns the Unit reflected in the table.
(2) Mr. Reiss is Treasurer of the General Partner and a member of the Board of
Directors.
(3) Mr. Lamoso is President and acting Chief Executive Officer of the General
Partner and a member of the Board of Directors.
(4) Mr. Arizala is a Director.
(5) Ms. Minnich is a Director. The Table does not include 12 Units held by The
Wealden Company, of which Ms. Minnich is a director and vice president,
and 4.0 Units held by J.B. Wharton, Jr. Residual Trust, of which Ms.
Minnich is co-trustee and a contingent beneficiary.
(6) Mr. Perry is a Director.
(7) Mr. Odell is a Director and Secretary of the General Partner. Mr. Martinez
and Mr. Odell are trustees of Martinez Odell & Calabria Pension Fund,
which owns the Units reflected in the table.
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."
47
Management Fee
The Partnership Agreement provides that the General Partner is entitled
to reimbursement for all reasonable operating expenses, plus 10% of such amount.
The management fee is paid on a monthly basis. The total management fee for 1998
was $360,452.
Other Relationships and Transactions
Mr. Martinez and Mr. Odell are partners of Martinez, Odell & Calabria,
a law firm which provides legal services to the General Partner and the
Partnership.
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 Accountants
Consolidated Statements of Assets, Liabilities and Partners' Capital as
of December 31, 1997 and 1998
Consolidated Statement of Revenues and Expenses for years ended
December 31, 1996, 1997 and 1998 and period from inception to
December 31, 1998
Consolidated Statement of Cash Flows for years ended December 31, 1996
1997 and 1998 and period from inception to December 31, 1998
Consolidated Statement of Changes in Partners' Capital Accounts from
inception to December 31, 1998
Notes to Consolidated Financial Statements
SuperTel Communications Corp.
-----------------------------
Report of Independent Accountants
Balance Sheet for December 31, 1997 and 1998
Statement of Revenues and Expenses and deficit for the years ended
December 31, 1997 and 1998
Statement of Cash Flows for the years ended December 31, 1997 and 1998
Notes to Financial Statements
48
(2) Financial Statement Schedules
(3) Exhibits
Exhibit Number
- --------------
3.1 Agreement of Limited Partnership (Exhibit 3.1 of the
Registrant's Registration Statement on Form 10 (File No.
0-28362), effective June 28, 1996, is hereby incorporated by
reference)
10.1 Form of Services Agreement between PCS 2000, L.P. and Romulus
Telecommunications, Inc. (Exhibit 10.1 of the Registrant's
Registration Statement on Form 10 (File No. 0-28362),
effective June 28, 1996, is hereby incorporated by reference)
10.2 Asset Purchase Agreement, dated as of June 18, 1996, by an
between SuperTel Communications Corp. and Unicom Corporation
(Exhibit 10.2 of the Registrant's Registration Statement on
Form 10 (File No. 0-28362), effective June 28, 1996, is hereby
incorporated by reference)
10.3 Joint Venture Agreement, dated as of February 4, 1999, by and
between Telefonica Larga Distancia de Puerto Rico, Inc. and
ClearComm, L.P.
21 Subsidiaries of Registrant
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of fiscal
1998.
49
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.
By: SuperTel Communications Corp.
General Partner
By: /s/ Javier Lamoso
------------------------------
Name: Javier Lamoso
Title: President
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.
Capacity in
Signature Which Signed Date
--------- ------------ ----
/s/ Fred H. Martinez Director and Chairman of the Board March 31, 1999
- -----------------------
Fred H. Martinez
/s/ Javier O. Lamoso Director and President March 31, 1999
- -----------------------
Javier O. Lamoso
/s/ Richard Reiss Director and Treasurer March 31, 1999
- -----------------
Richard Reiss
/s/ Gary H. Arizala Director March 31, 1999
- -----------------------
Gary H. Arizala
/s/ Margaret W. Minnich Director March 31, 1999
- -----------------------
Margaret W. Minnich
/s/ Lawrence Odell Director March 31, 1999
- -----------------------
Lawrence Odell
/s/ James T. Perry Director March 31, 1999
- -----------------------
James T. Perry
50
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.1 Agreement of Limited Partnership (Exhibit 3.1 of the
Registrant's Registration Statement on Form 10 (File No.
0-28362), effective June 28, 1996, is hereby incorporated by
reference)
10.1 Form of Services Agreement between PCS 2000, L.P. and Romulus
Telecommunications, Inc. (Exhibit 10.1 of the Registrant's
Registration Statement on Form 10 (File No. 0-28362),
effective June 28, 1996, is hereby incorporated by reference)
10.2 Asset Purchase Agreement, dated as of June 18, 1996, by and
between SuperTel Communications Corp. and Unicom Corporation
(Exhibit 10.2 of the Registrant's Registration Statement on
Form 10 (File No. 0-28362), effective June 28, 1996, is hereby
incorporated by reference)
10.3 Joint Venture Agreement, dated as of February 4, 1999, by and
between Telefonica Larga Distancia de Puerto Rico, Inc. and
ClearComm, L.P.
21 Subsidiaries of Registrant
27 Financial Data Schedule
51