<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
REGISTRATION NO. 333-15783
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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US UNWIRED INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C> <C>
LOUISIANA 4812 72-0647424
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
CM TOWER, SUITE 1900
ONE LAKESHORE DRIVE
LAKE CHARLES, LA 70629
(318) 436-9000
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
WILLIAM L. HENNING, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
P.O. DRAWER 3104
LAKE CHARLES, LA 70602-3104
(318) 436-9000
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
<TABLE>
<C> <C> <C>
ANTHONY J. CORRERO, III THOMAS G. HENNING BRYANT B. EDWARDS
LOUIS Y. FISHMAN SECRETARY AND GENERAL COUNSEL LATHAM & WATKINS
CORRERO FISHMAN HAYGOOD MERCURY, INC. 633 W. FIFTH STREET, SUITE 4000
PHELPS WEISS WALMSLEY P.O. DRAWER 3104 LOS ANGELES, CALIFORNIA 90071-2007
& CASTEIX, L.L.P. LAKE CHARLES, LA 70602-3104 (213) 485-1234
201 ST. CHARLES AVENUE, SUITE 4700 (318) 436-9000
NEW ORLEANS, LOUISIANA 70170-4700
(504) 586-5252
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 31, 1997
1,700,000 SHARES
[US UNWIRED INC. LOGO]
CLASS A COMMON STOCK
All of the shares of Class A Common Stock, par value $.01 per share ("Class
A Common Stock"), being offered hereby (the "Offering") are being sold by US
Unwired Inc. (the "Company"). Prior to this Offering, there has been no public
market for the Class A Common Stock. See "Underwriting" for information relating
to the factors considered in determining the initial public offering price. It
is currently anticipated that the initial public offering price will be between
$11.00 and $13.00 per share.
The Company's authorized common stock includes Class A Common Stock and
Class B Common Stock, par value $.01 per share ("Class B Common Stock" and,
together with Class A Common Stock, "Common Stock"). The rights of Class A
Common Stock and Class B Common Stock are substantially identical, except that
holders of Class A Common Stock are entitled to one vote per share and holders
of Class B Common Stock are entitled to 10 votes per share. Both classes will
vote together as one class on all matters generally submitted to a vote of
shareholders, including the election of directors. Shares of Class B Common
Stock are convertible into Class A Common Stock on a share-for-share basis
subject to certain procedures and restrictions. See "Description of Capital
Stock." After the sale of the shares of Class A Common Stock offered hereby, the
Company's existing shareholders will own shares of Common Stock representing in
the aggregate approximately 98.5% of the voting power entitled to vote in
matters affecting shareholders generally.
Application has been made to have the Class A Common Stock quoted on the
Nasdaq National Market under the symbol "UNWR."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share........................ $ $ $
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Total(3)......................... $ $ $
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</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses estimated at $500,000, which will be paid by the
Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 255,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
---------------------
The shares are being offered severally by the Underwriters named herein,
subject to prior sale, as and if received and accepted by them, subject to their
right to reject orders, in whole or in part, and to certain other conditions. It
is expected that delivery of share certificates will be made on or about
, 1997.
[THE ROBINSON-HUMPHREY COMPANY AND A.G. EDWARDS AND SONS LOGOS]
, 1997
<PAGE> 3
[US Unwired logo]
[Five colored maps depicting clusters and including interstates and
highways therein]
Kansas Cluster
Mississippi Cluster
PCS Markets
Louisiana Cluster
PCS Markets
Alabama Cluster
[Legend for the maps displaying corresponding colors for each of the
following: Louisiana Cluster, Mississippi Cluster, Alabama Cluster, Kansas
Cluster, PCS Markets and Interim Operating Authority]
<PAGE> 4
CERTAIN TERMS
Wireless communications markets in the United States include (among others)
cellular markets and, more recently, Personal Communications Service ("PCS")
markets and are licensed and regulated by the Federal Communications Commission
(the "FCC"). The cellular markets are geographically divided into 306
Metropolitan Statistical Areas ("MSAs") and 428 Rural Service Areas ("RSAs")
devised by Rand McNally and adopted by the FCC. The PCS markets are similarly
divided into 51 Metropolitan Trading Areas ("MTAs") and 493 Basic Trading Areas
("BTAs"). The Company anticipates that PCS service will appear essentially the
same to the user as cellular service, except for certain issues of compatibility
when subscribers leave (or "roam" out of) the licensed area covered by the
wireless communications "System" of their service provider. Cellular and PCS
markets are sometimes measured by "Pops," which means the estimated population
of the specified market; and "Net Pops," which means such population multiplied
by the percentage interest the Company holds in the license for the particular
market. The number of Pops or Net Pops does not refer to subscribers and is not
necessarily indicative of the number of subscribers to the Company's Systems.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Class A Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Class A Common
Stock, reference is hereby made to such Registration Statement and the exhibits
and schedules thereto. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. Upon consummation of this Offering, the
Company will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company will file periodic reports and other information with the
Commission relating to its business, financial statements and other matters.
Copies of the Registration Statement, including all exhibits thereto, may be
obtained from the Commission's principal office in Washington, D.C. and at the
following regional offices of the Commission: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven World Trade Center,
Suite 1300, New York, New York 10048. Copies of all or any part thereof may be
obtained from the Public Reference Section, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the prescribed
fees. The Commission maintains a World Wide Web site on the Internet which
contains the foregoing information and the address of which is
"http://www.sec.gov."
The Company intends to furnish its shareholders annual reports containing
consolidated financial statements of the Company audited by its independent
auditors and quarterly reports containing unaudited condensed consolidated
financial statements for each of the first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information (including the financial statements and the notes thereto) included
elsewhere in this Prospectus. Unless otherwise indicated, all references to the
"Company" include it and its subsidiaries and their respective predecessors.
Except as otherwise indicated, the information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. Except for historical
financial information and unless otherwise indicated, all references herein to
Pops, Net Pops and the Company's Systems give effect to the consummation of the
Company's acquisition of 49% of the capital stock of Mississippi 34 Cellular
Corporation ("MS 34"), of which the Company owns 51%. The acquisition is
contingent upon, among other things, the successful completion of this Offering.
THE COMPANY
The Company owns and operates cellular communications systems in 14 RSAs
and one MSA which, after giving effect to the acquisition of MS 34, together
have 1.4 million Net Pops. These markets consist primarily of four clusters that
are located in Louisiana, Mississippi, Alabama and Kansas. In its Louisiana
Cluster, the Company markets under the MERCURY CELLULAR AND PAGING(TM) trade
name and in its other clusters under the CELLULARONE(R) service mark. As of
September 30, 1996, the Company served approximately 77,000 cellular subscribers
through cellular Systems covering more than 72,000 square miles, and served over
14,000 paging subscribers by providing paging services in its Louisiana market
and by reselling such services in certain other markets. The Company owns a
24 1/3% limited partnership interest in Meretel Communications Limited
Partnership (the "PCS Partnership"), which, as the successful bidder in the FCC
auction, has been awarded five broadband PCS licenses that cover five BTAs with
an aggregate of 1.8 million Pops. When the Systems in these PCS markets become
operational, the Company expects that these PCS markets, together with the
Louisiana Cluster cellular market, will create a large seamless market traversed
by Interstate Highway 10 ("I-10") between Houston and New Orleans. The Company
also owns a 50% interest in Mercury Mobility, L.L.C. ("Mobility"), which was the
high bidder for 22 broadband PCS licenses that cover 22 BTAs with an aggregate
of 4.9 million Pops in areas contiguous to the Company's existing markets. See
"PCS Operations."
The Company focuses on RSAs and small MSAs because it believes that such
markets, which are usually less densely populated, generally provide greater
capacity for growth and less competition than most major markets. Cellular
service was generally introduced later in RSAs and small MSAs than in major
markets, with the result that, based on industry averages, cellular penetration
is currently lower and subscriber growth rates are significantly higher than in
major markets. The Company's cellular markets exhibit positive characteristics
for wireless communications, including a high percentage of business customers
with substantial needs for wireless communications, such as those employed in
the agriculture and oil and gas industries, and a higher percentage of
populations accustomed to long travel times. Additionally, the Company's
cellular service areas cover approximately 1,100 highway miles, providing
attractive sources for roaming revenues.
The Company believes that the wireless communications industry will
continue to grow as enhanced services are offered at lower prices and as
customer awareness of the productivity, convenience and security benefits
associated with wireless communications increases. The Company believes it is
well positioned to take advantage of this growth opportunity. The Company's
growth strategy focuses on the following: (i) internal growth through increased
penetration in the Company's existing markets; (ii) acquisition of licenses
contiguous to the Company's existing market clusters from independent or smaller
licensees; (iii) acquisition of new market clusters; and (iv) acquisition of PCS
licenses, where available, to expand and complement its wireless network. In
addition, the Company believes that by geographically clustering service areas
it can offer high quality service at competitive prices with larger, seamless
service networks.
Since January 1, 1995, the Company has completed acquisitions of the Kansas
and Alabama Clusters, representing approximately 600,000 Net Pops. Upon
acquiring a cellular System, the Company's objective is to increase operating
cash flow by (i) emphasizing the Company's dedication to customer service and
satisfaction; (ii) implementing aggressive marketing of cellular service to add
subscribers and reduce the "churn rate" at which customers terminate service;
(iii) selectively upgrading the existing cellular network to
3
<PAGE> 6
increase signal coverage, with the eventual goal of providing handheld quality
network coverage; (iv) implementing the Company's distribution strategy, which
seeks to maximize the Company's local market presence through local retail
stores with a direct sales force; and (v) using its centralized upper management
and back office functions to support the needs of subscribers and of the
Company's retail sales offices, thereby maximizing economies of scale.
The Company seeks to position its cellular Systems, including its local
retail stores, as the quality local service provider. Management believes that
the Company's local presence through its retail stores enhances its ability to
provide a higher level of long-term customer service and satisfaction. The
Company's 22 retail stores are staffed with both sales and customer service
representatives, differentiating the Company from many of its competitors which
provide neither the same concentration of local sales locations nor the local
availability of customer service. The retail stores provide the Company with
greater control over the sales process than would be provided by the use of
independent agents alone, although the Company does use independent agents on a
selective basis to expand its distribution network. In addition, the Company's
billing and customer information system is operated by an affiliated corporation
which provides the Company with a high level of customization and access. The
Company believes that these factors enable its sales and customer service
personnel to be more responsive than competitors using third-party billing and
information systems.
In preparation for this Offering, the Company and its affiliate through
common control, Cameron Communications Corporation ("Cameron"), completed a
restructuring plan pursuant to which the wireless communications interests of
Cameron were separated from its landline telephone business and combined with
the wireless communications interests of the Company. Pursuant to an Agreement
and Plan of Reorganization, Cameron transferred to a new wholly-owned
subsidiary, Newco, all of Cameron's assets and liabilities other than its 96%
interest in the subsidiary that owns the licenses covering the Louisiana and
Kansas Clusters. Cameron distributed to its shareholders all of the shares of
Newco and then merged into the Company. In consideration for this merger,
shareholders of Cameron received, in exchange for their shares of Cameron,
shares of common stock of the Company which, together with all other then
outstanding shares, have been reclassified into Class B Common Stock. Following
the restructuring, the name of Newco was changed to "Cameron Communications
Corporation," and the name of the Company, which had been Mercury, Inc., was
changed to "US Unwired Inc." See "Certain Transactions -- Tax-Free
Restructuring."
Prior to this Offering, 78.0% of the Company's equity and voting power was
held by members of the Henning family, and the remaining 22.0% was owned by
approximately 11 minority shareholders. After this Offering, members of the
Henning family will own 67.8% of the Company's equity and 76.8% of the Company's
voting power. See "Principal Shareholders." The Henning family has been involved
in the communications industry since W. T. Henning founded a landline telephone
company in 1928 in southwest Louisiana. The Henning family became involved in
the wireless communications industry with the introduction of paging services in
1980 and cellular services in 1987. The Henning family will remain in the
landline business through their majority ownership of Cameron. See "Certain
Transactions."
In the ordinary course of its business, the Company analyzes acquisition
opportunities as they come to its attention. In November and December, 1996, the
Company entered into agreements to acquire from seven minority shareholders the
remaining 49% interest in MS 34, the subsidiary which owns the cellular licenses
covering the Mississippi-3 and Mississippi-4 RSAs. The consummation of the
acquisition is contingent upon, among other things, the successful completion of
this Offering. See "Markets and Systems -- Mississippi Cluster." See "Markets
and Systems -- System Development and Expansion."
4
<PAGE> 7
CELLULAR AND PAGING OPERATIONS
The Company's cellular markets are grouped geographically and strategically
into four clusters, known as the Louisiana, Mississippi, Alabama and Kansas
Clusters. The following table summarizes certain information concerning the
Company's cellular markets.
<TABLE>
<CAPTION>
INTERSTATE
& OTHER % OF HH
TOTAL COMPANY WIRELINE OR HIGHWAY WITH EBI> DATE OF
MARKET POPS OWNERSHIP% NET POPS NON-WIRELINE MILES $35K(A) ACQUISITION
------ ---------- ---------- --------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Louisiana Cluster
Lake Charles, LA MSA.... 174,000 100.0% 174,000 WL 102 46.0% Aug. 1987(b)
De Soto, LA-3 B1(c)..... 59,000 100.0 59,000 WL 115 28.1 Apr. 1991(b)
Beauregard, LA-5
B1(c)................. 142,000 100.0 142,000 WL 175 30.6 Mar. 1991(b)
--------- --------- -----
Total Louisiana....... 375,000 375,000 392
--------- --------- -----
Mississippi Cluster
Tunica, MS-1............ 170,000 100.0 170,000 NWL 69 28.4 Apr. 1993
Bolivar, MS-3(d)........ 156,000 100.0 156,000 NWL 66 25.7 Apr. 1993
Yalobusha, MS-4(d)...... 127,000 100.0 127,000 NWL 62 31.5 Apr. 1993
Washington, MS-5(e)..... 160,000 -- -- NWL 76 33.2 Jan. 1994
--------- --------- -----
Total Mississippi..... 613,000 453,000 273
--------- --------- -----
Alabama Cluster
Lamar, AL-3............. 136,000 100.0 136,000 NWL 70 30.5 May 1996
Bibb, AL-4.............. 138,000 100.0 138,000 NWL 66 29.5 Jul. 1996
--------- --------- -----
Total Alabama......... 274,000 274,000 136
--------- --------- -----
Kansas Cluster
Cheyenne, KS-1.......... 27,000 100.0 27,000 NWL 84 32.2 Apr. 1995
Norton, KS-2............ 30,000 100.0 30,000 NWL 0 27.9 Apr. 1995
Wallace, KS-6........... 20,000 100.0 20,000 NWL 39 37.2 Apr. 1995
Trego, KS-7............. 78,000 100.0 78,000 NWL 112 37.1 Apr. 1995
Hamilton, KS-11......... 85,000 100.0 85,000 NWL 17 44.8 Apr. 1995
Hodgeman, KS-12......... 42,000 100.0 42,000 NWL 12 40.1 Apr. 1995
Edwards, KS-13.......... 28,000 100.0 28,000 NWL 6 33.3 Apr. 1995
Cimarron, OK-1(e)....... 24,000 -- -- NWL 7 34.9 Apr. 1995
--------- --------- -----
Total Kansas.......... 334,000 310,000 277
--------- --------- -----
Minority Interest
Chambers, TX-21(f)...... 21,000 25.0 5,300 WL 34 50.4 Apr. 1993
--------- --------- -----
TOTAL................. 1,617,000 1,417,300 1,112
========= ========= =====
</TABLE>
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(a) The percentage of households (HH) with effective buying income (EBI) greater
than $35,000 is based on Kagan's Cellular Telephone Atlas 1995. Effective
buying income is comparable to disposable after-tax income.
(b) The Company was the original licensee in these markets.
(c) These are partitioned cellular markets.
(d) These RSAs are licensed to MS 34, a corporation in which the Company
currently owns a 51% interest. The Company has entered into agreements to
acquire the remaining 49% interest. The acquisition is contingent upon,
among other things, the successful completion of this Offering. See "Use of
Proceeds."
(e) The Mississippi-5 RSA and Oklahoma-1 RSA are operated under interim
authority granted by the FCC pending auction of the licenses by the FCC. The
number of Company subscribers in these RSAs is insignificant.
(f) The Texas-21 RSA is owned by a partnership in which the Company owns a 25%
interest and in which GTE Mobilnet, which operates the System, owns a 75%
interest.
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<PAGE> 8
The Company offers its subscribers cellular, and in certain markets paging,
services and, without additional charge, offers custom calling features such as
call forwarding, call waiting, conference calling and no-answer transfer. The
Company also provides voice message storage and retrieval free of charge in the
Kansas Cluster and at nominal rates in the other clusters. The Company has
roaming arrangements with virtually every cellular carrier in North America and
is a member of North American Cellular Network ("NACN"), a wireless network
linking non-wireline cellular operations throughout the United States, Canada,
Puerto Rico and the Virgin Islands. NACN participation allows the Company to
offer convenient cellular access to the Company's subscribers when they roam
throughout the United States and Canada.
The Company began offering paging services in the Louisiana Cluster in 1980
and, through a resale agreement with another provider, in Beaumont, Texas in
1995. The Company has entered into agreements to enable it to provide regional
and nationwide paging services. As of September 30, 1996, the Company had over
14,000 paging subscribers.
PCS OPERATIONS
As the successful bidder in the FCC's C-block auction, the PCS Partnership
has been granted five PCS licenses covering 1.8 million Pops in five BTAs. These
PCS markets and the Company's Louisiana Cluster cellular market are expected to
create a large seamless market between Houston and New Orleans. The Company
intends to provide its subscribers and the PCS Partnership's subscribers with
the ability to roam seamlessly throughout the Company's Louisiana Cluster and
the PCS Partnership's markets as soon as technically feasible at a reasonable
cost. Each of these BTA markets is presently in the design and engineering
stage. The PCS Partnership has retained the Company to manage the design,
construction and daily operations of the Lafayette, Beaumont and Lufkin BTAs,
for which the Company is paid a monthly management fee and is reimbursed for its
expenses. The Company has invested $2.9 million in the PCS Partnership and has
committed to contribute up to an additional $10.1 million. The PCS Partnership
bid $61.2 million for its licenses, which is payable over 10 years, and
currently estimates that capital expenditures of at least an additional $69.0
million will be required over the next 10 years to build out its PCS markets.
The PCS Partnership has obtained a commitment from the Rural Telephone Finance
Cooperative for $59.0 million of financing for capital expenditures under which
the Company would be required to guarantee repayment of up to $6.2 million.
There can be no assurance that the build-out of the PCS markets will not cost
materially more than is currently anticipated or that additional financing, if
required, will be available at all or in the absence of additional guarantees by
the Company and other partners.
The FCC's D, E and F-block auctions ended on January 14, 1997. Mobility was
the high bidder for 22 broadband PCS licenses covering 4.9 million Pops in 22
BTAs. These PCS markets expand and complement the Company's wireless network.
Mobility bid $9.5 million for these licenses, of which $2.8 million will be paid
as a down payment and the remaining $6.7 million will be financed by the federal
government over ten years. The Company and Cameron, which each own 50% of
Mobility, have each invested $2.0 million in Mobility. This $4.0 million will be
used to fund the down payment on the license cost and for working capital
purposes. There can be no assurance that the licenses will be granted.
Additional financing will be required to build out these PCS markets; however,
there can be no assurance that Mobility will be able to obtain such financing,
or that such financing, if obtained, will not require guarantees or additional
capital contributions by the Company.
PCS is a new generation of wireless communications, offering customers
advanced, secure, two-way digital wireless services and applications. Services
that permit sophisticated call management, enhanced two-way messaging and,
eventually, high-speed data and video transmission, should enable customers to
better manage personal and business needs. The Company believes that the
introduction of PCS into the wireless market will stimulate demand for wireless
communications services, attract customers who are not currently subscribers to
wireless service and increase usage by current wireless customers. PCS will
compete with existing cellular telephone service and may provide features not
currently offered by cellular providers.
6
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered(1)............................. 1,700,000 shares
Common Stock to be outstanding after this Offering:
Class A Common Stock(1)(2)................................ 1,700,000 shares
Class B Common Stock...................................... 11,250,000 shares
-----------------
Total(1)(2)....................................... 12,950,000 shares
=================
</TABLE>
- ---------------
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) Does not include outstanding options to purchase an aggregate of up to
approximately 270,000 shares of Class A Common Stock pursuant to the
Company's 1997 Stock Option Plan.
---------------------
Use of Proceeds............... The Company intends to use approximately $11.6
million of the net proceeds to acquire the
remaining 49% of the capital stock of MS 34,
the Company's subsidiary that owns the cellular
licenses covering the Mississippi-3 and
Mississippi-4 RSAs. The remainder of the net
proceeds will be used to pay down approximately
$6.9 million of existing bank debt, although
the Company expects to reborrow such amounts
from time to time for acquisitions of
additional wireless Systems, the expansion of
existing cellular Systems and for general
corporate purposes. See "Use of Proceeds" and
"Capitalization."
Voting Rights................. Holders of Class A Common Stock are entitled to
one vote per share while holders of Class B
Common Stock are entitled to 10 votes per
share. The Class A Common Stock and Class B
Common Stock will vote together as one class on
all matters submitted to a vote of shareholders
generally, including the election of directors.
Immediately following the consummation of this
Offering, the outstanding shares of Class A
Common Stock will represent approximately 1.5%
of the combined voting power of the outstanding
Common Stock (1.7% if the Underwriters' over-
allotment option is exercised in full). The
Company's existing shareholders will own shares
of Class B Common Stock representing in the
aggregate approximately 98.5% of the combined
voting power of the Common Stock (98.3% if the
Underwriters' over-allotment option is
exercised in full) and thereby will continue to
be able to control the election of the
Company's Board of Directors and generally will
be able to direct the affairs of the Company.
See "Principal Shareholders" and "Description
of Capital Stock."
Dividends on Common Stock..... Holders of Class A Common Stock and Class B
Common Stock will be entitled to share ratably,
as if a single class, in any dividends declared
by the Company on the Common Stock. The Company
does not anticipate paying dividends on its
Common Stock in the foreseeable future. See
"Dividend Policy" and "Description of Capital
Stock."
Conversion of Class B Common
Stock....................... Shares of Class B Common Stock are convertible
into Class A Common Stock on a share-for-share
basis subject to certain procedures and
restrictions. See "Description of Capital
Stock."
NASDAQ National Market
Symbol........................ UNWR
7
<PAGE> 10
SUMMARY FINANCIAL AND CERTAIN OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------- PRO FORMA COMBINED AS ADJUSTED(1)
YEAR ENDED ----------------------------------
DECEMBER 31, NINE MONTHS YEAR ENDED NINE MONTHS
--------------------------- ENDED DECEMBER 31, ENDED
1993 1994 1995 SEPTEMBER 30, 1996 1995 SEPTEMBER 30, 1996
------- ------- ------- ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............. $14,346 $22,553 $39,252 $43,858 $49,868 $48,401
Cost of service............. 4,513 7,445 11,430 11,622 14,121 12,653
Merchandise cost of sales... 720 2,518 3,373 3,377 4,418 3,709
General and administrative
expense................... 1,692 2,498 5,308 7,078 7,653 7,870
Sales and marketing
expense................... 2,736 3,768 6,262 5,448 6,887 5,652
Depreciation and
amortization.............. 2,037 2,892 5,686 6,432 10,057 8,285
Operating income............ 2,648 3,432 7,193 9,901 6,732 10,232
Interest income (expense),
net....................... 93 (630) (3,065) (4,302) (7,481) (5,721)
Income tax expense.......... 1,317 1,914 2,291 2,375 362 1,928
Net income (loss)........... 1,909 1,750 2,603 3,751 (799) 2,807
Net income (loss) per
share..................... $ 0.17 $ 0.16 $ 0.23 $ 0.33 $ (0.06) $ 0.22
OTHER FINANCIAL DATA:
EBITDA(2)................... $ 4,685 $ 6,324 $12,879 $16,333 $16,789 $18,517
Net cash provided by
operating activities...... 7,537 1,564 6,737 8,938
Net cash used in investing
activities................ (17,244) (5,184) (45,109) (48,952)
Net cash provided by
financing activities...... 6,540 5,803 38,149 43,280
<CAPTION>
HISTORICAL AS ADJUSTED(1)
AS OF AS OF
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............. $ 3,035 $ 3,035
Property and equipment,
net....................... 26,407 26,407
Cellular licenses, net...... 76,355 87,938
Total assets................ 130,933 142,461
Long-term debt.............. 87,682 80,793
Total liabilities and
minority interest......... 105,598 98,569
Shareholders' equity........ 25,335 43,892
<CAPTION>
HISTORICAL
-------------------------------------------------
YEAR ENDED
DECEMBER 31, NINE MONTHS
--------------------------- ENDED
1993 1994 1995 SEPTEMBER 30, 1996
------- ------- ------- ------------------
<S> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Ending subscribers.......... 15,942 27,313 55,576 76,907
Penetration(3).............. 1.9% 3.3% 4.9% 5.4%
Churn(4).................... 1.2% 1.1% 1.4% 1.7%
Subscriber revenue per
average subscriber(5)..... $ 61 $ 56 $ 58 $ 55
Selling & marketing costs
(all in) per net
additional
subscriber(6)............. $ 414 $ 465 $ 473 $ 599
</TABLE>
- ---------------
(1) The unaudited pro forma statement of operations data and EBITDA for the year
ended December 31, 1995 and the nine months ended September 30, 1996 include
the historical operations of the Company and give effect to the following as
if they occurred as of January 1, 1995: (i) the acquisition of the Kansas
Cluster, (ii) the acquisition of the Alabama-3 RSA, (iii) the acquisition of
the Alabama-4 RSA, (iv) this Offering and the application of the net
proceeds therefrom, including the acquisition of MS 34. The balance sheet
data as adjusted as of September 30, 1996 includes the historical accounts
of the Company and gives effect to the following as if they occurred as of
September 30, 1996: (i) this Offering and (ii) the application of the net
proceeds therefrom, including the acquisition of MS 34.
(2) EBITDA represents operating income before depreciation and amortization.
EBITDA is a measure commonly used in the telecommunications industry and is
presented to enhance the understanding of the Company's operating results
and is not intended to be a financial performance measure comparable to
similarly titled measures of other companies. EBITDA should not be regarded
as an alternative to either operating income or net income as an indicator
of operating performance, or to cash flows as a measure of liquidity.
Furthermore, EBITDA is not a GAAP-based financial measure, and it should not
be considered as an alternative to GAAP-based measures of financial
performance. See "Selected Financial Data" and the Consolidated Financial
Statements included elsewhere herein.
(3) Represents the ratio of ending subscribers to total Pops.
(4) Represents the average of the monthly churn rates during the periods
presented. Churn equals the ratio of disconnected monthly subscribers to
weighted average monthly subscribers.
(5) Includes cellular service subscriber revenue divided by average subscribers
for the period divided by the number of months in the period presented.
(6) Includes selling and marketing expense and equipment subsidy (merchandise
cost of sales net of merchandise sales) divided by net subscribers added
through normal operating activities (excludes subscribers added through
acquisitions).
8
<PAGE> 11
RISK FACTORS
In addition to the other matters described in this Prospectus, each
prospective purchaser of the Class A Common Stock offered hereby should consider
the specific risk factors set forth below.
GROWTH BY ACQUISITIONS
The Company's growth strategy relies in part upon the acquisition and
development of additional wireless communications Systems. There can be no
assurance, however, that suitable acquisitions will be available to the Company,
that the Company will be able to obtain additional financing for any such
acquisitions, if required, or that the Company will be able to compete
effectively for these Systems against other potential purchasers, most of which
are larger and have greater financial resources than the Company. In addition,
the Company will be subject to risks that its existing and new Systems will not
perform as expected and that the returns from such Systems will not justify the
consideration paid or to be paid for them or the capital expenditures needed to
develop them.
COMPETITION
Competition for subscribers among wireless licensees is based principally
upon the services and enhancements offered, the technical quality of the System,
customer service, System coverage, capacity and price. There are currently two
cellular providers, and there will be up to six PCS providers, in each market.
The Company believes that PCS service will in most respects appear essentially
the same to the user as cellular service. Consequently, the Company believes
that the primary competitive impact of PCS service on cellular operators will be
the addition of up to six additional competitors in each cellular market, in
which cellular operators previously had only one competitor. In the future, the
Company may face increased competition from entities providing similar services
using other communications technologies and services. The Company also competes
with paging and dispatch service providers, resellers and, to a lesser extent,
landline telephone service providers. Competition is expected to be intense. New
technologies may evolve that compete with the Company's products and services. A
number of the Company's competitors have substantially greater resources than
the Company. Several of the Company's competitors are operating or planning to
operate, through joint ventures and affiliation arrangements, wireless
communications systems that encompass most of the continental United States. See
"Business -- Competition."
SERVICE MARKS
The Company uses the CELLULARONE(R) service mark in all of its cellular
markets except the Louisiana Cluster. AT&T Wireless, which had been the single
largest user of the CELLULARONE(R) mark, has reduced its use of the mark. If for
some reason the name CELLULARONE(R) were to suffer diminished marketing appeal,
the Company's ability both to attract new subscribers and retain existing
subscribers could be materially impaired. In such circumstances or otherwise,
the Company may be required to develop a new service mark. Competitors of the
Company possess, and others may develop over time, branding with significantly
greater name recognition than that of the Company. A failure by the Company to
maintain existing rights to its current cellular branding or to develop suitable
alternatives thereto would have a material adverse effect on the Company's
ability to market its products and services and could require the Company to
invest significant additional funds to develop such alternatives. See
"Business -- Trade Name; Service Mark."
GOVERNMENTAL REGULATION
The licensing, construction, operation, acquisition and sale of cellular
and PCS Systems, as well as the number of cellular, PCS and other wireless
licensees permitted in each market, are regulated by the FCC. Changes in the
regulation of such activities, such as a decision by the FCC to issue new
licenses or permit more than two licenses in each market for cellular
communications services or more than six licenses for PCS services, could have a
material adverse effect on the Company's operations. In addition, all cellular
and PCS licenses in the United States are granted for an initial 10-year term,
are subject to renewal and may be revoked by the FCC at any time for cause. The
Company believes that each of its cellular licenses would, if currently
9
<PAGE> 12
up for renewal, be renewed based upon FCC rules establishing a presumption in
favor of licensees that have provided "substantial" service during the past
license term and have substantially complied with their regulatory obligations
during the initial license period, but there can be no assurance that all of the
Company's licenses will be renewed. The wireless communications industry is also
subject to certain state and local governmental regulation. Operating costs are
affected by these and other governmental actions that are beyond the Company's
control. See "Business -- Governmental Regulation."
CERTAIN PCS RISKS
PCS Systems have no significant operating history in the United States and
there can be no assurance that these Systems will become profitable. There are
numerous significant risks associated with the PCS business in general and the
businesses of the PCS Partnership, in which the Company has a 24 1/3% interest,
and of Mobility, in which the Company has a 50% interest, in particular. First,
PCS operators are free to choose from among several competing digital signal
transmission technologies, or standards, that are not interoperable. At present,
none of these competing technologies has emerged as dominant among PCS Systems.
The PCS Partnership has recently chosen to use one of these technologies, CDMA,
in its PCS Systems. There can be no assurance that CDMA will become the, or even
a, dominant technology in the United States. See "The PCS Industry -- Operation
of PCS Systems." If CDMA does not become the dominant standard or is not able to
compete successfully with other PCS technologies, the PCS Partnership could be
deprived of revenues from PCS customers who roam into the PCS Partnership's
markets and could lose PCS customers who become dissatisfied because they are
unable to roam outside the PCS Partnership's markets. Significant customer loss
and loss of roaming revenues could have a material adverse effect on the PCS
Partnership's results of operations and liquidity. Second, successful build-out
of a PCS System in each of the PCS Partnership's BTAs is subject to completion
of the network design; acquisition of appropriate sites for base station
equipment, which may require zoning variances and local regulatory approval; the
purchase and the installation of the network equipment, which are susceptible to
unpredictable supply or construction delays; and satisfactory accommodation of
microwave users currently using the spectrum. Third, the PCS Partnership may
ultimately be unable to finance the build-out and operation of its PCS Systems
without additional guarantees of financing from its partners, including the
Company, whose risk from the PCS Partnership could thereby be significantly
increased. The PCS Partnership has obtained a commitment for $59.0 million of
financing, of which the Company would be required to guarantee repayment of up
to $6.2 million. See "Business -- PCS Operations," "-- Organization" and
"-- Regulation -- Licensing of PCS Systems." In addition, there can be no
assurance that the licenses for which Mobility was recently the high bidder will
be granted by the FCC or, if granted, that the grants will not be withdrawn upon
reconsideration by the FCC or upon review by a court of competent jurisdiction.
There can also be no assurance that Mobility will be able to obtain financing
for the build-out and operation of its PCS Systems, or that such financing, if
obtained, will not require guarantees or additional capital contributions by the
Company. Mobility has not selected a digital signal transmission technology.
RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE
Media reports have suggested that certain radio frequency ("RF") emissions
from wireless handsets may be linked to various health concerns, including
cancer, and may interfere with various electronic medical devices, including
hearing aids and pacemakers. Concerns over RF emissions may have the effect of
discouraging the use of wireless handsets, which could have an adverse effect
upon the Company's business. The FCC has a rulemaking proceeding pending to
update the guidelines and methods it uses for evaluating RF emissions from radio
equipment, including wireless handsets. While the proposal would impose more
restrictive standards on RF emissions from lower power devices such as wireless
handsets, it is believed that all wireless handsets currently marketed by the
Company and in use by the Company's subscribers already comply with the proposed
standards.
EQUIPMENT FAILURE; NATURAL DISASTER
The Company's Systems include nine mobile telephone switching offices,
which are the point of connection between a wireless System and the local
landline telephone company, and approximately 93 cell
10
<PAGE> 13
sites, which are the base stations from which the cellular signal is transmitted
to and from the user's handset. The Company does not carry "business
interruption" insurance, and major equipment failure or a natural disaster
affecting these switching offices or sites could have a material adverse effect
on the Company's operations.
CONTROL BY EXISTING SHAREHOLDERS; ANTI-TAKEOVER EFFECT OF DUAL CLASSES OF COMMON
STOCK
Holders of Class A Common Stock are entitled to one vote per share, while
holders of Class B Common Stock are entitled to 10 votes per share. Class B
Common Stock will not trade in the public market, and applicable transfer
restrictions prevent Class B Common Stock from being acquired by persons other
than those who held Class B Common Stock of the Company immediately prior to
this Offering, their affiliates and certain other "qualified holders." See
"Shares Eligible for Future Sale." Immediately following the consummation of
this Offering, the outstanding shares of Class A Common Stock will represent
approximately 1.5% of the combined voting power of the outstanding Common Stock
(1.7% if the Underwriters' over-allotment option is exercised in full). The
Company's existing shareholders, who will hold Class B shares, will continue to
be able to control the election of the Company's Board of Directors and
generally will be able to direct the affairs of the Company. Such control will
allow those persons to determine whether the Company should enter into
transactions involving an actual or potential change of control of the Company,
including transactions in which the holders of Class A Common Stock might
receive a premium for their shares over the then-prevailing market price, and
such control may therefore have a depressive effect on the market price for
Class A Common Stock.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no public market for the shares of the Company prior to this
Offering, and there is no assurance that a significant public market for the
Class A Common Stock will develop or be sustained after this Offering. The
initial public offering price of the Class A Common Stock will be determined by
negotiations between the Company and the representatives of the Underwriters.
See "Underwriting." The market price of the Class A Common Stock may be
extremely volatile. Factors such as fluctuations in the valuation of wireless
licenses, results of current and future FCC auctions, acquisitions by the
Company, significant announcements by the Company and its competitors, quarterly
fluctuations in the Company's operating results and general conditions in the
communications market may have a significant impact on the market price of the
Class A Common Stock. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. These fluctuations have had a
substantial effect on the market prices for many high technology and
communications companies, often unrelated to the operating performance of the
specific companies.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class A Common Stock in the public market
after this Offering could adversely affect prevailing market prices. The Company
has agreed that, for a period of 180 days after the date of this Prospectus, it
will not sell additional shares of Common Stock or securities convertible into,
exercisable for, or exchangeable for, Common Stock without the prior consent of
the Underwriters. The Company's Articles of Incorporation provide that, subject
to certain limitations, Class B Common Stock may be converted into Class A
Common Stock. Sales of certain shares of Class B Common Stock are subject to
certain restrictions set forth in the Company's Articles of Incorporation and
pursuant to Rule 144 under the Securities Act and otherwise. See "Shares
Eligible for Future Sale."
DILUTION
Purchasers of the Class A Common Stock offered hereby will suffer immediate
dilution of $15.50 in the net tangible book value per share of the Class A
Common Stock from the initial public offering price. See "Dilution."
11
<PAGE> 14
BENEFITS OF THE OFFERING TO CURRENT SHAREHOLDERS
Prior to this Offering, the shares of common stock held by the Company's
current shareholders were reclassified into Class B Common Stock. See
"Description of Capital Stock" and "Shares Eligible for Future Sale." Such
shareholders will benefit from this Offering to the extent that a public market
for the Company's Common Stock is thereby created. Upon completion of this
Offering, based upon the difference between their acquisition cost of the
Company's Common Stock prior to reclassification and the value of such stock
based on the public offering price and assuming conversion to Class A Common
Stock, the current shareholders will enjoy an aggregate unrealized gain of
approximately $133.5 million in their shares. None of such shares are included
in this Offering.
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any dividends on its Common Stock in
the foreseeable future. See "Dividend Policy."
SEASONALITY
The Company, like the wireless communications industry in general, has
historically experienced significant subscriber growth during the fourth
calendar quarter. Accordingly, during such quarter the Company experiences
greater losses on merchandise sales and increases in sales and marketing
expenses. The Company has historically experienced highest usage and revenue per
subscriber during the summer months. The Company expects these trends to
continue.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES
THAT MAY AFFECT FUTURE RESULTS
This Prospectus contains forward-looking statements about the business,
financial condition and prospects of the Company. The actual results of the
Company could differ materially from those indicated by the forward-looking
statements because of various risks and uncertainties, including without
limitation changes in technology, customer demand, the availability of products,
changes in competition, the ability of the Company to expand its markets through
acquisitions in accordance with its plans, economic conditions, interest rate
fluctuations, dependence on manufacturers' product development, various risks
due to changes in products or technology, changes in FCC, tax and other
governmental rules and regulations applicable to the Company, and other risks
that are identified above. These risks and uncertainties are beyond the ability
of the Company to control, and in many cases the Company cannot predict the
risks and uncertainties that could cause its actual results to differ materially
from those indicated by the forward-looking statements. When used in this
Prospectus, the words "believes," "estimates," "plans," "expects," and
"anticipates" and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Class A
Common Stock offered hereby (after deducting underwriting discounts and
commissions and estimated offering expenses) are estimated to be approximately
$18.5 million ($21.3 million if the Underwriters' over-allotment option is
exercised in full). The Company intends to use approximately $11.6 million of
the net proceeds of this Offering to acquire 49% of the capital stock of MS 34,
a Mississippi corporation which owns the cellular licenses covering the
Company's Mississippi-3 and Mississippi-4 RSAs. The Company presently owns 51%
of the capital stock of MS 34. The remainder of the net proceeds will be used to
reduce existing bank debt, although the Company expects to reborrow such amounts
from time to time for acquisitions of additional Systems, the expansion of
existing cellular Systems and for general corporate purposes. The Company's
long-term borrowings from 1994 through September 30, 1996 were made through
various credit facilities bearing various rates of interest at both fixed and
variable terms ranging from 5.45% to 10.50%, with maturity dates ranging from
December 20, 2002 to December 20, 2003. See Note 7 to the Consolidated Financial
Statements of the Company included elsewhere herein.
12
<PAGE> 15
DIVIDEND POLICY
The Company anticipates that any income generated in the foreseeable future
will be retained for the development and expansion of its business and the
repayment of indebtedness, and therefore the Company does not anticipate paying
dividends on its Common Stock in the foreseeable future. The payment of
dividends is restricted under the Company's long-term debt agreements.
DILUTION
The net tangible book deficit of the Company as of September 30, 1996, was
$52.4 million. Without taking into account any changes in such net tangible book
deficit after September 30, 1996, other than to give effect to the receipt of
net proceeds from the sale of the 1,700,000 shares of Class A Common Stock
offered at an assumed initial public offering price of $12.00 per share
(assuming the Underwriters' over-allotment option is not exercised), the net
tangible book deficit of the Company, as adjusted for this Offering, would have
been $(3.50) per share, representing an immediate dilution to new investors of
$15.50 per share and an immediate increase of $1.16 per share to existing
shareholders. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price(1).................... $12.00
------
Net tangible book deficit(2).............................. $(4.66)
------
Decrease in net tangible book deficit per share
attributable to payments by new investors.............. 1.16
------
Net tangible book deficit per share as adjusted for this
Offering(2)............................................... (3.50)
------
Dilution per share to new investors(3)...................... $15.50
======
</TABLE>
- ---------------
(1) Before deducting the underwriting discounts and commissions and offering
expenses to be paid by the Company.
(2) "Net tangible book deficit per share" represents the amount of total assets
less total liabilities, excluding intangibles of $77.7 million before this
Offering and $89.2 million after this Offering, consisting primarily of
cellular licenses and deferred financing costs, divided by the number of
shares of Common Stock outstanding of 11,250,000 before this Offering and
12,950,000 after this Offering.
(3) Dilution is the difference between the amount of cash paid by new investors
for a share of Class A Common Stock and net tangible book deficit per share
as adjusted for this Offering.
The foregoing table assumes no exercise of outstanding stock options. As of
the date of this Prospectus, there are outstanding stock options to purchase up
to approximately 270,000 shares of Class A Common Stock at an exercise price of
approximately $12.00 per share. If all such options had been outstanding and
exercised at September 30, 1996, the consolidated net tangible book deficit per
share of Common Stock as of such date would have been $(4.27) and the
consolidated net tangible book deficit per share after this Offering would have
been $(3.19), representing an immediate dilution to new investors of $15.19 per
share and an immediate increase of $1.08 per share to existing shareholders.
The following table sets forth on a pro forma basis as of September 30,
1996, the number of shares of Common Stock purchased from the Company and the
total consideration paid and the average price per share paid by the existing
shareholders of the Company and by new investors purchasing shares in this
Offering, before deducting the underwriting discounts and commissions and
offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- --------------------- PRICE PER
NUMBER PERCENT(1) AMOUNT PERCENT SHARE
---------- ---------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(2)........... 11,250,000 86.9% $ -- --% $ --
New investors...................... 1,700,000 13.1 20,400,000 100.0 12.00
---------- ----- ----------- -----
Total.................... 12,950,000 100.0% $20,400,000 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Percentage of total shares of Common Stock to be outstanding after this
Offering.
(2) The Common Stock held by existing shareholders has been issued over time
and, for purposes of this comparison, is assumed to have been issued for
nominal consideration.
13
<PAGE> 16
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1996, and the consolidated capitalization as
adjusted for this Offering. This table should be read in conjunction with the
financial statements appearing elsewhere in this Prospectus, including the notes
thereto, the "Unaudited Pro Forma Condensed Combined Financial Data" and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Current portion of long-term debt........................... $ 7,996 $ 7,996
======== ========
Long-term debt.............................................. 87,682 80,793(1)
Shareholders' equity:
Preferred Stock, no par value, 40,000,000 shares
authorized and no shares issued and outstanding actual
and as adjusted........................................ -- --
Class A Common Stock, $.01 par value per share,
100,000,000 shares authorized and no shares issued and
outstanding actual, 1,700,000 shares outstanding as
adjusted............................................... -- 17
Class B Common Stock, $.01 par value per share, 60,000,000
shares authorized and 11,250,000 shares issued and
outstanding actual and as adjusted..................... 112 112
Additional paid-in capital................................ 1,835 20,290
Retained earnings......................................... 23,388 23,473
-------- --------
Total shareholders' equity........................ 25,335 43,892
-------- --------
Total capitalization.............................. $113,017 $124,685
======== ========
</TABLE>
- ---------------
(1) This figure assumes that proceeds from this Offering are used exclusively to
acquire 49% of the capital stock of MS 34 and to reduce existing bank debt.
However, in the ordinary course of its business, the Company analyzes
opportunities to expand its existing cellular Systems and to acquire
additional Systems. It expects to reborrow from time to time debt repaid
with the proceeds of this Offering and to use such reborrowings to pursue
such opportunities and for general corporate purposes. See "Use of
Proceeds."
14
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined statements of
operations of the Company for the year ended December 31, 1995 and the nine
months ended September 30, 1996 give effect to the following transactions as if
they occurred as of January 1, 1995: (i) the acquisition of the assets of
Miscellco Communications, Inc., which includes the System serving the Kansas
Cluster (Kansas-1, 2, 6, 7, 11, 12, 13 RSAs and Oklahoma-1 RSA) on April 30,
1995; (ii) the acquisition of the assets of West Alabama Cellular Telephone
Company, Inc., which includes the System serving Alabama-3 RSA on May 15, 1996;
(iii) the acquisition of the Alabama-4 RSA on July 1, 1996; and (iv) the sale by
the Company of the Class A Common Stock offered hereby (assuming no exercise of
the Underwriters' over-allotment option) and the application of the net proceeds
therefrom to acquire the remaining 49% of the common stock of MS 34, which
includes the System serving the Mississippi-3 and Mississippi-4 RSAs, and to
repay a portion of existing debt. See "Use of Proceeds." The following condensed
balance sheet as adjusted as of September 30, 1996 gives effect to (iv) noted
above as if such transactions had occurred on September 30, 1996. The unaudited
pro forma condensed combined financial statements give effect to the
aforementioned acquisitions under the purchase method of accounting and the
assumptions described in the accompanying notes to the pro forma condensed
combined financial statements. The historical financial statements relating to
the Kansas and Alabama Clusters include the financial position and results of
operations of the Systems through the date of acquisition by the Company.
Results of operations of the acquired companies for periods subsequent to the
respective acquisition dates are included in the historical results of
operations of the Company.
The following unaudited pro forma condensed combined financial information
has been prepared by the Company's management based in part on information
provided with respect to historical financial statements of the Systems included
elsewhere in this Prospectus. The unaudited pro forma data is not designed to
represent and does not represent what the Company's financial position or
results of operations actually would have been had the aforementioned
transactions been completed as of the date or the beginning of the periods
indicated, or to project the Company's financial position or results of
operations at any future date or for any future period. The pro forma condensed
combined financial statements should be read in conjunction with the financial
statements and notes of the Company contained elsewhere herein.
15
<PAGE> 18
US UNWIRED INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------- PRO FORMA
WEST PRO FORMA PRO FORMA OFFERING COMBINED
US UNWIRED MISCELLCO ALABAMA ALABAMA 4 ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- --------- ------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $39,252 $2,356 $3,366 $4,894 $ -- $49,868 $ -- $49,868
Costs and expenses:
Costs of service......... 11,430 416 854 1,421 -- 14,121 -- 14,121
Merchandise cost of
sales.................. 3,373 357 337 351 -- 4,418 -- 4,418
General and
administrative......... 5,308 550 1,129 666 -- 7,653 -- 7,653
Sales and marketing...... 6,262 366 73 186 -- 6,887 -- 6,887
Depreciation and
amortization........... 5,686 250 252 455 2,835(a) 9,478 579(e) 10,057
---------- ------ ------ ------ ------- ------- --------- ----------
32,059 1,939 2,645 3,079 2,835 42,557 579 43,136
---------- ------ ------ ------ ------- ------- --------- ----------
Operating income........... 7,193 417 721 1,815 (2,835) 7,311 (579) 6,732
Other income (expense):
Interest expense, net.... (3,065) (317) (170) (460) (4,068)(b) (8,080) 599(d) (7,481)
Gain (loss) on sale of
assets................. (32) -- -- -- -- (32) -- (32)
---------- ------ ------ ------ ------- ------- --------- ----------
Total other income
(expense)................ (3,097) (317) (170) (460) (4,068) (8,112) 599 (7,513)
---------- ------ ------ ------ ------- ------- --------- ----------
Income (loss) before income
taxes, minority interest
and equity in income of
affiliates............... 4,096 100 551 1,355 (6,903) (801) 20 (781)
---------- ------ ------ ------ ------- ------- --------- ----------
Income tax expense
(benefit)................ 2,291 -- -- 438 (2,375)(c) 354 8(f) 362
---------- ------ ------ ------ ------- ------- --------- ----------
Income (loss) before
minority interest and
equity in income of
affiliates............... 1,805 100 551 917 (4,528) (1,155) 12 (1,143)
---------- ------ ------ ------ ------- ------- --------- ----------
Minority interest in losses
of subsidiary............ 454 -- -- -- -- 454 (454)(e) --
Equity in income of
affiliates............... 344 -- -- -- -- 344 -- 344
---------- ------ ------ ------ ------- ------- --------- ----------
Net income (loss)
applicable to common
shareholders............. $ 2,603 $ 100 $ 551 $ 917 $(4,528) $ (357) $ (442) $ (799)
========== ====== ====== ====== ======= ======= ========= ==========
Net income (loss) per
common share............. $ 0.23 $ (0.06)
========== ==========
Weighted average number of
shares outstanding....... 11,242,334 1,700,000 12,942,334
========== ========= ==========
</TABLE>
16
<PAGE> 19
US UNWIRED INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------- PRO FORMA
WEST PRO FORMA PRO FORMA OFFERING COMBINED
US UNWIRED ALABAMA ALABAMA 4 ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- ------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 43,858 $1,641 $2,902 $ -- $48,401 $ -- $ 48,401
Costs and expenses:
Costs of service................... 11,622 339 692 -- 12,653 -- 12,653
Merchandise costs of sales......... 3,377 155 177 -- 3,709 -- 3,709
General and administrative......... 7,078 529 263 -- 7,870 -- 7,870
Sales and marketing................ 5,448 37 167 -- 5,652 -- 5,652
Depreciation and amortization...... 6,432 102 563 754(a) 7,851 434(e) 8,285
---------- ------ ------ ------- ------- --------- ----------
33,957 1,162 1,862 754 37,735 434 38,169
---------- ------ ------ ------- ------- --------- ----------
Operating income..................... 9,901 479 1,040 (754) 10,666 (434) 10,232
Other income (expense):
Interest expense, net.............. (4,302) (61) -- (1,808)(b) (6,171) 450(d) (5,721)
---------- ------ ------ ------- ------- --------- ----------
Total other income (expense)......... (4,302) (61) -- (1,808) (6,171) 450 (5,721)
---------- ------ ------ ------- ------- --------- ----------
Income (loss) before income taxes,
minority interest and equity in
income of affiliates............... 5,599 418 1,040 (2,562) 4,495 16 4,511
---------- ------ ------ ------- ------- --------- ----------
Income tax expense (benefit)......... 2,375 -- 362 (815)(c) 1,922 6(f) 1,928
---------- ------ ------ ------- ------- --------- ----------
Income (loss) before minority
interest and equity in income of
affiliates......................... 3,224 418 678 (1,747) 2,573 10 2,583
---------- ------ ------ ------- ------- --------- ----------
Minority interest in losses of
subsidiary......................... 303 -- -- -- 303 (303)(e) --
Equity in income of affiliates....... 224 -- -- -- 224 -- 224
---------- ------ ------ ------- ------- --------- ----------
Net income applicable to common
shareholders....................... $ 3,751 $ 418 $ 678 $(1,747) $ 3,100 $ (293) $ 2,807
========== ====== ====== ======= ======= ========= ==========
Net income per common share.......... $ 0.33 $ 0.22
========== ==========
Weighted average number of shares
outstanding........................ 11,250,000 1,700,000 12,950,000
========== ========= ==========
</TABLE>
17
<PAGE> 20
US UNWIRED INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL OFFERING
US UNWIRED ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 10,102 $ -- $ 10,102
Subscriber receivables, net..................... 7,977 -- 7,977
Other receivables............................... 694 -- 694
Inventory....................................... 1,683 -- 1,683
Prepaid expenses................................ 355 -- 355
-------- -------- --------
Total current assets......................... 20,811(i) -- 20,811
Investments in unconsolidated affiliates.......... 5,426 -- 5,426
Property and equipment, net....................... 26,407(i) -- 26,407
Cellular licenses, net............................ 76,355(i) 11,583 (g) 87,938
Deferred income taxes............................. 579 -- 579
Other assets...................................... 1,355 (55)(h) 1,300
-------- -------- --------
Total assets................................. $130,933 $ 11,528 $142,461
======== ======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........... $ 9,780 $ -- $ 9,780
Current maturities of long-term debt............ 7,996 7,996
-------- -------- --------
Total current liabilities.................... 17,776(i) 17,776
Long-term debt.................................... 87,682 (6,889)(g) 80,793
Minority interest................................. 140 (140)(h) --
Shareholders' equity.............................. 25,335 18,557 (g)(h) 43,892
-------- -------- --------
Total liabilities and shareholders' equity... $130,933 $ 11,528 $142,461
======== ======== ========
</TABLE>
18
<PAGE> 21
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
For purposes of determining the pro forma effect of the transactions
described in the previous pages on the Company's Unaudited Pro Forma Condensed
Combined Statements of Operations for the year ended December 31, 1995 and the
nine months ended September 30, 1996, the following adjustments have been made:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
(a) Represents incremental amortization and depreciation due
to the application of purchase accounting, which
increased the basis of intangible assets, primarily
license costs. Intangible assets are amortized on a
straight line basis over 20 years. Property and
equipment, which consists primarily of cell site
equipment, is depreciated on a straight line basis over
five years.
Elimination of historical amortization and
depreciation........................................... $ (957) $ (665)
Amortization of cellular licenses...................... 2,454 927
Depreciation of cell site equipment.................... 1,338 492
------- -------
$ 2,835 $ 754
======= =======
(b) Represents the net effect on interest expense resulting
from (i) additional borrowings required to finance the
acquisition of the Kansas and Alabama Clusters under
bank credit facilities with a weighted average interest
rate of 8.7% per annum and (ii) interest on debt not
assumed in connection with such acquisitions.
Interest expense related to borrowings under bank
credit facilities.................................... $ 5,015 $ 1,869
Elimination of historical interest expense on debt not
assumed.............................................. (947) (61)
------- -------
$ 4,068 $ 1,808
======= =======
(c) Represents income tax benefit calculated using statutory
income tax rates applicable to the pro forma adjustments
and to record income tax on acquired companies where no
prior income taxes were provided........................ $(2,375) $ (815)
======= =======
(d) Represents the elimination of interest expense as a
result of the application of proceeds from this Offering
to repay a portion of the debt incurred in the
acquisitions of the Kansas and Alabama Clusters (see
"Use of Proceeds")...................................... $ 599 $ 450
======= =======
(e) Represents the effect of the acquisition of the
remaining 49% of MS 34, using a portion of the Offering
proceeds
Elimination of minority interest....................... $ (454) $ (303)
======= =======
Amortization of cellular licenses over an assumed
useful life of 20 years................................ $ 579 $ 434
======= =======
(f) Represents income tax expense, calculated using
statutory income tax rates, applicable to the Offering
adjustments............................................. $ 8 $ 6
======= =======
</TABLE>
19
<PAGE> 22
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
For purposes of determining the pro forma effect of the transactions
described in the previous pages on the Company's Unaudited Pro Forma Condensed
Balance Sheet as of September 30, 1996, the following adjustments have been
made:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
------------------
<S> <C>
(g) Represents the application of the net proceeds of this
Offering to acquire the remaining 49% of MS 34 and to
repay a portion of debt incurred in the acquisition of
the Kansas and Alabama Clusters
Offering of Class A Common Stock, after deducting
underwriting discounts and commissions and estimated
expenses of this Offering (assumes the sale of
1,700,000 shares of Class A Common Stock at $12.00 per
share, the midpoint of the range set forth on the cover
of this Prospectus).................................... $ 18,472
========
Acquisition of 49% of MS 34. For purposes of the pro
forma financial statements the Company has tentatively
considered the fair value of the acquired tangible
assets to approximate their historical carrying value,
with the excess acquisition cost being attributable to
cellular licenses. It is the Company's intention,
subsequent to the acquisition, to evaluate more fully
the acquired assets and, as a result, the allocation of
the acquisition costs among tangible and intangible
assets acquired may change............................. $(11,583)
Retirement of long-term debt........................... $ (6,889)
--------
$(18,472)
========
(h) Represents the net adjustment to shareholders' equity,
other assets and minority interest to show the result of
the write-off of deferred financing costs associated
with the early extinguishment of existing debt, and the
elimination of minority interest due to the acquisition
of 49% of MS 34
Other assets........................................... $ (55)
========
Minority interests..................................... $ (140)
========
Shareholders' equity................................... $ 85
========
</TABLE>
(i) Historical US Unwired Inc. Unaudited Pro Forma Condensed Balance Sheet
includes amounts set forth in the following table which represent the
calculation of the purchase price of each acquisition and allocation of the
purchase price to specific tangible and intangible assets and liabilities.
<TABLE>
<CAPTION>
KS AL3 AL4 TOTAL
------- ------- ------- -------
<S> <C> <C> <C> <C>
Working capital......................... $ (60) $ 471 $ 98 $ 509
Property and equipment, net............. 4,626 1,385 3,868 9,879
Cellular licenses....................... 30,545 16,015 23,810 70,370
------- ------- ------- -------
$35,111 $17,871 $27,776 $80,758
======= ======= ======= =======
</TABLE>
20
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the Company
for the fiscal years ended December 31, 1993, 1994, and 1995, and as of December
31, 1994 and 1995, and as of and for nine months ended September 30, 1996 is
derived from, and qualified by reference to, the consolidated financial
statements of the Company, which financial statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The consolidated
financial statements as of December 31, 1994 and 1995 and September 30, 1996,
and for the years ended December 31, 1993, 1994 and 1995 and the nine months
ended September 30, 1996, and the report thereon, are included elsewhere in this
Prospectus. The selected consolidated financial data set forth below for the
Company as of and for the nine months ended September 30, 1995 is derived from
unaudited consolidated financial statements of the Company included elsewhere in
this Prospectus and have been prepared on the same basis as the audited
financial statements and contain all adjustments, consisting of normal recurring
accruals, that the Company considers necessary for a fair presentation of the
financial position and results of operations for the periods presented. The
selected consolidated financial data set forth below for the Company for the
years ended December 31, 1991 and 1992 and as of December 31, 1991, 1992 and
1993, are derived from unaudited consolidated financial statements not included
elsewhere herein. The selected consolidated financial data set forth below
should be read in conjunction with the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and notes thereto included elsewhere in this
Prospectus. The comparability of the information presented below is materially
affected by acquisitions of cellular Systems made by the Company in 1995 and
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................... $ 9,189 $ 11,212 $ 14,346 $ 22,553 $ 39,252 $ 26,669 $ 43,858
Cost of service................... 2,814 2,963 4,513 7,445 11,430 7,891 11,622
Merchandise cost of sales......... 407 554 720 2,518 3,373 1,923 3,377
General and
administrative.................. 1,908 1,890 1,692 2,498 5,308 3,553 7,078
Sales and marketing............... 1,619 2,124 2,736 3,768 6,262 3,986 5,448
Depreciation and
amortization.................... 1,200 1,337 2,037 2,892 5,686 3,854 6,432
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income.................. 1,241 2,344 2,648 3,432 7,193 5,462 9,901
Interest income (expense), net.... 445 373 93 (630) (3,065) (2,018) (4,302)
Other income (expense),
net............................. 5 6 10 25 (32) -- --
Income tax expense................ 588 1,235 1,317 1,914 2,291 1,777 2,375
Minority interest in losses of
subsidiary...................... -- -- 401 439 454 380 303
Equity in income of affiliates.... 69 271 74 398 344 272 224
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........................ $ 1,172 $ 1,759 $ 1,909 $ 1,750 $ 2,603 $ 2,319 $ 3,751
========== ========== ========== ========== ========== ========== ==========
Net income per share.............. $ 0.11 $ 0.16 $ 0.17 $ 0.16 $ 0.23 $ 0.21 $ 0.33
========== ========== ========== ========== ========== ========== ==========
Weighted average shares
outstanding..................... 10,933,782 10,933,782 10,933,782 11,108,874 11,242,334 11,239,783 11,250,000
========== ========== ========== ========== ========== ========== ==========
Net cash provided by (used in)
operating activities............ (1,260) 3,465 7,537 $ 1,564 $ 6,737 $ 5,612 $ 8,938
Net cash used in investing
activities...................... (2,429) (4,275) (17,244) (5,184) (45,109) (40,824) (48,952)
Net cash provided by (used in)
financing activities............ (497) (1,675) 6,540 5,803 38,149 36,092 43,280
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $ 9,682 $ 6,751 $ 1,536 $ 6,322 $ 4,912 $ 4,395 $ 3,035
Property and equipment, net....... 5,371 5,663 11,882 13,261 20,911 21,429 26,407
Cellular licenses, net............ -- -- 10,969 10,095 38,784 39,225 76,355
Total assets...................... 16,506 16,461 29,908 35,640 78,754 77,295 130,933
Long-term debt.................... 2,293 618 7,728 13,020 49,274 47,764 87,682
Total liabilities and minority
interest........................ 3,638 1,834 13,373 16,982 57,351 56,176 105,598
Shareholders' equity.............. 12,868 14,627 16,535 18,658 21,403 21,119 25,335
</TABLE>
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and notes thereto and other
financial information included elsewhere in this Prospectus.
OVERVIEW
The Company owns and operates cellular communications Systems in 14 RSAs
and one MSA. The Company has been operating cellular Systems since 1987 and has
experienced rapid growth during the last few years. The Company's cellular
subscribers and penetration were approximately 77,000 and 5.4%, respectively, at
September 30, 1996 compared to approximately 9,000 and 2.4% at January 1, 1993.
The Company intends to continue to increase its total number of subscribers
through increased penetration of its existing markets and through acquisitions
of new markets. The Company's results of operations for the periods described
herein will not necessarily be indicative of future performance.
The Company's revenues consist primarily of subscriber revenues (including
access charges and usage charges), roaming revenues (fees charged for providing
services to subscribers of other cellular communications systems when such
subscribers "roam" by placing or receiving a phone call within one of the
Company's service areas) and merchandise sales (sales of cellular phones and
accessories). The Company offers equipment subsidies on phones (averaging
approximately $166 per net subscriber added in the nine months ended September
30, 1996) in order to attract new subscribers and expects to continue this
practice which is consistent with industry norms. Because of such promotional
discounts, increases in merchandise sales typically result in decreases in
operating income. The majority of the Company's revenues are derived from
subscriber revenues. Subscriber revenues and merchandise sales also include
amounts recognized for sales of paging service; however, revenues from paging
are expected to account for less than 4% of the Company's total revenues for the
year ended December 31, 1996.
Average monthly revenue per subscriber (based upon subscriber revenues
only) from its cellular operations decreased to $57.91 in 1995 compared to
$60.77 in 1993. The Company's decrease in average monthly revenue per
subscriber, which is consistent with industry trends, reflects its efforts to
expand its subscriber base and overall penetration by lowering its prices
(including roaming rates) and offering affordable rate plans in its markets. The
Company believes that, by lowering its prices and increasing the quality of its
services, it will build subscriber loyalty in its existing markets, reduce
potential churn and provide a competitive advantage against PCS and other
wireless competitors. The Company anticipates that, although the average monthly
subscriber revenue per subscriber may decline due to additional price decreases
and increased competition, these decreases will eventually be offset by an
enlarged subscriber base and by increased usage once subscribers begin taking
advantage of the full potential and utility of cellular phone service.
Cost of service consists of the costs of providing wireless service to
subscribers, which includes costs to access local exchange and long distance
carrier facilities, costs of maintaining the Company's wireless network, and
costs associated with subscribers roaming on other carriers' networks. Costs of
merchandise sales consist of inventory costs associated primarily with cellular
phones and related accessories. General and administrative expenses include
billing costs, administrative costs associated with maintaining subscribers,
which include customer service, accounting and other centralized functions, and
provisions for subscriber bad debt. Sales and marketing costs include costs
associated with acquiring subscribers, including sales, advertising and
promotional expenses. Depreciation and amortization include primarily
depreciation expense associated with the Company's property and equipment in
service and amortization associated with its wireless licenses for operational
markets.
EBITDA is a measure commonly used in the telecommunications industry and is
presented to enhance the understanding of the Company's operating results and is
not intended to be a financial performance measure comparable to similarly
titled measures of other companies. EBITDA should not be regarded as an
alternative to either operating income or net income as an indicator of
operating performance, or to cash flows as a measure of liquidity. Furthermore,
EBITDA is not a GAAP-based financial measure, and it should not be
22
<PAGE> 25
considered as an alternative to GAAP-based measures of financial performance.
See "Selected Financial Data."
The comparability of the information presented in Management's Discussion
and Analysis of Financial Condition and Results of Operations is materially
affected by acquisitions the Company completed in 1995 and 1996. On April 30,
1995, the Company acquired the assets of Miscellco Communications, Inc., which
include the Systems serving the Kansas Cluster, for approximately $35.1 million.
On May 15, 1996, the Company acquired the assets of West Alabama Cellular
Telephone Company, Inc., which include the System serving the Alabama-3 RSA, for
approximately $17.9 million. On July 1, 1996, the Company acquired the assets of
the Alabama-4 RSA for approximately $27.8 million. All of these acquisitions
were financed through bank debt.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
The Company had 76,907 cellular subscribers at September 30, 1996, an
increase of 21,331 or 38.4% from December 31, 1995. At September 30, 1995, the
Company had 48,475 subscribers, an increase of 21,162 or 77.5% from December 31,
1994. For the nine months ended September 30, 1996 and September 30, 1995, net
subscribers added through cellular System acquisitions were 8,800 and 10,900,
respectively. Excluding acquired cellular subscribers, the Company's net
subscribers increased by 12,531 or 22.6% in the nine months ended September 30,
1996 and 10,262 or 37.8% in the nine months ended September 30, 1995. Although
the aggregate number of net subscribers added continues to increase, the
resulting growth rates have declined due to the larger subscriber base.
Management expects that this trend will continue. Of the total subscribers added
in the nine-month period ended September 30, 1996, 61.7% were from direct
Company sales compared to 38.3% added through independent agent and retailer
distribution channels. This reflects the Company's focus on direct retail sales
channels.
REVENUES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Subscriber revenues......................................... $19,263 $32,635
Roaming revenues............................................ 6,248 9,609
Merchandise sales........................................... 998 1,287
Other revenue............................................... 160 327
------- -------
Total revenues.................................... $26,669 $43,858
======= =======
</TABLE>
Subscriber revenues increased $13.3 million or 68.9% to $32.6 million for
the nine months ended September 30, 1996 from $19.3 million for the nine months
ended September 30, 1995. This increase was primarily due to the increased
number of cellular subscribers in 1996, including those acquired in the
acquisitions of the Kansas and Alabama Clusters. Average monthly cellular
subscriber revenue per subscriber was $54.74 for the nine months ended September
30, 1996 compared to $56.48 for the nine months ended September 30, 1995. The
Company believes the decrease in subscriber revenue per subscriber primarily
reflects price decreases implemented to build subscriber base and stimulate
cellular usage.
Roaming revenues were $9.6 million for the nine months ended September 30,
1996 compared to $6.2 million for the nine months ended September 30, 1995, an
increase of $3.4 million or 54.8%. Growth in the Company's roaming revenues
generally reflected increases in the Company's geographical coverage and market
penetration levels in adjacent markets and the cellular industry as a whole.
Roaming revenues as a percentage of total revenues declined to 21.9% for the
nine months ended September 30, 1996 from 23.4% for the nine months ended
September 30, 1995 as a result of the 68.9% growth in subscriber revenues, which
exceeded the 54.8% increase in roaming revenues. Although the Company expects
total roaming revenues to continue to increase as the Company and the cellular
industry grow, it expects its roaming revenues as a percentage of total revenues
to continue to decline as its subscriber base grows and it reduces roaming
rates.
23
<PAGE> 26
Merchandise sales, which consist primarily of cellular handset sales,
increased to $1.3 million for the nine months ended September 30, 1996 from
$998,339 for the nine months ended September 30, 1995. This $288,256 or 28.9%
increase was primarily due to the increase in subscriber additions partially
offset by a decrease in the average handset sales price. The Company anticipates
continued growth in merchandise sales as a result of increases in net subscriber
additions.
Other revenues, which consist primarily of microwave and management
operations, were $327,844 for the nine months ended September 30, 1996, compared
to $160,077 for the nine months ended September 30, 1995. This represents a
$167,767 or 104.8% increase which resulted primarily from the management
services provided to the PCS Partnership and other non-consolidated affiliates.
However, other revenues remained approximately 0.7% of total revenues for the
nine months ended September 30, 1996 and 1995.
OPERATING EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cost of service............................................. $ 7,891 $11,622
Merchandise cost of sales................................... 1,923 3,377
General and administrative.................................. 3,553 7,078
Sales and marketing......................................... 3,986 5,448
Depreciation and amortization............................... 3,854 6,432
------- -------
Total operating expenses.......................... $21,207 $33,957
======= =======
</TABLE>
Cost of service increased to $11.6 million for the nine months ended
September 30, 1996 from $7.9 million for the nine months ended September 30,
1995. This increase was primarily attributable to the increased number of
subscribers which resulted in increased costs to access local exchange and long
distance carrier facilities and maintain the Company's expanding wireless
network. While cost of service increased $3.7 million or 46.8%, it decreased as
a percentage of service revenues to 27.3% for the nine months ended September
30, 1996 from 30.7% for the nine months ended September 30, 1995, which was
primarily due to efficiencies gained from the growing subscriber base. Service
revenues equal total revenues less merchandise sales.
Merchandise cost of sales increased to $3.4 million for the nine months
ended September 30, 1996 from $1.9 million for the nine months ended September
30, 1995, an increase of $1.5 million or 79.0%, which was primarily attributable
to the increased number of subscribers. The Company's margin (loss) from
merchandise sales was $2.1 million or 62% of merchandise costs for the nine
months ended September 30, 1996, and $924,179 or 48% for the nine months ended
September 30, 1995. The loss on merchandise sales is considered a cost of adding
net subscribers and, as such, is not deemed to have a material effect on the
Company's results of operations or financial condition. See the discussion of
sales and marketing costs below.
General and administrative costs increased to $7.1 million for the nine
months ended September 30, 1996 from $3.6 million for the nine months ended
September 30, 1995, an increase of $3.5 million or 97.2%. The increase was
largely attributable to the added costs associated with rapid expansion of the
Company's subscriber base. These costs represent salaries for an incremental
increase in the number of customer service representatives and increased costs
of service and collections. As a percentage of service revenues general and
administrative costs increased to 16.6% for the nine months ended September 30,
1996 from 13.8% for the nine months ended September 30, 1995. This increase
reflects the Company's commitment to quality customer service and the aggressive
promotion of its cellular service offset somewhat by economies of scale.
Sales and marketing costs increased to $5.4 million for the nine months
ended September 30, 1996 from $4.0 million for the nine months ended September
30, 1995, an increase of $1.4 million or 35.0%, which was primarily due to
subscriber additions. Sales and marketing costs per net subscriber added
(excluding equipment subsidy) increased to $433 for the nine months ended
September 30, 1996 from $387 for the nine
24
<PAGE> 27
months ended September 30, 1995. After giving effect to equipment subsidy, costs
per net subscriber added increased to $599 for the nine months ended September
30, 1996 from $476 for the nine months ended September 30, 1995, an increase
primarily attributable to added marketing costs in the acquired cellular
Systems, emphasizing the Company's aggressive marketing in newly acquired
Systems. The Company believes that, prior to its acquisition of these Systems,
past marketing efforts in the acquired Systems had been inadequate. The Company
does not expect this trend in costs per net subscriber to continue, as the
increase in the costs is attributable to bringing newly acquired markets up to
the Company's marketing standards. The increases in net cost per subscriber have
reduced results of operations below levels that would have been attained without
the increase; however, these decreases in operating results are not deemed to be
material.
Depreciation and amortization expense increased to $6.4 million for the
nine months ended September 30, 1996 from $3.9 million for the nine months ended
September 30, 1995. This $2.5 million or 64.1% increase was primarily
attributable to the expansion of the Company's cellular Systems, and to an
increase in gross cellular licensing costs and other assets to $82.9 million at
September 30, 1996 from $41.9 million at September 30, 1995.
OPERATING INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Operating income............................................ $5,462 $9,901
====== ======
</TABLE>
Total operating income increased to $9.9 million for the nine months ended
September 30, 1996 from $5.5 million for the nine months ended September 30,
1995. This increase of $4.4 million or 80.0% was due to increased revenues,
which exceeded increases in operating expenses.
OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Interest expense............................................ $(2,253) $(4,516)
Interest income............................................. 235 214
------- -------
Total other income (expense)...................... $(2,018) $(4,302)
======= =======
</TABLE>
Interest expense increased to $4.5 million for the nine months ended
September 30, 1996 from $2.3 million for the nine months ended September 30,
1995. The $2.2 million or 95.7% increase was primarily attributable to an
increase in borrowings, which increased to $95.7 million at September 30, 1996
from $50.1 million at September 30, 1995, to fund the Company's expansion and
capital expenditures, and was partially offset by a decrease in interest income
to $213,952 for the nine months ended September 30, 1996 from $234,771 for the
nine months ended September 30, 1995. The interest expense was further affected
by a decline in the weighted average interest rate to 8.27% at September 30,
1996 from 8.88% at September 30, 1995.
NET INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net income.................................................. $2,319 $3,751
====== ======
</TABLE>
25
<PAGE> 28
Net income increased to $3.8 million for the nine months ended September
30, 1996 from $2.3 million for the nine months ended September 30, 1995. This
$1.5 million or 65.2% increase was due to the changes described in the various
revenue and expense items which are primarily driven by the 58.7% increase in
subscribers. Net income was also impacted by income tax expense which increased
by $598,517 for the nine months ended September 30, 1996 over the same period in
1995. Income tax expense increased as a result of increased income, the effect
of state income taxes, and changes in the valuation allowance for deferred tax
assets caused primarily by changes in the net operating losses of MS 34, the
Company's 51% owned subsidiary.
EBITDA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
EBITDA...................................................... $9,316 $16,333
====== =======
</TABLE>
EBITDA improved to $16.3 million for the nine months ended September 30,
1996 from $9.3 million for the nine months ended September 30, 1995. The $7.0
million or 75.3% increase was primarily the result of increased revenues due to
the increased subscriber base and the related cost efficiencies. As a result,
EBITDA as a percentage of revenues increased to 37.2% for the nine months ended
September 30, 1996 from 34.9% for the nine months ended September 30, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company had 55,576 cellular subscribers at December 31, 1995, an
increase of 28,263 or 103.5% during 1995. At December 31, 1994, the Company had
27,313 subscribers, an increase of 11,371 or 71.3% during 1994. During 1995 and
1994, net subscribers added through cellular System acquisitions were
approximately 10,900 and 0, respectively. Excluding such acquired cellular
subscribers in 1995, the percentage of net cellular subscriber additions
increased by 63.7%.
REVENUES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Subscriber revenues......................................... $14,548 $28,802
Roaming revenues............................................ 6,603 8,909
Merchandise sales........................................... 1,002 1,404
Other revenue............................................... 400 137
------- -------
Total revenues.................................... $22,553 $39,252
======= =======
</TABLE>
Subscriber revenues increased to $28.8 million in 1995 from $14.5 million
in 1994. This $14.3 million or 98.6% increase was primarily due to the 103.5%
growth in the number of subscribers, including subscribers added in the
acquisition of the Kansas Cluster. Average monthly cellular subscriber revenue
per subscriber was $57.91 in 1995, compared to $56.05 in 1994. The Company
believes this increase in average monthly subscriber revenue per subscriber was
due to the higher subscriber revenue per subscriber in the Kansas Cluster.
Roaming revenues were $8.9 million in 1995 compared to $6.6 million in
1994, an increase of $2.3 million or 34.9%. Growth in the Company's roaming
revenues generally reflected increases in the Company's geographical coverage
and market penetration levels in adjacent markets and the cellular industry as a
whole. Roaming revenues as a percentage of total revenues declined to 22.7% in
1995 from 29.3% in 1994 as a result of the 98.6% growth in subscriber revenues,
which exceeded the 34.9% increase in roaming revenues.
26
<PAGE> 29
Merchandise sales, which consist primarily of cellular handset sales,
increased to $1.4 million in 1995 from $1.0 million in 1994. This $401,204 or
40.0% increase was primarily due to the increase in subscriber additions
partially offset by a decrease in the average handset sales price. The Company
anticipates continued growth in merchandise sales as a result of increases in
subscriber additions.
Other revenues which consist primarily of management, microwave and
voicemail operations, were $136,962 in 1995 compared to $400,257 in 1994. This
$263,295 or 65.8% decrease was primarily the result of the Company's sale of the
voicemail operations in 1994.
OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cost of service............................................. $ 7,445 $11,430
Merchandise cost of sales................................... 2,518 3,373
General and administrative.................................. 2,498 5,308
Sales and marketing......................................... 3,768 6,262
Depreciation and amortization............................... 2,892 5,686
------- -------
Total operating expenses.......................... $19,121 $32,059
======= =======
</TABLE>
Cost of service increased to $11.4 million in 1995 from $7.4 million in
1994, primarily as a result of the 103.5% increase in the number of subscribers
(including acquired subscribers) which resulted in increased costs to access
local exchange and long distance carrier facilities and maintain the Company's
expanding wireless network. While cost of service increased $4.0 million or
54.1% for the year, it decreased as a percentage of service revenues to 30.2% in
1995 from 35.2% in 1994, which was primarily due to efficiencies gained from the
growing subscriber base.
Merchandise cost of sales increased to $3.4 million in 1995 from $2.5
million in 1994, an increase of $854,826 or 34.0%, which was primarily
attributable to the increased number of subscriber additions.
General and administrative costs increased to $5.3 million in 1995 from
$2.5 million in 1994, an increase of $2.8 million or 112.0%. The increase was
primarily attributable to the added costs associated with supporting the
increased subscriber base. These costs represent salaries for an incremental
increase in the number of customer service representatives and increased costs
of service and collections. As a percentage of service revenues, general and
administrative costs increased to 14.0% for 1995 from 11.6% in 1994. This
increase reflects the Company's commitment to quality customer service and its
aggressive promotion of cellular service offset somewhat by economies of scale.
The increase in general and administrative support costs was directly driven by
the acquisition of the Kansas Cluster.
Sales and marketing costs increased to $6.3 million in 1995 from $3.8
million in 1994, an increase of $2.5 million or 65.8%, which was primarily due
to subscriber additions and an increase in start-up marketing costs in newly
acquired markets. Sales and marketing costs per net subscriber added (excluding
equipment subsidy) increased to $360 in 1995 from $332 in 1994. After giving
effect to equipment subsidy, costs per net subscriber added increased to $473 in
1995 from $465 in 1994.
Depreciation and amortization expense was $5.7 million in 1995 compared to
$2.9 in 1994. This $2.8 million or 96.6% increase was primarily attributable to
the expansion of the Company's cellular Systems (including Systems acquired) and
to an increase in gross cellular licensing costs and other assets to $42.1
million at December 31, 1995 from $13.1 million at December 31, 1994.
27
<PAGE> 30
OPERATING INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Operating income............................................ $3,432 $7,193
====== ======
</TABLE>
Total operating income increased to $7.2 million in 1995 from $3.4 million
in 1994, an increase of $3.8 million or 111.8% due to increased revenues, which
exceeded increases in operating expenses.
OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1995
------ -------
(IN THOUSANDS)
<S> <C> <C>
Interest expense............................................ $ (790) $(3,401)
Interest income............................................. 160 336
Gain (loss) on sale of assets............................... 25 (32)
------ -------
Total other income (expense)...................... $ (605) $(3,097)
====== =======
</TABLE>
Interest expense increased to $3.4 million in 1995 from $789,856 in 1994.
The $2.6 million or 330.5% increase was primarily attributable to an increase in
borrowings, which increased to $52.1 million at December 31, 1995 from $13.7
million at December 31, 1994, to fund the Company's expansion and capital
expenditures, and was partially offset by an increase in interest income to
$336,253 in 1995 from $160,405 in 1994. The interest expense was further
affected by an increase in the weighted average interest rate to 8.73% in 1995
from 8.51% in 1994.
NET INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net income.................................................. $1,750 $2,603
====== ======
</TABLE>
Net income increased to $2.6 million in 1995 from $1.8 million in 1994.
This $853,355 or 48.8% increase was due to the changes described in the various
revenue and expense items which are primarily driven by the 103.5% increase in
the number of subscribers. Net income was also impacted by income tax expense
which increased by $376,745 in 1995. Income tax expense increased as a result of
increased income, the effect of state income taxes, and changes in the valuation
allowance for deferred tax assets caused primarily by changes in the net
operating losses of the Company's 51% owned subsidiary.
EBITDA
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1995
------ -------
(IN THOUSANDS)
<S> <C> <C>
EBITDA...................................................... $6,324 $12,879
====== =======
</TABLE>
EBITDA improved to $12.9 million in 1995 from $6.3 million in 1994. The
$6.6 million or 104.8% increase was primarily the result of increased revenues
due to the increased subscriber base and the related cost efficiencies. As a
result, EBITDA as a percentage of revenues increased to 32.8% in 1995 from 28.0%
in 1994.
28
<PAGE> 31
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
The Company had 27,313 cellular subscribers at December 31, 1994, an
increase of 11,371 or 71.3% during 1994. At December 31, 1993, the Company had
15,942 subscribers, an increase of 7,037 or 79.0% during 1993. During 1994 and
1993, there were no subscribers added through cellular System acquisitions.
REVENUES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Subscriber revenues......................................... $ 9,059 $14,548
Roaming revenues............................................ 4,085 6,603
Merchandise sales........................................... 541 1,002
Other revenue............................................... 661 400
------- -------
Total revenues.................................... $14,346 $22,553
======= =======
</TABLE>
Subscriber revenues increased to $14.6 million in 1994 from $9.1 million in
1993. This $5.5 million or 60.4% increase was primarily due to the 71.3% growth
in the number of subscribers. Average monthly cellular subscriber revenue per
subscriber was $56.05 in 1994, compared to $60.77 in 1993. This 7.8% decrease
was a result of price decreases implemented by the Company to build the
subscriber base and stimulate cellular usage.
Roaming revenues were $6.6 million in 1994 compared to $4.1 million in
1993, an increase of $2.5 million or 61.0%. Growth in the Company's roaming
revenues generally reflects increases in the Company's geographical coverage and
market penetration levels in adjacent markets and the cellular industry as a
whole. Roaming revenues as a percentage of total revenues increased to 29.3% in
1994 from 28.5% in 1993 as a result of significant increases in cell site
additions, primarily in newly acquired markets. These acquisitions resulted in
added geographic coverage and the addition and modification of several roaming
agreements.
Merchandise sales, which consist primarily of cellular handset sales,
increased to $1.0 million in 1994 from $540,961 in 1993. This $461,260 or 85.2%
increase was primarily due to the increase in subscriber additions partially
offset by a decrease in the average handset sales price. The Company anticipates
continued growth in merchandise sales as a result of increases in subscriber
additions.
Other revenue, which consists primarily of revenue from microwave and
voicemail operations, was $400,257 in 1994 compared to $661,369 in 1993. This
$261,112 or 39.5% decrease was primarily the result of the Company's decision to
focus on cellular telephone operations and to decrease voicemail operations,
primarily non-cellular related voicemail.
OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cost of service............................................. $ 4,513 $ 7,445
Merchandise cost of sales................................... 720 2,518
General and administrative.................................. 1,692 2,498
Sales and marketing......................................... 2,736 3,768
Depreciation and amortization............................... 2,037 2,892
------- -------
Total operating expenses.......................... $11,698 $19,121
======= =======
</TABLE>
Cost of service increased to $7.4 million in 1994 from $4.5 million in
1993. This increase was primarily a result of the 71.3% increase in the number
of subscribers which resulted in increased costs to access local exchange and
long distance carrier facilities and maintain the Company's expanding wireless
network. This
29
<PAGE> 32
represented an increase of $2.9 million or 64.4% for the year, and 35.2% and
34.3% of service revenues for 1994 and 1993, respectively. This increase was
principally attributable to start-up costs associated with the Mississippi
Cluster.
Merchandise cost of sales increased to $2.5 million in 1994 from $719,884
in 1993, an increase of $1.8 million or 249.7%, which was primarily attributable
to the increased number of subscribers.
General and administrative costs increased to $2.5 million in 1994 from
$1.7 million in 1993, an increase of $806,131 or 47.4%, which was primarily
attributable to the increase in the costs associated with supporting the
increased subscriber base. However, as a percentage of service revenues general
and administrative costs decreased to 11.8% in 1994 from 12.9% in 1993,
reflecting certain economies of scale.
Sales and marketing costs increased to $3.8 million in 1994 from $2.7
million in 1993, an increase of $1.1 million or 40.7% which was primarily due to
subscriber additions and an increase in start-up marketing costs in newly
acquired markets. Sales and marketing costs per net subscriber added (excluding
equipment subsidy) decreased to $331 in 1994 from $389 in 1993, a decrease
primarily attributable to improved efficiencies. After giving effect to
equipment subsidy, the costs per net subscriber added increased to $465 in 1994
from $414 in 1993.
Depreciation and amortization expense was $2.9 million in 1994 compared to
$2.0 million in 1993. This $855,580 or 42.0% increase was primarily attributable
to the expansion of the Company's cellular Systems and to an increase in gross
cellular licensing costs and other assets to $13.1 million at December 31, 1994
from $12.1 million at December 31, 1993.
OPERATING INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1993 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Operating income............................................ $2,648 $3,432
====== ======
</TABLE>
Total operating income increased to $3.4 million in 1994 from $2.6 million
in 1993, an increase of $783,581 or 29.6% due to increased revenues, which
exceeded increases in operating expenses.
OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1993 1994
----- -----
(IN THOUSANDS)
<S> <C> <C>
Interest expense............................................ $(177) $(790)
Interest income............................................. 270 160
Gain on sale of assets...................................... 10 25
----- -----
Total other income (expense)...................... $ 103 $(605)
===== =====
</TABLE>
30
<PAGE> 33
Interest expense increased to $789,856 in 1994 from $177,472 in 1993. The
$612,384 or 345.1% increase was primarily attributable to an increase in
borrowings, which increased to $13.7 million at December 31, 1994 from $7.7
million at December 31, 1993, to fund the Company's expansion and capital
expenditures, partially offset by a decrease in interest income to $160,405 in
1994 from $269,548 in 1993. The interest expense was further affected by an
increase in the weighted average interest rate to 8.51% in 1994 from 5.85% in
1993.
NET INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1993 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net income.................................................. $1,909 $1,750
====== ======
</TABLE>
Net income decreased to $1.8 million in 1994 from $1.9 million in 1993.
This $158,847 or 8.4% decrease was due to the changes described in the various
revenue and expense items which were primarily driven by the 71.3% increase in
subscribers and related costs of borrowing to finance buildout. Net income was
also impacted by income tax expense, which increased by $597,464 in 1994. Income
tax expense increased as a result of increased income, the effect of state
income taxes, and changes in the valuation allowance for deferred tax assets
caused primarily by changes in the net operating losses of the Company's 51%
owned subsidiary.
EBITDA
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1993 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
EBITDA...................................................... $4,685 $6,324
====== ======
</TABLE>
EBITDA improved to $6.3 million in 1994 from $4.7 million in 1993. The $1.6
million or 34.0% increase was primarily the result of increased revenues due to
the increased subscriber base and the related cost efficiencies. However, EBITDA
as a percentage of revenues decreased to 28.0% in 1994 from 32.7% in 1993. This
was primarily the result of initial start-up operating costs in the newly
acquired markets that had no existing subscriber base.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes the proceeds from this Offering, together with
anticipated cash flows from operations, will be sufficient to fund capital
expenditures and working capital necessary for the continued growth of its
existing cellular operations for the next 12 months. In the ordinary course of
its business, the Company reviews potential acquisition opportunities and
expects to finance such future acquisitions in part with proceeds from this
Offering. Pending such uses, the proceeds will be applied to reduce existing
bank debt incurred to finance recent acquisitions. The Company currently
anticipates that, depending on the availability of favorable acquisition
opportunities and the rate of growth of the Company's cellular operations, it
may require funds in excess of the proceeds of this Offering to finance such
future acquisitions, to expand operations in existing markets, and to provide
working capital.
Historically, the Company has relied on bank financing to fund expansion.
At September 30, 1996, the Company had $95.7 million of debt outstanding. The
Company's long-term borrowings from 1994 through September 30, 1996 were made
through various credit facilities bearing various rates of interest at both
fixed and variable terms ranging from 5.45% to 10.50%, with maturity dates
ranging from December 20, 2002 to December 20, 2003. These facilities are
non-revolving loan agreements under which the Company had borrowed $100.3
million, and at September 30, 1996 approximately $2.1 million remained available
for borrowing under these credit facilities.
31
<PAGE> 34
The Company has initiated discussions with commercial lenders to secure a
credit facility to be available for future acquisition opportunities or other
working capital needs. Based on such discussions, the Company believes that such
a facility would provide for additional borrowings of up to approximately $70.0
million after applying an estimated $6.9 million of the proceeds from this
Offering to repay a portion of existing debt. See "Use of Proceeds."
Net cash provided by operations was $8.9 million for the nine months ended
September 30, 1996, consisting of $3.8 million of net income, $6.4 million of
depreciation and amortization and other adjustments consisting primarily of
changes in current assets and current liabilities. Net cash provided by
operations was $6.7 million in 1995 consisting of $2.6 million of net income,
$5.7 million of depreciation and amortization and other adjustments consisting
primarily of changes in current assets and current liabilities. Net cash
provided by operating activities was $1.6 million and $7.5 million in 1994 and
1993, respectively.
Net cash used in investing activities was $48.9 million for the nine months
ended September 30, 1996, which consisted primarily of capital expenditures for
property and equipment of $3.6 million and the acquisition of cellular
properties of $45.6 million. Net cash used in investing activities was $45.1
million in 1995, which consisted primarily of capital expenditures for property
and equipment of $5.9 million, the acquisition of cellular properties of $35.1
million and investments in unconsolidated subsidiaries of $4.9 million. Net cash
used in investing activities was $5.2 million and $17.2 million in 1994 and
1993, respectively.
Net cash provided by financing activities was $43.3 million for the nine
months ended September 30, 1996, which consisted primarily of additions to
long-term debt of $46.0 million for the acquisition of cellular properties. Net
cash provided by financing activities was $38.1 million in 1995, which consisted
primarily of additions to long-term debt of $40.3 million for the acquisition of
cellular properties. Net cash provided by financing activities was $5.8 million
and $6.5 million in 1994 and 1993, respectively.
The Company estimates that it invested approximately $5.0 million during
the remainder of 1996 and will invest approximately $22.0 million in 1997 for
existing cellular System and capacity expansion and centralized infrastructure
improvements. The Company may be required to make expenditures sooner than
anticipated or in greater amounts than expected based on a number of variables,
including increased subscriber growth, increased losses resulting from
merchandise sales and increased construction costs associated with expanding
coverage areas.
In November and December 1996, the Company entered into agreements to
acquire from seven minority shareholders 49% of the capital stock of MS 34, a
corporation that holds the licenses covering the Mississippi-3 and Mississippi-4
RSAs. The Company presently owns the remaining 51% of the stock. Consummation of
the acquisition is contingent upon, among other things, the successful
completion of this Offering.
In addition, the Company is obligated to fund up to approximately $13.0
million of capital to the PCS Partnership as part of the license acquisition
costs and other working capital needs. The Company funded $2.9 million of this
obligation as of September 30, 1996. The PCS Partnership is subject to the FCC
build-out requirements and will therefore require significant additional amounts
to complete the build-out of its PCS systems. The potential sources of such
additional amounts include vendor loans, loans or capital contributions by the
various partners, or other third party financing. There are no current
agreements or plans with respect thereto. The PCS Partnership has obtained a
commitment from the Rural Telephone Finance Cooperative for $59.0 million of
financing for capital expenditures under which the Company would be required to
guarantee repayment of up to $6.2 million. There can be no assurance that the
build-out of the PCS markets will not cost materially more than is currently
anticipated, or that financing will be available at all or in the absence of
additional guarantees by the Company and other partners. To the extent that the
Company is required to make capital contributions to the PCS Partnership faster
than expected, the capital requirements are greater than anticipated or the
Company elects to take advantage of acquisition opportunities, including those
that may arise through future FCC auctions, the Company may require additional
funding to implement its business strategy.
Mobility bid $9.5 million for the D, E and F-block licenses, of which $2.8
million will be paid as a down payment for the licenses from the $4.0 million
investment that the Company and Cameron have made in Mobility. The federal
government will finance the remaining $6.7 million of license acquisition cost
with a 10-year debt facility. Mobility has not yet developed a plan of financing
for the build-out of the PCS Systems.
32
<PAGE> 35
There can be no assurance that financing for the build-out will be available or
that such financing, if obtained, will not require guarantees or additional
capital contributions by the Company.
Based upon additional financing arrangements under negotiation, and
anticipated cash flows from operations, the Company believes that it will have
sufficient liquidity to accomplish its business objectives. Core business growth
is anticipated to increase the overall borrowing capacity of the Company beyond
current levels, and the Company believes that potential future acquisitions will
increase the capacity even further. The Company also believes that it will be
able to achieve more favorable financing terms after this Offering and that
these more favorable terms will further increase its financing capacity and its
liquidity.
SEASONALITY
The Company, and the wireless communications industry in general, have
historically experienced significant subscriber growth during the fourth
calendar quarter. Accordingly, during such quarter the Company experiences
greater losses on merchandise sales and increases in sales and marketing
expenses. The Company has historically experienced highest usage and revenue per
subscriber during the summer months. The Company expects these trends to
continue.
33
<PAGE> 36
BUSINESS
The Company owns and operates cellular communications systems in 14 RSAs
and one MSA which together have 1.4 million Net Pops. These markets consist
primarily of four clusters that are located in Louisiana, Mississippi, Alabama
and Kansas. In its Louisiana Cluster, the Company markets under the MERCURY
CELLULAR AND PAGING(TM) trade name and in its other clusters under the
CELLULARONE(R) service mark. As of September 30, 1996, the Company served
approximately 77,000 cellular subscribers through cellular Systems covering more
than 72,000 square miles, and served over 14,000 paging subscribers by providing
paging services in its Louisiana market and by reselling such services in
certain other markets. The Company owns a 24 1/3% limited partnership interest
in the PCS Partnership, which, as the successful bidder in the FCC auction, has
been granted five licenses for broadband PCS that cover five BTAs with an
aggregate population of 1.8 million Pops. These PCS markets, together with the
Louisiana Cluster cellular market, are expected to create a large seamless
market traversed by I-10 between Houston and New Orleans. The Company also owns
a 50% interest in Mobility, which was the high bidder for 22 broadband PCS
licenses that cover 22 BTAs with an aggregate of 4.9 million Pops in areas
contiguous to the Company's existing markets. See "PCS Operations."
The Company was incorporated in Louisiana as Mercury, Inc. on March 3, 1967
to conduct telecommunications activities that complemented the local landline
telephone service of an affiliated corporation. See "Certain
Transactions -- Tax-Free Restructuring" for information concerning transactions
in which the Company recently acquired the wireless communications operations of
Cameron Communications Corporation ("Cameron"), an affiliate of the Company
through common control. The principal wholly-owned operating subsidiaries of the
Company are Mercury Cellular Telephone Company ("MCTC"), which owns the licenses
covering the Louisiana Cluster, and Mississippi One Cellular Telephone Company,
which owns the licenses covering the Mississippi-1 RSA and the Alabama-3 and
Alabama-4 RSAs. MCTC, in turn, owns 100% of the stock of Mercury Cellular of
Kansas, Inc. (which owns the licenses covering the Kansas Cluster), a 25%
limited partnership interest in GTE Mobilnet of Texas RSA 21 Limited Partnership
(which owns the licenses covering the Texas-21 RSA), a 24.33% interest in the
PCS Partnership and a 50% interest in Mobility. In addition, the Company owns
51% of the capital stock of MS 34 (which owns the licenses covering the
Mississippi-3 and Mississippi-4 RSAs) and has entered into agreements to acquire
the remaining 49% of the capital stock. See "Use of Proceeds." The Company's
principal affiliates through common control include Cameron, a landline
telephone holding company, and Mercury Information Technologies, Inc., a
technology services company ("MIT").
On September 19, 1996, the Company, Cameron and their respective
wholly-owned subsidiaries entered into an Agreement and Plan of Reorganization,
pursuant to which on October 31, 1996 (i) Cameron transferred all of its assets,
except its 96% interest in MCTC, to Newco, a new wholly-owned subsidiary of
Cameron, (ii) 100% of the stock of Newco was distributed to Cameron's
shareholders, and (iii) Cameron was merged into the Company. Thereafter, Newco
changed its name to "Cameron Communications Corporation." See "Certain
Transactions -- Tax-Free Restructuring."
The Henning family, whose members incorporated the Company and Cameron and
have always been their principal shareholders, has been involved in the
communications industry since W. T. Henning founded a landline telephone company
in 1928 in southwest Louisiana, where it still operates. The Henning family
became involved in the wireless communications industry with the introduction of
paging services in 1980 and cellular services in 1987.
The principal executive offices of the Company are located at One Lakeshore
Drive, Suite 1900, Lake Charles, Louisiana 70629, and its telephone number is
(318) 436-9000.
BUSINESS STRATEGY
GROWTH STRATEGY
The Company believes that the wireless communications industry will
continue to grow as enhanced services are offered at lower prices and as
customer awareness of the productivity, convenience and security
34
<PAGE> 37
benefits associated with wireless communications increases. The Company believes
it is well positioned to take advantage of this growth opportunity. The
Company's growth strategy focuses on the following: (i) internal growth through
increased penetration in the Company's existing markets; (ii) acquisition of
licenses contiguous to the Company's existing market clusters; (iii) acquisition
of new market clusters; and (iv) acquisition of PCS licenses to expand and
complement its wireless network. In addition, the Company believes that by
geographically clustering service areas it can best offer high quality service
at competitive prices with larger, seamless service networks.
OPERATING STRATEGY
Upon acquiring a cellular System, the Company's objective has been to
increase operating cash flow through the following practices:
Dedication to Customer Service. The Company trains its sales force and
customer service representatives in the Company's philosophy that long-term
customer service and satisfaction are critical to the Company's success.
The Company strives to minimize customer churn by maintaining a high level
of customer satisfaction through a variety of techniques, including tying
sales commissions to subscriber retention, outbound telemarketing to
subscribers on a regular basis, maintaining extended live customer service
operation hours, a quarterly customer newsletter and active post-sale
follow-ups for new customers. In addition, the Company provides to
subscribers in most of its markets free roadside assistance services that
include gas, a battery jump-start and tire changing assistance.
Aggressive Marketing of Cellular Service. The Company uses aggressive
marketing and customer maintenance programs to increase subscriber
activations and reduce customer churn. These programs include offering
distinctive local and roaming rate plans to emphasize the "value" and
"advantage" of the Company's cellular service, launching targeted
advertising campaigns which emphasize quality and value, and taking an
active role in community, government and charity organizations. Many of
these programs are designed to distinguish the Company's cellular service
as the "local" quality service provider by stressing local offices, local
sales personnel, the availability of local customer service and the
Company's commitment to the community. Each major market cluster of the
Company is under the responsibility of a local marketing manager.
Management believes that positioning its cellular service as the local
quality service often contrasts favorably with its larger competitors,
which frequently standardize service plans, do not provide local
availability of customer service and use third party billing vendors,
making it more difficult for these competitors to be as responsive to
customer needs.
System Engineering to Increase Signal Coverage. Where practical, the
Company strives to "fill in" the Cellular Geographic Service Area ("CGSA")
within its markets by adding network facilities to increase the coverage of
its radio signal. The Company monitors the signal coverage and selectively
seeks to add additional radio channels and/or cell sites to upgrade the
capacity and reach of the cellular signal, the ultimate goal being to
provide handheld quality network coverage. In addition, the Company has
local technicians and engineers in its markets to maintain the quality of
the local service network and to respond promptly to any System problems.
Strong Retail and Direct Sales Effort. A key element of the Company's
positioning in its markets is the use of 22 local retail stores. A local
direct sales force provides the Company with more control over the sales
process, especially in meeting subscriber growth goals, than if it were to
rely only on independent agents. Although the Company selectively includes
independent agents in its distribution strategy, management believes that
the Company's local presence enhances its ability to provide a higher level
of quality customer service and satisfaction. In addition, in 1995 the
Company began a program that uses Company sales personnel in independent
retail establishments, such as Wal-Mart and Sam's Club, as distribution
channels.
Centralized Upper Management and Backoffice Operations. For those
operations that are common to all markets, the Company takes advantage of
economies of scale by centralizing all the upper management and backoffice
operations at its corporate headquarters. This includes the upper
management for sales, marketing, engineering, customer service, credit and
collection and financial functions. By
35
<PAGE> 38
combining decentralized sales management with the centralized upper
management and backoffice functions, the Company can simultaneously take
advantage of the economies of scale while offering custom service through
the decentralized sales management and sales force.
MARKETS AND SYSTEMS
Cellular Markets
The Company's cellular markets are grouped geographically and strategically
into four clusters, known as the Louisiana, Mississippi, Alabama and Kansas
Clusters. The following table summarizes certain information concerning the
Company's cellular markets.
<TABLE>
<CAPTION>
INTERSTATE
& OTHER % OF HH
TOTAL COMPANY WIRELINE OR HIGHWAY WITH EBI> DATE OF
MARKET POPS OWNERSHIP% NET POPS NON-WIRELINE MILES $35K(A) ACQUISITION
------ ---------- ---------- --------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Louisiana Cluster
Lake Charles, LA MSA.... 174,000 100.0% 174,000 WL 102 46.0% Aug. 1987(b)
De Soto, LA-3 B1(c)..... 59,000 100.0 59,000 WL 115 28.1 Apr. 1991(b)
Beauregard, LA-5
B1(c)................. 142,000 100.0 142,000 WL 175 30.6 Mar. 1991(b)
--------- --------- -----
Total Louisiana....... 375,000 375,000 392
--------- --------- -----
Mississippi Cluster
Tunica, MS-1............ 170,000 100.0 170,000 NWL 69 28.4 Apr. 1993
Bolivar, MS-3(d)........ 156,000 100.0 156,000 NWL 66 25.7 Apr. 1993
Yalobusha, MS-4(d)...... 127,000 100.0 127,000 NWL 62 31.5 Apr. 1993
Washington, MS-5(e)..... 160,000 -- -- NWL 76 33.2 Jan. 1994
--------- --------- -----
Total Mississippi..... 613,000 453,000 273
--------- --------- -----
Alabama Cluster
Lamar, AL-3............. 136,000 100.0 136,000 NWL 70 30.5 May 1996
Bibb, AL-4.............. 138,000 100.0 138,000 NWL 66 29.5 Jul. 1996
--------- --------- -----
Total Alabama......... 274,000 274,000 136
--------- --------- -----
Kansas Cluster
Cheyenne, KS-1.......... 27,000 100.0 27,000 NWL 84 32.2 Apr. 1995
Norton, KS-2............ 30,000 100.0 30,000 NWL 0 27.9 Apr. 1995
Wallace, KS-6........... 20,000 100.0 20,000 NWL 39 37.2 Apr. 1995
Trego, KS-7............. 78,000 100.0 78,000 NWL 112 37.1 Apr. 1995
Hamilton, KS-11......... 85,000 100.0 85,000 NWL 17 44.8 Apr. 1995
Hodgeman, KS-12......... 42,000 100.0 42,000 NWL 12 40.1 Apr. 1995
Edwards, KS-13.......... 28,000 100.0 28,000 NWL 6 33.3 Apr. 1995
Cimarron, OK-1(e)....... 24,000 -- -- NWL 7 34.9 Apr. 1995
--------- --------- -----
Total Kansas.......... 334,000 310,000 277
--------- --------- -----
Minority Interest
Chambers, TX-21(f)...... 21,000 25.0 5,300 WL 34 50.4 Apr. 1993
--------- --------- -----
TOTAL................. 1,617,000 1,417,300 1,112
========= ========= =====
</TABLE>
- ---------------
(a) The percentage of households (HH) with effective buying income (EBI) greater
than $35,000 is based on Kagan's Cellular Telephone Atlas 1995. Effective
buying income is comparable to disposable after-tax income.
(b) The Company was the original licensee in these markets.
(c) These are partitioned cellular markets.
(d) These RSAs are licensed to a corporation in which the Company currently owns
a 51% interest. The Company has entered into agreements to acquire the
remaining 49% interest. The acquisition is contingent upon, among other
things, the successful completion of this Offering. See "Use of Proceeds."
(e) The Mississippi-5 RSA and Oklahoma-1 RSA are operated under interim
authority granted by the FCC pending auction of the licenses by the FCC. The
number of Company subscribers in these RSAs is insignificant.
(f) The Texas-21 RSA is owned by a partnership in which the Company owns a 25%
interest and in which GTE Mobilnet, which operates the System, owns a 75%
interest.
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<PAGE> 39
Louisiana Cluster
The Company's cellular operations began in August 1987 with the Lake
Charles, LA MSA, which the Company acquired in the FCC cellular lottery. The
Louisiana Cluster includes 174,000 Net Pops in the Lake Charles, LA MSA, 59,000
Net Pops in the Louisiana-3 RSA and 142,000 Net Pops in the Louisiana-5 RSA.
This cluster comprises more than 6,000 square miles and uses 21 cell sites,
which effectively cover 100% of the total geographic area. An additional five
cell sites are expected to be added by the end of 1997 to upgrade handheld
service. An upgrade to the cellular System in this cluster during 1995 included
the addition of digital channels. This upgrade enhanced System capacity,
provided a new marketing avenue for digital service and prepared the cluster to
complement the planned PCS Systems in which the Company has an interest through
the PCS Partnership. See "Markets and Systems -- PCS Markets." All licenses in
the Louisiana Cluster are in the "wireline band" (see "Governmental
Regulation -- Licensing of Cellular Telephone Systems") and are therefore
commonly referred to as wireline cellular licenses.
Although the Louisiana Cluster is comprised of a mid-sized MSA and parts of
two RSAs, the Company manages the cluster as if it were one market with both
urban and suburban features. The Louisiana Cluster is traversed by I-10, which
is a major source of roaming revenues. Lake Charles is the seat of parish
government for Calcasieu Parish, one of the larger parishes in Louisiana.
Several major petrochemical refineries are located in this market area, one of
which recently announced an $860 million expansion of its Lake Charles facility.
I-10 is a heavily traveled artery for many commuting employees, vendors and
contractors who conduct business with these entities. The Port of Lake Charles,
located at the edge of Lake Charles on the Calcasieu River (which opens into the
Gulf of Mexico), is a major bulk cargo port which handles cargo generated by the
local petrochemical facilities. Other major industries for the area include
lumber and agricultural related businesses that are heavy users of cellular
service. There are four riverboat casinos based in Lake Charles that use
cellular service for communications and data transmission. These casinos attract
customers from the surrounding area, including east Texas, and thereby generate
significant traffic which provides roaming revenues to the Company.
Additionally, a large facility of Northrop-Grumman, a major U.S. government
contractor, and McNeese State University are located in Lake Charles.
The Company's cellular service in the Louisiana Cluster is marketed under
the trade name MERCURY CELLULAR AND PAGING(TM). The Company's principal cellular
competitors in these markets are Western Cellular in the Lake Charles, LA MSA
and Centennial Cellular in the Louisiana-3 and -5 RSAs. Each of these
competitors uses the CELLULARONE(R) service mark.
Mississippi Cluster
In April 1993, the Company acquired the Mississippi-1 RSA and a 51%
interest in MS 34 which holds the licenses to operate the Mississippi-3 and
Mississippi-4 RSAs. In November and December 1996, the Company entered into
agreements with David Bailey, Wirt A. Yerger, III, Robert G. Mounger, William M.
Mounger, III, William Handell, III, E.B. Martin, Jr. and James A. Murrell, III
to purchase for $11.6 million their respective shares of common stock of MS 34.
These shares represent the remaining 49% interest in the corporation. The
consummation of the transaction is contingent upon, among other things, the
successful completion of this Offering. The Company manages for MS 34 the
design, construction and installation of the control point, base station and
business office sites, and the daily operations of the cellular System, for
which the Company is paid a monthly management fee and is reimbursed for its
capital costs and expenses. The Mississippi Cluster has 613,000 Pops, of which
453,000 are Net Pops. This cluster covers more than 11,000 square miles and uses
22 cell sites (with five additional sites expected to become operational by the
end of 1997), all of which can be upgraded to provide digital service. The
Mississippi Cluster is located just south of Memphis, Tennessee and north of
Jackson, Mississippi. All licenses in the Mississippi Cluster are in the
"non-wireline band" (see "Governmental Regulation -- Licensing of Cellular
Telephone Systems") and are therefore referred to as non-wireline cellular
licenses.
The Company earns substantial roaming revenues in the Tunica, Mississippi-1
RSA market, which has 170,000 Net Pops and is directly adjacent to the Memphis,
TN MSA. Some of this revenue results from traffic attributable to the several
casinos located near Tunica. Much of the roaming traffic in the RSA is along
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<PAGE> 40
U.S. Highway 61 and Interstate Highway 55, both of which run north and south
from Memphis and continue south through Mississippi to Baton Rouge, Louisiana.
The Bolivar, Mississippi-3 RSA market services 156,000 Net Pops and covers
over 4,200 square miles. Two of the larger towns in this RSA are Greenwood and
Indianola. A number of colleges, including Mississippi State University,
Mississippi University for Women, Delta State University, the University of
Mississippi and Mississippi Valley State University, are located within 100
miles of this market. Each city and town is easily accessible to Greenwood and
surrounding towns via U.S. Highways 82 and 49, as well as Mississippi Highway 7.
The Yalobusha, Mississippi-4 RSA market is located next to the
Mississippi-3 RSA and has 127,000 Net Pops. The town of Grenada is the principal
community in this RSA. Area economic resources include timber and manufacturing.
The Company's cellular service in the Mississippi Cluster is marketed under
the CELLULARONE(R) service mark. Its principal cellular competitors in these
markets are BellSouth Mobility Services and Cellular South.
Alabama Cluster
The Company acquired the Alabama-3 RSA in May 1996 and acquired the
Alabama-4 RSA in July 1996. The Alabama Cluster covers more than 10,000 square
miles and uses 20 cell sites. An additional seven cell sites are expected to be
added by the end of 1997. The Company operates non-wireline cellular licenses in
this cluster, which has 274,000 Pops, all of which are Net Pops.
The Alabama Cluster is located along the western border of Alabama, and the
northern tip of the Alabama-3 RSA is directly adjacent to the Mississippi-4 RSA.
This cluster borders the Tuscaloosa, Birmingham and Montgomery, AL MSAs.
The Lamar, Alabama-3 RSA market is positioned along Alabama's western
border and serves 136,000 Net Pops. Interstate Highways 20 and 59, as well as
U.S. Highways 43 and 82, traverse the RSA en route to Tuscaloosa and Birmingham.
Traffic to and from Tuscaloosa, which is the site of the University of Alabama
and is less than 50 miles from the Alabama-3 RSA border, is a major source of
roaming revenue. Demopolis, which has two 130-acre industrial parks, is the
largest city in the RSA and is located on U.S. Highway 80.
The Bibb, Alabama-4 RSA market is adjacent to the Alabama-3 RSA and serves
138,000 Net Pops. Located less than 100 miles from Birmingham and Montgomery,
this RSA has 66 interstate and other highway miles. The major industries of
Alabama-3 include cattle, timber, cotton, milk and grain. The city of Selma, an
industrial community, is the hub of the RSA.
The Company's cellular service in this cluster is marketed under the
CELLULARONE(R) service mark. The Company's principal cellular competitors in
these markets are BellSouth Mobility Services in the Alabama-3 RSA and Frontier
Cellular in the Alabama-4 RSA.
Kansas Cluster
The Company acquired the Kansas Cluster in April 1995. This market has
334,000 Pops, of which 310,000 are Net Pops. It covers more than 45,000 square
miles and uses 30 cell sites. An additional seven cell sites are expected to be
added by the end of 1997. The Company operates the non-wireline cellular
licenses in this cluster.
The Kansas Cluster covers the entire western half of the State of Kansas
and has several U.S. highways running through it. Interstate Highway 70 extends
westward to connect the markets to Denver, Colorado and extends eastward to the
Topeka, KS and Kansas City, MO MSAs. While this market is relatively thinly
populated, it has features that are indicative of high cellular usage including
a concentration of small businesses and farms, longer commute times and well
traveled roads. The Kansas Cluster includes 277 interstate and other highway
miles. Major industries include oil and gas drilling, cattle and agriculture.
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<PAGE> 41
The Company's cellular service in the Kansas Cluster is marketed under the
CELLULARONE(R) service mark. The Company's principal cellular competitor in each
of these markets is Kansas Cellular, a consortium of rural telephone companies.
Paging Markets
The Company owns and operates its own paging network within the Louisiana
Cluster with paging licenses in the 158.10 and 152.84 MHz range. It
cross-markets paging and cellular services in this market. Paging is also
marketed in Beaumont, Texas and parts of the Mississippi Cluster through a
resale agreement with other providers.
The Louisiana paging license was acquired in 1980 and currently covers a
population of approximately 868,000 persons. The Company began marketing paging
in the Beaumont market, which has a population of approximately 369,000 persons,
in July 1995. As of September 30, 1996, the Company had over 14,000 paging
subscribers. In December 1994 and April 1995 the Company entered into agreements
to provide regional and nationwide paging services to the Company's paging
subscribers.
PCS Markets
The Company owns a 24 1/3% limited partnership interest in the PCS
Partnership, which has been granted five broadband PCS licenses in the FCC's
C-block auction, for a total of $61.2 million. These PCS markets offer a
strategic fit to the Company's existing cellular markets in the Louisiana
Cluster, with which they create a large seamless market cluster that covers the
areas along I-10 between Houston and New Orleans. The table below summarizes
certain information concerning these PCS markets:
<TABLE>
<CAPTION>
INTERSTATE
& OTHER % OF HH
COMPANY HIGHWAY WITH EBI>
MARKET TOTAL POPS OWNERSHIP% NET POPS MILES $35K(A)
------ ---------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Baton Rouge, LA BTA #032........... 659,000 24.33% 160,000 369 48.1%
Beaumont, TX BTA #034.............. 450,000 24.33 109,000 293 41.9
Hammond, LA BTA #180............... 99,000 24.33 24,000 153 34.4
Lafayette, LA BTA #236............. 514,000 24.33 125,000 343 35.7
Lufkin, TX BTA #265................ 151,000 24.33 37,000 70 36.1
--------- ------- -----
TOTAL.................... 1,873,000 455,000 1,228
========= ======= =====
</TABLE>
- ---------------
(a) The percent of households (HH) with effective buying income (EBI) greater
than $35,000 is based on The 1995 PCS Atlas and Data Book. Effective buying
income is comparable to disposable after-tax income.
The PCS competitors in these markets will include Wireless Co. and PCS
PrimeCo. The PCS operations will also compete with cellular operators in these
markets such as AT&T Wireless Services, ALLTEL, BellSouth Mobility Services,
Centennial Cellular, GTE and US Cellular, among others.
The general partner of the PCS Partnership has contracted with the Company
to manage the design, construction and daily operations of the Lafayette,
Beaumont and Lufkin BTAs, for which the Company is paid a monthly management fee
and is reimbursed for its expenses. The general partner of the PCS Partnership
is Wireless Management Corporation, a Louisiana corporation owned in equal
proportions by Fort Bend Communications, Inc., a subsidiary of Fort Bend
Telephone Company, RBS Communications, Inc., a subsidiary of EATELCORP, Inc. and
MIT, an affiliate of the Company. The limited partners in the PCS Partnership,
in addition to the Company, are EATELCORP, Inc., a Louisiana corporation, Fort
Bend Telephone Company, a Texas corporation, and Meretel Wireless, Inc., a
Louisiana corporation. Each of the limited partners is a telecommunications
company engaged in landline and cellular operations in markets outside of the
Company's markets.
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<PAGE> 42
The Company owns a 50% interest in Mobility, which was the high bidder on
22 broadband PCS licenses in the FCC's recent D, E and F-block auction. The
licenses, which have not yet been granted, cover 4.9 million Pops in 22 BTAs
that are contiguous to the Company's wireless network. The table below
summarizes certain information concerning these PCS markets.
<TABLE>
<CAPTION>
NUMBER OF COMPANY
STATE BTAS TOTAL POPS OWNERSHIP% NET POPS
----- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Louisiana............................... 4 1,464,000 50.0% 732,000
Texas................................... 3 658,000 50.0 329,000
Mississippi............................. 3 547,000 50.0 273,500
Alabama................................. 1 250,000 50.0 125,000
Arkansas................................ 2 261,000 50.0 130,500
Kansas.................................. 7 1,378,000 50.0 689,000
Oklahoma................................ 1 49,000 50.0 24,500
Colorado................................ 1 282,000 50.0 141,000
-- --------- ---------
TOTAL......................... 22 4,889,000 2,444,500
== ========= =========
</TABLE>
The PCS competitors in these markets will include Sprint Telecom JV, AT&T
Wireless PCS, PCS PrimeCo. and GTE, among others. The PCS operations will also
compete in these markets with cellular operators such as Centennial Cellular, US
Cellular, AT&T Wireless Services, BellSouth Mobility Services and GTE, among
others.
Mobility is a limited liability company in which the Company and Cameron
each own a 50% interest. See "Certain Transactions." The Company has been
designated as the manager of Mobility and is currently negotiating with Cameron
the terms under which the Company will manage the design, construction and daily
operations of Mobility's PCS Systems.
CELLULAR AND PAGING OPERATIONS
Marketing
The Company's marketing strategy for its cellular and paging operations is
designed to generate continued net subscriber growth, while simultaneously
maintaining low subscriber addition costs. For the nine months ended September
30, 1996, the Company's average net cost to add a net cellular subscriber was
$599 (including an equipment subsidy of $166). The Company seeks to achieve
lower subscriber addition costs by using an in-house sales and marketing staff
and retail outlets and by maintaining a low churn rate relative to industry
averages.
In training and compensating its sales force, the Company emphasizes the
importance of customer service, high penetration levels and minimum costs per
subscriber. The Company's sales staff has a two-tier structure. A retail sales
force handles walk-in traffic, whereas a targeted sales staff solicits certain
industrial, governmental and other potential subscribers. The Company believes
that its internal sales force is better able than independent agents to select
and screen new subscribers and select pricing plans that match subscriber means
and needs. The Company motivates its direct sales force to sell appropriate rate
plans to subscribers by linking payment of commissions to subscriber retention,
thereby reducing churn. While the Company selectively uses independent agents,
it places internal sales personnel in the more highly visible and critical
market areas. The Company compensates the independent agents similarly, by
linking the agents' compensation to customer retention and lower churn. The
Company believes that this mix of internal sales personnel and independent
agents increases the Company's market presence and distribution capacity,
minimizes churn and maximizes customer retention and long-term subscriber
growth. In 1995, the Company implemented a retail distribution program that uses
independent retail establishments, such as Wal-Mart and Sam's Club, as
distribution channels. Under this program the retailer supplies cellular
telephones and accessories which are sold by the Company's sales personnel from
a kiosk at the retail location. The retailer retains the full purchase price of
the equipment sold, and the Company benefits by enrolling the purchaser as a new
subscriber. In each
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<PAGE> 43
of the last two years, subscriber additions attributed to the program accounted
for less than 4% of total net subscriber additions for the period.
"Mercury Monitor" is a program that seeks to ensure each customer is
enrolled in the most appropriate service program for his or her usage. This
program is implemented through the Company's sales force, customer service
personnel and a special division called Customer Care which is primarily
responsible for the program. Mercury Monitor not only enhances customer loyalty,
which reduces churn, but also provides an after-sale survey of how well the
sales force and customer service personnel performed in meeting the subscriber's
needs. This allows the Company to continually monitor and improve the various
sales and customer programs. In addition, the program promotes sales and
customer referrals and makes subscribers aware of additional calling features,
such as voicemail related services, call waiting and call forwarding.
The Company's sales force works principally out of the Company's retail
stores, in which the Company offers a full line of cellular products and
services. The Company operates 22 retail stores, 21 of which are fully equipped
to handle sales, customer service and telephone maintenance, and one of which
handles only paging sales and service. Certain of these stores are also
authorized warranty repair centers. The Company's stores provide
subscriber-friendly retail environments (large selection, an expert sales staff
and convenient locations) which make the sales process quick and easy for the
subscriber.
Products and Services
In addition to providing high-quality cellular telephone service in each of
its markets, the Company also offers, at no additional charge, various custom
calling features such as call forwarding, call waiting, conference calling and
no-answer transfer. Additionally, voice message storage and retrieval services
are offered without additional charge in the Kansas Cluster and at nominal rates
in the other clusters. The Company also sells cellular and paging equipment at
discount prices as an incentive to attract customers.
In July 1996, the Company introduced in the Louisiana Cluster, and intends
to make available in its other cellular markets, a service that allows a
cellular subscriber to combine all of his or her telephone numbers (home,
business, cellular and pager) into a single number. Subscribers can instruct the
service to reach them at more than one telephone number or location at different
times of the day or to continue calling other locations until the subscriber is
located. This state-of-the-art technology gives someone calling a cellular
subscriber the option to leave a message or to remain on hold while the system
outdials predetermined phone numbers. When the system reaches the subscriber,
the subscriber has the option of immediately connecting to the caller to begin a
conversation or to connect the caller to the voice mailbox and listen while the
caller leaves a message. The Company is currently evaluating voice dialing and
intends to implement it when it becomes feasible.
Several rate plans are presented to subscribers so that each can choose the
plan that will best fit his or her expected calling needs. The Company designs
rate plans on a market-by-market basis, unlike some of its competitors that
offer only standardized rate plans. The Company's local sales market managers
also initiate ideas for new rate plans depending upon local market and
competitive conditions. Generally, rate plans consist of a high user plan, a
medium user plan, a basic plan and an economy plan. Most rate plans combine a
fixed monthly access fee, per minute usage charges and custom-calling features
in a package which is intended to provide value to the customer while enhancing
airtime use and revenues for the Company. In general, rate plans which include a
higher monthly access fee typically include a lower usage rate per minute. In
some markets, statewide long distance calling without additional long distance
charges is offered under certain rate plans. The Company conducts an on-going
review of competitors' equipment, service and pricing to maintain the Company's
competitiveness. Revisions to pricing of service plans and equipment are made as
appropriate to conditions in the local marketplace.
In most of its markets, the Company offers an emergency roadside assistance
service that is available on a 24-hour basis without additional charge to
cellular subscribers. This service, which the subscriber accesses by pressing
"*SOS," provides three gallons of gasoline, a battery jump-start and tire
changing assistance.
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<PAGE> 44
Reciprocal agreements between each of the Company's cellular Systems and
the cellular Systems of other operators allow their respective subscribers to
place calls in most cellular service areas throughout the country. Roamers are
charged usage fees which are generally higher than a given cellular System's
regular usage fees, thereby resulting in a higher profit margin. Roaming revenue
is a substantial source of revenue to the Company because a number of its
cellular Systems are located along major travel corridors and because certain of
the Company's Systems are in early stages of their growth cycle. The Company
subscribes to "net settlement" services through its roaming clearing house
arrangements. Net settlement provides for electronic exchange of funds between
carriers for roaming services and is administered through the clearing house and
a designated financial institution. This arrangement reduces the cost of billing
and collecting for these services.
Customer Service
Customer service is an essential element of the Company's marketing and
operating philosophy. The Company is committed to attracting new subscribers and
retaining existing subscribers by providing consistently high-quality customer
service both through its central office and in the local markets. In each of its
cellular service areas the Company maintains a local staff, including a sales
market manager, customer service representatives, technical staff, sales
representatives and installation and repair personnel. Each cellular service
area initiates its own customer-related functions such as credit evaluation,
subscriber activation, account adjustments and rate plan changes. Through the
use of sophisticated monitoring equipment, engineering technicians are able to
monitor the technical performance of the cellular service areas and respond
promptly to any need.
The Company's customers are able to report cellular telephone service or
account problems to a local office representative. The subscriber can also speak
with a customer service representative about technical issues or problems from
7:00 a.m. to 7:00 p.m. at the main customer service center located at the
corporate offices. In addition, the Company has a technical representative on
call 24 hours per day to respond to emergency subscriber needs. Whereas most
competitors either strictly centralize or decentralize customer service
functions, the Company has structured its customer service both ways to meet the
particular needs of any subscriber at any given time.
System Development and Expansion
The Company develops its cellular service areas by adding channels to
existing cell sites and by building new cell sites. Such development is designed
to increase capacity and improve coverage in direct response to projected
subscriber demand, which is calculated for each cellular service area on a
cell-by-cell basis. These projections involve a traffic analysis of usage by
existing subscribers and an estimation of the number of additional subscribers
in each service area. In calculating projected subscriber demand, the Company
builds into its design assumptions a maximum call "blockage" rate of 1%
(percentage of calls that are not connected on the first attempt at peak usage
times during the day). After calculating projected subscriber demand, the
Company determines the most cost-efficient manner of meeting the projected
demand through a combination of augmenting channel capacity in existing cell
sites and building new cell sites.
The table below sets forth, by market, as of the dates indicated, the
number of the Company's operational and planned additional cell sites.
<TABLE>
<CAPTION>
CELL SITES
-----------------------------------------
ADDITIONAL SITES
PLANNED BY
MARKETS AT DECEMBER 31, 1996 DECEMBER 31, 1997
------- --------------------- -----------------
<S> <C> <C>
Louisiana Cluster.................................. 21 5
Mississippi Cluster................................ 22 5
Alabama Cluster.................................... 20 7
Kansas Cluster..................................... 30 7
</TABLE>
Cell site expansion is expected to enable the Company to provide better
quality handheld coverage, continue to add subscribers, enhance use of the
Systems by existing subscribers, increase roamer traffic due to
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<PAGE> 45
the larger geographic area covered and further enhance the overall efficiency of
the network. The Company believes that the increased cellular coverage will have
a positive impact on market penetration and subscriber usage.
The Company continues to evaluate expansion through acquisitions of other
cellular and PCS properties that will further enhance its network. In evaluating
acquisition targets, the Company considers, among other things, demographic
factors, including population size and density, traffic patterns, cell site
coverage and required capital expenditures. In the ordinary course of its
business, the Company analyzes acquisition opportunities as they come to its
attention. In November and December 1996 the Company entered into agreements to
acquire from seven minority shareholders the remaining 49% interest in the
subsidiary which owns the cellular licenses covering Mississippi-3 and
Mississippi-4 RSAs. The consummation of the acquisition is contingent on the
successful completion of this Offering. See "Markets and Systems -- Mississippi
Cluster" and "Markets and Systems -- System Development and Expansion."
PCS OPERATIONS
General
As the successful bidder in the FCC's C-block auction, the PCS Partnership
has been awarded five PCS licenses covering 1.8 million Pops in five BTAs. These
PCS markets, once they become operational, and the Company's Louisiana Cluster
cellular market are expected to create a large seamless market along I-10
between Houston and New Orleans. Each of these BTA markets is presently in the
design and engineering stage. The Company also owns a 50% interest in Mercury
Mobility, L.L.C. ("Mobility"), which was the high bidder for 22 broadband PCS
licenses that cover 22 BTAs with an aggregate of 4.9 million Pops in areas
contiguous to the Company's existing markets.
PCS is a new generation of wireless communications, offering customers
advanced, secure, two-way digital wireless services and applications. Services
that permit sophisticated call management, enhanced two-way messaging and,
eventually, high-speed data and video transmission, will enable customers to
better manage personal and business needs. The Company believes that the
introduction of PCS into the wireless market will stimulate demand for wireless
communications services, attract customers who are not currently subscribers to
wireless service and increase usage by current wireless customers. PCS will
compete with existing cellular telephone service, and will provide features not
currently offered by cellular providers.
Auction Process
The PCS Partnership participated in the C-block auction as a Small
Business, as defined by FCC rules, and the Company believes that the PCS
Partnership has satisfied all requirements necessary to qualify as a Small
Business, and it will continue to take any actions needed to maintain such
status. Nonetheless, if the PCS Partnership is found by the FCC to be ineligible
or otherwise disqualified from holding C-block PCS licenses, the FCC could
impose substantial financial and regulatory penalties on it, including the
refusal to grant PCS licenses.
Mobility participated in the FCC's D, E and F-block auction, which ended on
January 14, 1997 and was the high bidder for 22 broadband licenses covering 4.9
million Pops in 22 BTAs contiguous to the Company's existing markets. Mobility
participated in the F-block auction as an entrepreneur and the Company believes
that Mobility has satisfied all requirements necessary to qualify as an
entrepreneur. These licenses have not been granted, and there can be no
assurance that, if they are granted, the grants will not be withdrawn upon
reconsideration by the FCC or upon review by a court of competent jurisdiction.
Planned PCS Strategy
At present, PCS operators are free to choose from among several competing
digital signal transmission technologies, or standards, that are not
interoperable. These different technologies are known as GSM, CDMA and TDMA.
None of these competing technologies has yet emerged as dominant among PCS
systems. The PCS Partnership has recently entered into an agreement with Lucent
Technologies, Inc. to
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provide the PCS Partnership with PCS infrastructure, including switches and
handsets that use CDMA. Mobility has not selected a digital signal transmission
technology. There can be no certainty that CDMA will become the, or even a,
dominant technology in the United States. If CDMA does not become the dominant
standard or is not able to compete successfully with other PCS technologies, the
PCS Partnership could be deprived of revenues from PCS customers who roam into
the PCS Partnership's markets and could lose PCS customers who become
dissatisfied because they are unable to roam outside the PCS Partnership's
markets. See "Risk Factors -- Certain PCS Risks." However, the Company believes
that these technological impediments to the ability of subscribers to a PCS
System to roam into cellular Systems or other PCS Systems will be resolved and
that the ultimate economic effect of PCS will be to increase from two to eight
the number of potential competitors in a given market. The Company perceives
this as an opportunity for it to enter additional markets that otherwise may not
have been available to it at attractive prices and to take advantage in those
markets of the Company's experience in wireless communications obtained through
the operation of its cellular Systems.
The PCS Partnership's existing markets are contiguous to the Company's
Louisiana Cluster, thereby creating a substantially larger overall wireless
cluster that stretches along I-10 between Houston and New Orleans. This corridor
has historically high traffic density that generates substantial roaming
traffic. The Company intends to provide its cellular subscribers and the PCS
Partnership's subscribers with the ability to roam seamlessly throughout the
Company's Louisiana Cluster and the PCS Partnership's markets as soon as
technically feasible at a reasonable cost. Each of the BTAs in the PCS
Partnership's market has many positive attributes as a stand-alone market.
According to The 1995 PCS Atlas and Data Book, each BTA has a central
metropolitan area with concentrated population densities. Each market is
expected to continue enjoying population growth over the next few years and each
has high interstate or other highway traffic volume.
In addition, the markets covered by the licenses for which Mobility was the
high bidder in the recently completed FCC auction are contiguous to the
Company's existing cellular clusters in Louisiana, Mississippi, Alabama and
Kansas. If the licenses are ultimately granted, the addition of these PCS
markets will expand and complement the Company's wireless network.
Financing
The PCS Partnership's overall financing plan involves three sources. First,
the federal government will finance the license acquisition cost of $61.2
million with a 10-year debt facility under which only interest, at the 10-year
U.S. Treasury Note rate, is paid for the first six years and principal is
amortized in equal installments over the last four years. Second, the partners
have committed to make capital contributions of up to a total of $42.0 million,
of which the Company has committed to contribute up to $13.0 million (of which
$2.9 million has been contributed to date), for working capital requirements.
Finally, the equipment and infrastructure build-out will require external
financing estimated at $69.0 million. The PCS Partnership has obtained a
financing commitment from the Rural Telephone Finance Cooperative for $59.0
million under which the Company will guarantee repayment of up to $6.2 million.
There can be no assurance that the build-out of the PCS markets will not cost
materially more than is currently anticipated, or that additional financing, if
necessary, will be available at all in the absence of additional guarantees by
the Company and other partners.
Mobility bid $9.5 million for certain D, E and F-block licenses, of which
$2.8 million will be paid as a down payment from the investment of $4.0 million
that the Company and Cameron have made in Mobility. The federal government will
finance the remaining $6.7 million of license acquisition cost with a 10-year
debt facility under which only interest, at the 10-year U.S. Treasury Note rate
plus 2.5%, is paid for the first year and principal is amortized in equal
installments over the last nine years. Mobility has not yet developed a plan of
financing for the build-out of the PCS Systems. There can be no assurance that
financing for the build-out will be available or that such financing, if
obtained, will not require guarantees or additional capital contributions by the
Company.
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TRADE NAME; SERVICE MARK
In its Louisiana Cluster the Company uses the trade name MERCURY CELLULAR
AND PAGING(TM) and in its other clusters uses the CELLULARONE(R) service mark.
The Company has no federal service mark registration of MERCURY CELLULAR AND
PAGING(TM) and, while it has not encountered any conflict with the use of that
name in Louisiana, it cannot be certain that such a conflict will not arise or
that such name could be used in other markets if desired.
CELLULARONE(R) is a service mark registered with the United States Patent
and Trademark Office. The service mark is owned by CellularOne(R) Group, a
Delaware general partnership comprised of CellularOne(R) Marketing, Inc., a
subsidiary of Southwestern Bell Mobile Systems, together with CellularOne(R)
Development, Inc., a subsidiary of AT&T Wireless Services, Inc. and Vanguard
Cellular Systems, Inc. The Company uses the CELLULARONE(R) service mark pursuant
to its licensing agreement with CellularOne(R) Group. The licensing agreement
requires the Company to provide high quality cellular telephone service to its
customers and to maintain a certain minimum overall customer satisfaction rating
in surveys commissioned by CellularOne(R) Group. The agreement has an original
five-year term expiring in April 1998 and, assuming compliance by the Company
with the provisions of the agreement, may be renewed at the Company's option for
three additional five-year terms.
AT&T Wireless, which had been the single largest user of the CELLULARONE(R)
service mark, has reduced its use of the mark. If for some reason the name
CELLULARONE(R) were to suffer diminished marketing appeal, the Company's ability
both to attract new subscribers and retain existing subscribers could be
materially impaired. In such circumstances or otherwise, the Company may be
required to develop a new service mark. Competitors of the Company possess, and
others may develop over time, branding with significantly greater name
recognition than that of the Company. A failure by the Company to maintain
existing rights to its current cellular branding or to develop suitable
alternatives thereto would have a material adverse effect on the Company's
ability to market its products and services and could require the Company to
invest significant additional funds to develop such alternatives.
EMPLOYEES AND LABOR RELATIONS
The Company considers its labor relations to be good, and none of its
employees is covered by a collective bargaining agreement. As of September 30,
1996, the Company employed a total of 250 persons.
PROPERTIES
The Company leases approximately 40,000 square feet for its principal
executive offices, which are located in Lake Charles, Louisiana. The Company
owns two and leases 20 retail sales locations, which include administrative
offices and inventory storage space, and leases locations for microwave, cell
site and switching equipment.
LEGAL PROCEEDINGS
There are no material, pending legal proceedings to which the Company or
any of its subsidiaries or affiliates is a party or of which any of their
property is subject which, if adversely decided, would have a material adverse
effect on the Company. For information concerning certain legal proceedings
relating to FCC license grants, see "Risk Factors -- Certain PCS Risks,"
"Governmental Regulation" and "-- PCS Operations -- Auction Process."
CERTAIN RESTRICTIONS
A Shareholders' Agreement between the Company and the minority shareholders
of MS 34 restricts transfers of shares, provides certain rights of first refusal
if shares are transferred and requires the affirmative vote of holders of 65% of
the shares to approve any business combination, any extension by the Company of
cellular telephone coverage from its Mississippi-1 RSA System into MS 34's
markets, any transaction between the subsidiary and the Company (or any other
shareholder of MS 34) and any financing of the
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<PAGE> 48
subsidiary exceeding $10.0 million. The Shareholders' Agreement will terminate
upon consummation of the Company's expected acquisition of the shareholders'
minority interests. See "Markets and Systems -- Mississippi Cluster."
The partnership agreement of the PCS Partnership provides that during the
term of the partnership, which expires December 31, 2015, and for two years
thereafter, no partner or its affiliates will compete (or own more than a 1%
interest in any entity that competes) with the PCS Partnership in the geographic
areas covered by the licenses acquired by the PCS Partnership in the C-block
auction. These provisions are expressly made applicable to any entity that
acquires a partner, but the acquiring entity is given 12 months within which to
dispose of any of its operations that violate the noncompetition provision. The
effect of this provision may be to make the Company a less attractive candidate
for acquisition by any entity with operations that would violate the
noncompetition provision. The partnership agreement further provides that
partnership interests may not be transferred without the consent of the general
partner and a majority of the limited partnership interests. Finally, although
the partners, including the Company, are required to make capital contributions
up to specified amounts, none is required without its express consent to bear
any other financial risk of the PCS Partnership such as providing or acting as a
guarantor for the PCS Partnership's financing. See "-- PCS Operations -- Planned
PCS Strategy; Financing."
THE CELLULAR TELEPHONE INDUSTRY
Overview
Cellular telephone service is provided by a wireless communications System
that uses radio frequencies to transmit voice and data. Broadly defined, the
wireless communications industry also includes one-way radio applications, such
as paging or beeper services, and two-way radio applications, such as cellular,
PCS and enhanced specialized mobile radio ("ESMR"). Historically, each
application has been licensed and operates in a distinct radio frequency block.
Introduced in 1983, cellular service is the predominant form of wireless
voice communications service currently available, with two cellular providers in
each market. Operating in a portion of the radio spectrum from 830-870 MHz,
cellular service is capable of providing high quality, high capacity service to
and from mobile, portable and stationary telephones. Cellular handsets are
affordable and easy to use. Fully equipped, multi-cell cellular Systems are
capable of handling thousands of calls at any given time and thus are capable of
providing service to hundreds of thousands of subscribers in a given market.
Over the past decade, cellular service has grown dramatically with over 33.8
million cellular subscribers in the United States as of December 31, 1995. The
following table sets forth certain domestic cellular industry statistics derived
from the Data Survey Results published semi-annually by the Cellular Telephone
Industry Association:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
CELLULAR INDUSTRY STATISTICS
Total Service Revenues (in billions)................... $ 5.8 $ 7.8 $10.9 $14.2 $19.0
Ending Cellular Subscribers (in millions).............. 7.6 11.0 16.0 24.1 33.8
Subscriber Growth...................................... 43.0% 46.0% 45.1% 50.8% 40.0%
Average Monthly Service Revenue per Subscriber......... $74.10 $70.13 $67.13 $59.08 $54.90
Average Monthly Subscriber Revenue per Subscriber...... $64.96 $61.40 $58.74 $51.48 $47.59
Ending Penetration..................................... 3.0% 4.4% 6.2% 9.4% 13.0%
</TABLE>
These statistics represent results for the cellular industry in the United
States as a whole. Average Monthly Service Revenue per Subscriber reflects per
subscriber revenue including roaming revenue, and Average Monthly Subscriber
Revenue per Subscriber reflects per subscriber revenue excluding roaming
revenue. In general, rural markets, where the Company concentrates its cellular
operations, were licensed later by the FCC than urban markets and, consequently,
have a shorter operating history. The Company has operated cellular Systems
since 1987. While the Company's cellular subscriber base is growing more rapidly
than the industry average, the Company's level of penetration is lower than the
overall industry average.
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The Company believes that certain demographic characteristics of rural
markets facilitate commercial use of its cellular network. As compared to urban
residents, rural residents generally travel greater distances by personal
vehicle and have access to fewer public telephones along their routes. In
addition, the Company's cellular service area includes a high percentage of
business customers with substantial needs for wireless communications, such as
those employed in agriculture and oil and gas, and also includes numerous
destinations for outdoor recreational activities, such as boating, fishing and
hunting, which often increase cellular usage. The Company believes that these
factors will sustain demand for wireless communication services in the rural
marketplace.
Roaming revenues are generated by subscribers of other cellular carriers
traveling through the Company's cellular service area. Reciprocal agreements
among cellular System operators allow subscribers to place and receive calls in
most cellular service areas throughout the country. Roaming revenues result in
higher margins because roaming calls are usually priced at higher rates than
local calls and the Company does not incur sales commissions or other costs to
attract roaming customers.
Operation of Cellular Systems
Cellular telephone service is capable of providing high quality, high
capacity service to and from mobile, portable and fixed radio telephones.
Cellular telephone technology is based upon the division of a given market area
into a number of regions, or "cells," which in most cases are contiguous. Each
cell contains a low-power transmitter-receiver at a "base station" or "cell
site" that communicates by radio signal with cellular telephones located in the
cell. A cell generally has a radius ranging from two miles to more than 25
miles. Cell boundaries are determined by the strength of the signal emitted by
the cell's transmitter-receiver. Each cell site is connected to a MTSO (mobile
telephone switching office), which, in turn, is connected to the local landline
telephone network.
When a cellular subscriber in a particular cell enters a number, the
cellular telephone sends the call by radio signal to the cell's
transmitter-receiver, which then sends it to the MTSO. The MTSO completes the
call by connecting it with the landline telephone network or another cellular
telephone unit. Incoming calls are received by the MTSO, which instructs the
appropriate cell to complete the communications link by radio signal between the
cell's transmitter-receiver and the cellular telephone. By leaving the cellular
telephone on, a signal is emitted so the MTSO can sense in which cell the
cellular telephone is located. The MTSO also records information on system usage
and subscriber statistics.
FCC rules require that all cellular telephones be functionally compatible
with cellular telephone Systems in all markets within the United States and with
all frequencies allocated for cellular use, so that a cellular telephone may be
used wherever a subscriber is located, subject to appropriate arrangements for
service charges. Changes to cellular telephone numbers or other technical
adjustments to cellular telephones by the manufacturer or local cellular
telephone service businesses may be required, however, to enable the subscriber
to change from one cellular service provider to another within a service area.
Because cellular telephone Systems are fully interconnected with the
landline telephone network and long distance networks, subscribers can receive
and originate both local and long distance calls from their cellular telephones.
Cellular telephone Systems operate under interconnection agreements with various
local exchange carriers and interexchange carriers. The interconnection
agreements establish the manner in which the cellular telephone System
integrates with other telecommunications systems. By law, the cellular operator
and the local landline telephone company must cooperate in the interconnection
between the cellular and landline telephone systems, to permit cellular
subscribers to call landline subscribers and vice versa. The technical and
financial details of such interconnection arrangements are subject to
negotiation and vary from system to system. On August 8, 1996, the FCC
promulgated new regulations governing the interconnection of wireless and
landline systems. If these regulations survive pending legal challenges
substantially as enacted, they may ultimately lower the interconnection rates to
be paid by the Company and increase interconnection revenues paid to the
Company.
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THE PCS INDUSTRY
Overview
PCS is a term commonly used in the United States to describe a portion of
radio spectrum (1850-1990 MHz) that has been divided by the FCC into six blocks
(blocks A-F) to be used by PCS licensees to provide wireless communications
services. The first portions of PCS spectrum (the A, B and C-blocks, each 30
MHz) have been auctioned by the FCC as of May 1996, and licenses have been
granted for operating in the A, B and C-blocks. The second portions of the PCS
spectrum (the D, E and F-blocks, each 10 MHz) have been auctioned by the FCC as
of January 14, 1997. Licenses have not been granted for operating in these
blocks. PCS will initially compete directly with existing cellular telephone,
paging and specialized mobile radio services. PCS will also include features
which are not currently offered by cellular providers, such as data
transmissions to and from portable computers, advanced paging services and
facsimile services. The Company believes that PCS providers will be the first
direct wireless competitors to cellular providers and the first to offer mass
market all-digital mobile networks that will increase security of communications
and capacity. In addition, PCS providers may be the first to offer mass market
wireless local loop applications, in competition with wired local communications
services. See "-- Government Regulation" for a discussion of the FCC auction
process and allocation of wireless licenses.
Operation of PCS Systems
PCS Systems and cellular Systems use similar technologies and hardware (for
example, PCS Systems use the same type of "cell site" architecture), but operate
on different frequencies and may use different technical and network standards.
As a result, as discussed further below, it initially may not be possible for
users of one type of System to "roam" on a different type of System outside of
their service area, or to hand off calls from one type of System to another.
This is also true for PCS subscribers seeking to roam in a PCS service area
served by operators using different technical standards.
PCS Systems are expected to operate under one of three principal digital
signal transmission technologies, or standards, that have been proposed by
various operators and vendors for use in PCS Systems: GSM, CDMA or TDMA, all
three of which are currently incompatible with each other. Accordingly, at the
present time a subscriber of a system that uses one technology will be unable to
use his handset when traveling in an area not served by PCS operators using the
same technology, unless the subscriber carries a dual-band handset that permits
the subscriber to use the cellular system in that area. Such dual-band handsets
are just becoming available and are expected to be more expensive than
single-band handsets. The Company expects that it will begin offering dual-band
handsets to its customers when the reliability of such handsets has been
satisfactorily demonstrated and when they are available at affordable prices or
competitive factors warrant their introduction. The Company cannot predict when
these events will occur.
COMPETITION; NEW TECHNOLOGY
Competition in the wireless communications industry is intense. Competition
for subscribers among wireless licensees is based primarily upon the services
and features offered, the technical quality of the wireless system, customer
service, system coverage, capacity and price. Such competition may increase to
the extent that licenses are transferred from smaller, stand-alone operators to
large, better capitalized and more experienced wireless communications
operators.
In each of its cellular markets the Company has one cellular competitor,
including BellSouth, Centennial Cellular, Frontier Cellular, Kansas Cellular and
Western Cellular, and will face new competition from up to six PCS licensees in
each of its cellular markets. The PCS Partnership's principal competitors in its
PCS markets are Wireless Co. and PCS PrimeCo, which will provide PCS services,
and the existing cellular providers, which include AT&T Wireless, GTE, US
Cellular and others. Mobility's principal competitors in its PCS markets are
Sprint Telecom JV, AT&T Wireless PCS, PCS PrimeCo. and GTE, among others, which
will provide PCS services, and the existing cellular providers, which include
Centennial Cellular, US Cellular, AT&T Wireless Services, BellSouth Mobility
Services and GTE, among others. The Company also competes with paging and
dispatch companies, resellers and landline telephone service providers.
Potential
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<PAGE> 51
users of cellular systems may, however, find their communications needs
satisfied by other current and developing technologies. One- or two-way paging
or beeper services that feature voice messaging and data display as well as tone
only service may be adequate for potential subscribers who do not need to speak
to the caller. In the future, cellular service may also compete more directly
with traditional landline telephone service providers. See "Risk
Factors -- Competition."
The FCC requires all commercial wireless System operators to provide
service to "resellers" on non-discriminatory terms. A reseller provides cellular
service to customers but does not hold an FCC license or own infrastructure
facilities. Instead, the reseller buys blocks of cellular telephone numbers and
capacity (minutes) from a licensed carrier and resells service through its own
distribution network to the public. Thus, a reseller is both a customer of a
cellular licensee's services and also a competitor of that licensee. Several
small resellers currently operate in competition with the Company's Systems.
The PCS businesses of Mobility and the PCS Partnership will directly
compete in each market with up to five other PCS providers and with the two
existing cellular service providers. Such cellular providers have typically been
operational for a number of years. Many of them and many of the PCS providers
have significantly greater financial and technical resources than those
available to the Company, the PCS Partnership or Mobility. Cellular providers
may upgrade their systems to provide comparable services in competition with the
PCS Partnership's PCS Systems. The Company believes that being first to offer
PCS services in a market will be a key competitive advantage. The PCS
Partnership's goal is to achieve significant market penetration by aggressively
marketing competitively priced PCS services, offering enhanced services not
currently provided by analog or digital cellular operators and providing
superior customer service. In addition, the Company believes that the PCS
Partnership and Mobility can become low-cost providers of PCS services by taking
advantage, in those BTAs in which the Company will manage PCS operations, of the
existing business infrastructure established for the Company's cellular
operations, including management, marketing, billing and customer service
functions, and by emphasizing efficient customer acquisition and retention.
The cost of PCS handsets to the PCS Partnership and Mobility initially will
be higher than the Company's cost of cellular handsets. In order to compete
effectively with sellers of analog cellular handsets, the PCS Partnership and
Mobility may have to subsidize the sale of its PCS handsets to a greater extent
than sales of cellular handsets are typically subsidized.
The Company expects that it, the PCS Partnership and Mobility will face
increased competition from entities providing other communications technologies
and services. While some of these technologies and services are currently
operating, others are being developed or may be developed in the future. See
"Risk Factors -- Competition."
The FCC has licensed SMR dispatch System operators to construct "enhanced
specialized mobile radio" digital mobile communications systems on existing SMR
frequencies, referred to as ESMR, in many areas throughout the United States,
including most of the areas in which the Company operates. As a result of
advances in digital technology, ESMR operators have begun to design and deploy
digital mobile networks that increase the frequency capacity of ESMR systems to
a level that may be competitive with that of wireless systems. A limited number
of ESMR operators have recently begun offering short messaging, data services
and interconnected voice telephone services on a limited basis. Several ESMR
licensees have recently announced their intention to merge into one company and
plan to build and operate digital mobile networks in most major United States
markets.
The FCC has also allocated radio channels to a satellite system in which
transmissions from mobile units to satellites may augment or replace
transmissions to cellular or PCS cell sites. Several companies have announced
plans to design, construct, deploy and operate satellite-based
telecommunications systems worldwide. American Mobile Satellite Corporation has
designed a geosynchronous earth orbit satellite system for communications
services, which has recently begun providing voice services. Several low earth
orbit ("LEO") satellite systems have been proposed that would use multiple
satellites to provide worldwide coverage. The first LEO system is proposed for
service in 1998. In addition, others have applied to the FCC for licenses to
operate satellite communications and video transmission systems in the 28 GHz Ka
band. The
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<PAGE> 52
Company does not currently view such systems as direct competitors, and in some
cases, such systems may complement the Company's service offerings.
Continuing technological advances in communications and FCC policies that
encourage the development of new spectrum-based technologies may result in new
technologies that compete with cellular and PCS systems. In addition, the
Omnibus Budget Reconciliation Act of 1993 requires, among other things, the
allocation to commercial use of a portion of 200 MHz of the spectrum currently
reserved for government use. It is expected that some portion of the spectrum
that is reallocated will be used to create new land-mobile services or to expand
existing land-mobile services.
GOVERNMENTAL REGULATION
The FCC regulates the licensing, construction, operation, acquisition and
sale of cellular and PCS Systems in the United States pursuant to the
Communications Act of 1934, as amended from time to time, and the rules,
regulations and policies promulgated by the FCC thereunder (the "Communications
Act"). The Communications Act governs applications to construct and operate
cellular and PCS Systems, licensing and administrative appeals and technical
standards for the provision of cellular and PCS service. The FCC also regulates
coordination of proposed frequency usage, height and power of base station
transmitting facilities and types of signals emitted by such stations. In
addition, the FCC regulates (or forbears from regulating) certain aspects of the
business operations of cellular and PCS Systems.
Licensing of Cellular Telephone Systems
For cellular licensing purposes, the FCC established 734 discrete
geographically defined market areas comprising 306 MSAs and 428 RSAs. In each
market area, the FCC awarded only two cellular licenses authorizing the use of
radio frequencies for cellular telephone service. The allocated cellular
frequencies were divided into two equal 25 MHz blocks. One block of frequencies
(known as the "wireline band") and the associated operating license were
initially reserved for exclusive use by entities owned and controlled by local
landline telephone companies or their affiliates. The second block of
frequencies (known as the "non-wireline band") initially was reserved for use by
entities that did not provide landline telephone service in the market area.
Upon the issuance of a construction permit, either wireline or nonwireline, such
construction permit could be sold to any qualified buyer, regardless of its
affiliation with a landline telephone company. The FCC generally prohibits a
single entity from holding an interest in both the wireline and the nonwireline
licensee in the same market.
Cellular authorizations are issued generally for a 10-year term beginning
on the date of the grant of the initial construction permit. Under FCC rules,
the authorized service area of a cellular provider in each of its markets is
referred to as the CGSA. A cellular licensee has the exclusive right to serve
the entire area that falls within the licensee's MSA or RSA for a period of five
years after the grant of the licensee's construction permit.
At the end of the five-year period, however, the licensee's exclusive CGSA
rights become limited to the area actually served by the licensee as of that
time, as determined pursuant to a formula adopted by the FCC. After the
five-year period any entity may apply to serve portions of the MSA or RSA not
being served by the licensee. The five-year exclusivity period has expired for
most licensees and parties have filed unserved area applications. After the
five-year exclusive period has expired, any entity may apply to serve any
unserved area of the market that comprises at least 50 contiguous square miles
outside of the licensee's CGSA.
Near the conclusion of the 10-year license term, licensees must file
applications with the FCC for renewal of their licenses. The FCC has established
rules and procedures to process cellular renewal applications filed by existing
carriers and the competing applications filed by renewal challengers. The
renewal proceeding is a two-step hearing process. The first step of the hearing
process is to determine whether the existing cellular licensee is entitled to a
renewal expectancy and otherwise remains basically qualified to hold a cellular
license. This first step is subject to waiver by the FCC upon a request by a
competing applicant proposing to provide service that far exceeds the service
presently being provided by the incumbent licensee. If no such waiver is
granted, two criteria are evaluated to determine whether the existing licensee
will receive a
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<PAGE> 53
renewal expectancy: (i) whether the licensee has provided "substantial" service
during its past license term, defined as service which is sound, favorable and
substantially above a level of mediocre service which minimally might justify
renewal; and (ii) whether the licensee has substantially complied with
applicable FCC rules and policies and the Communications Act. Under this second
criterion, the FCC will not grant a renewal expectancy if a licensee has
demonstrated a pattern of noncompliance. If the FCC grants the licensee a
renewal expectancy during the first step of the hearing process and the licensee
is basically qualified, its license renewal application will be automatically
granted and any competing applications will be denied. If however, the FCC
denies the licensee's request for renewal expectancy or grants an applicant's
request for waiver of the first step, the licensee's application will be
comparatively evaluated under specifically enumerated criteria with the
applications filed by competing applicants.
Cellular radio service providers also must satisfy a variety of FCC
requirements relating to technical and reporting matters. One such requirement
is the coordination of proposed frequency usage with adjacent cellular users,
permittees and licensees in order to avoid electrical interference between
adjacent systems. In addition, the height and power of base station transmitting
facilities and the type of signals they emit must fall within specified
parameters. The FCC has also provided guidelines respecting cellular service
resale practices and the terms under which certain ancillary services may be
provided through cellular facilities.
Cellular and PCS systems are subject to certain Federal Aviation
Administration regulations respecting the location, lighting and construction of
transmitter towers and antennae and may be subject to regulation under the
National Environmental Policy Act and the environmental regulations of the FCC.
State or local zoning and land use regulations also apply to the Company's
activities. The Company uses common carrier point-to-point microwave facilities
to connect cell sites and to link them to the main switching office. These
facilities are separately licensed by the FCC and are subject to regulation as
to technical parameters and service.
The Communications Act preempts state and local regulation of the entry of,
or the rates charged by, any provider of commercial mobile radio service
("CMRS") or any private mobile radio service ("PMRS"), which includes cellular
(and PCS) service.
Transfers and Assignments of Cellular Licenses
The Communications Act and FCC rules require the FCC's prior approval of
the assignment or transfer of control of a construction permit or license for a
cellular system. Subject to FCC approval, a license or permit may be transferred
from a non-wireline entity to a wireline entity, or vice versa. Non-controlling
interests in an entity that holds a cellular license or cellular system
generally may be bought or sold without prior FCC approval. Any acquisition or
sale by the Company of cellular interests may also require the prior approval of
the Federal Trade Commission and the Department of Justice, if over a certain
size, as well as any state or local regulatory authorities having competent
jurisdiction.
In addition, the FCC's rules prohibit the alienation of any ownership
interest in an RSA application, or any entity holding such an application, prior
to the grant of a construction permit. For unserved cellular areas, no change of
control may take place until after the FCC has granted both a construction
permit and a license and the licensee has provided service to the public for at
least one year. These restrictions affect the ability of prospective purchasers,
including the Company, to enter into agreements for RSA and unserved area
acquisitions prior to the lapse of the applicable transfer restriction periods.
The restriction on sale of interests in RSA and unserved area applications and
on agreements for such sales should not have a greater effect on the Company
than other prospective buyers.
Licensing of PCS Systems
A PCS system operates under a protected geographic service area license
granted by the FCC for a particular market on one of six frequency blocks
allocated for broadband PCS service. The FCC has divided the United States and
its possessions and territories into PCS markets made up of 493 BTAs and 51
MTAs. As many as six licensees will compete in each PCS service area. The FCC
has allocated 120 MHz of spectrum into six individual blocks, each of which is
allocated to serve either MTAs or BTAs. The spectrum allocation
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<PAGE> 54
includes two 30 MHz (A and B Blocks) licensed for each of the 51 MTAs, one 30
MHz block (C Block) licensed for each of the 493 BTAs and three 10 MHz blocks
(D, E and F Blocks) licensed for each of the 493 BTAs. A PCS license will be
awarded for each MTA or BTA in every block, for a total of more than 2,000
licenses.
Under the FCC's rules, no CMRS carrier may hold an attributable interest in
licenses for more than 45 MHz of PCS, cellular and SMR services regulated as
CMRS where there is significant overlap in any geographic area (significant
overlap will occur when at least 10% of the population of the PCS licensed
service area is within the CGSA(s) and/or SMR service area(s)). For example, an
entity may not hold an attributable interest (defined as a controlling or more
than 20% ownership interest) both in a cellular licensee and a 30 MHz PCS
licensee that holds licenses for geographic areas with significant overlaps.
When mutually exclusive applications (i.e., two or more applications
competing for the same service in the same geographic area) are filed for the
same MTA or BTA, those licenses will be awarded pursuant to auctions. The FCC
has adopted comprehensive rules that outline the bidding process, describe the
bidding application and payment process, establish penalties for certain bid
withdrawals, default or disqualification, establish regulatory safeguards,
reserve two of the six frequency blocks (the C and F-blocks) for "entrepreneurs"
and small businesses. The FCC has already completed the auction of, and granted
almost all of the licenses for the A, B and C-blocks. The FCC has completed the
auction of the D, E and F-block licenses, but licenses have not yet been
granted.
All PCS licenses will be granted for a 10-year period, at the end of which
they must be renewed. The FCC has adopted specific standards to apply to PCS
renewals, under which the FCC will award a renewal expectancy to a PCS licensee
that (i) has provided substantial service during its past license term and (ii)
has substantially complied with the Communications Act. All 30 MHz broadband PCS
licensees must construct facilities that offer coverage to one-third of the
population of their service area within five years of their initial license
grants and to two-thirds of the population within 10 years. Licensees that fail
to meet the coverage requirements may be subject to forfeiture of the license.
FCC rules restrict the voluntary assignments or transfers of control of C and
F-block licenses. During the first five years of the license term, any proposed
assignee or transferee must meet the eligibility criteria for participation in
the entrepreneur block auction at the time the application for assignment or
transfer of control is filed, or the proposed assignee or transferee must hold
other licenses for C and F-blocks and, at the time of receipt of such licenses,
have met the same eligibility criteria. Any transfers or assignments during the
remaining five years of the license term are subject to unjust enrichment
penalties, i.e., forfeiture of any bidding credits and acceleration of any
installment payment plans should the assignee or transferee not qualify for the
same benefits. Violations of the Communications Act or the FCC's rules could
result in license revocations, forfeitures or fines. Non-controlling interests
in any entity that holds a PCS license or PCS System in the A, B, D or E-blocks
generally may be bought or sold without FCC approval. Transfers of
non-controlling ownership interests in the C and F-blocks must comply with the
FCC's eligibility criteria for participation in the entrepreneurs' block
auction. Any acquisition or sale by the Company or PCS Partnership of PCS
interests may also require the prior approval of the Federal Trade Commission
and the Department of Justice if over a certain size, as well as state or local
regulatory authorities having competent jurisdiction.
For a period of up to five years after the grant of a PCS license (subject
to extension), a PCS licensee will be required to share spectrum with existing
licensees that operate certain fixed microwave systems within its license area.
To secure a sufficient amount of unencumbered spectrum to operate its PCS
Systems efficiently and with adequate population coverage, the PCS Partnership
will need to relocate many of these incumbent licenses. There can be no
assurance that the PCS Partnership will be successful in reaching timely
agreements with the existing microwave licensees needed to construct and operate
its PCS Systems or that any such agreements will be on terms favorable to it.
Foreign Ownership
The Communications Act prohibits the holding of a common carrier license
(such as a cellular or PCS license) by a corporation of which more than 20% of
the capital stock is owned directly or beneficially by
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<PAGE> 55
aliens. This requirement cannot be waived by the FCC. When a corporation
controls another entity that holds an FCC license, such corporation may not have
more than 25% of its capital stock owned directly or beneficially by aliens
unless the FCC finds that the public interest would be served by such additional
foreign ownership. Failure to comply with these requirements may result in the
FCC issuing an order requiring divestiture of alien ownership to bring the
licensee into compliance with the Communications Act. The Company has no
knowledge of any present foreign ownership in violation of these restrictions.
The Company's Articles of Incorporation permit it to redeem shares of Common
Stock that are held by persons whose ownership would cause a violation of the
Communications Act or would prevent the Company from holding or materially delay
it from obtaining any license. See "Description of Capital Stock -- Certain
Charter, By-Law and Statutory Provisions -- Redemption of Capital Stock."
Telecommunications Act of 1996
On February 8, 1996, the Telecommunications Act of 1996 (the
"Telecommunications Act") was signed into law, substantially revising the
regulation of communications. The Telecommunications Act seeks to enhance
competition and remove barriers to market entry, while deregulating the
communications industry to the greatest extent possible. To this end, local and
long-distance communications providers will, for the first time, be able to
compete in the other's market, and telephone and cable companies will likewise
be able to compete. To facilitate the entry of new carriers into existing
markets, the Telecommunications Act imposes certain interconnection and equal
access requirements on incumbent carriers. Additionally, all communications
carriers providing interstate communications services must contribute to the
federal universal service support mechanisms that the FCC will establish. The
Company cannot predict the outcome of the FCC's rulemaking proceedings to
promulgate regulations to implement the new law or the effect of the new
regulations on cellular service or PCS, and there can be no assurance that such
regulations will not adversely affect the Company's business or financial
condition.
At present, cellular providers, other than the regional Bell operating
companies, have the option of using only one designated long distance carrier.
The Telecommunications Act codifies the policy that CMRS providers will not be
required to provide equal access to long distance carriers. The FCC, however,
may require CMRS carriers to offer unblocked access (i.e., implemented by the
subscriber's use of a carrier identification code or other mechanisms at the
time of placing a call) to the long distance provider of the subscriber's
choice. The FCC has recently terminated its inquiry into the imposition of equal
access requirements on CMRS providers. The FCC recently adopted rules
implementing the interconnection policies imposed by the Telecommunications Act,
various aspects of which are being appealed in Federal court. While it is too
soon to predict the actual effect of these new rules, the Company believes that
they will result in a decrease in the Company's interconnection expense.
The Company believes that it is in compliance with all material
requirements under governmental regulations governing its operations, including
those of the FCC, the Department of Justice and the Federal Trade Commission.
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<PAGE> 56
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
William L. Henning, Jr..................... 43 Chairman, Chief Executive Officer and
Director
Robert Piper............................... 38 President, Chief Operating Officer and
Director
Dusty J. Dumas............................. 33 Chief Financial Officer
Michael Clark.............................. 43 Vice President/General Manager
Paul Clifton............................... 39 Vice President/Engineering and
Technical Services
Thomas G. Henning.......................... 37 Secretary, General Counsel and
Director
William L. Henning, Sr..................... 74 Director
John A. Henning............................ 40 Director
</TABLE>
WILLIAM L. HENNING, JR. has been involved since 1976 in the senior
management of entities comprising the landline telephone operations (the
"Landline Entities") of Cameron, an affiliate of the Company, and since 1984 in
the senior management of entities now comprising the Company's wireless
communications operations (the "Wireless Entities"), some of which were owned by
Cameron until consummation of the restructuring described under "Certain
Transactions -- Tax-Free Restructuring." Such management capacities have
included Director, Chairman, President and Vice President. Mr. Henning's time in
recent years has been allocated between the Wireless Entities (which since the
restructuring comprise the Company) and the Landline Entities of Cameron. After
consummation of this Offering, Mr. Henning will devote his time primarily to the
Company. Mr. Henning has served as a Director and President of the Company since
1988. Prior to that time he was the Company's General Manager for more than 12
years. Mr. Henning, a founder of the facilities-based long distance operations
of the Company, managed such operations as President from 1988 until it was sold
in 1990. He has for more than five years served as President of Mercury
Information Technologies, Inc. ("MIT") (see "Certain Transactions -- Affiliate
Transactions -- Management and Accounting Services"), which owns and operates a
cable television franchise, a voice mail service and an Internet access service.
Since 1991 he has served as a director of First National Bank of Lake Charles.
ROBERT PIPER joined the Company in 1985 as a comptroller. He was Vice
President and General Manager of the Company's long-distance operations from
1987 until such operations were sold in 1990, and of Wireless Entities,
including the Company, from 1987 until 1994, when he became Chief Financial
Officer with responsibility also for mergers and acquisitions. From 1995 until
the present time he has been the President and Chief Operating Officer of
Wireless Entities, including the Company. He served on the Board of Directors of
CTIA (the Cellular Telephone Industry Association) from 1992 to 1994.
DUSTY J. DUMAS joined the Company in January 1994 as its Chief Financial
Officer. For one year prior to that time he was a staff Certified Public
Accountant with the public accounting firm of McElroy, Quirk and Burch, Lake
Charles, Louisiana. From 1984 to 1989 he served at different times and in
different capacities with the public accounting firms of Grant Thornton, L.L.P.,
and Deloitte & Touche, L.L.P. From 1989 to 1993, he was assistant controller of
Chemical Waste Management, Inc., a chemical waste management company. He has
been a Certified Public Accountant since 1987 and a Certified Management
Accountant since 1993.
MICHAEL A. CLARK has served as Vice President and General Manager of the
Company since 1994. His responsibilities include the day-to-day management of
the operations of the Louisiana, Alabama, Kansas and Mississippi Clusters. From
1985 to 1993 he was Director of Data Processing for the Company's landline
affiliate.
PAUL CLIFTON has been the Company's Vice President for Engineering and
Technical Services since 1994. From 1993 to 1994, he was the Company's manager
of network systems, in which capacity he was responsible for overseeing all
engineering and technical aspects of the operations of the Wireless Entities.
From 1988 to
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<PAGE> 57
1993 he was traffic manager and then traffic coordinator for the Company's
landline affiliate, by which he was first employed in 1980. In those capacities
he was responsible for design and implementation projects associated with the
operation of cellular, paging, voice mail, central office, personal computer,
cable television and long distance operations.
THOMAS G. HENNING, an attorney, has been the General Counsel of the Company
and its landline affiliate since January 1994. Prior to becoming General
Counsel, Mr. Henning had since 1984 been an associate, and since 1988 a partner,
of the law firm of Stockwell, Sievert, Viccellio, Clements & Shaddock, L.L.P.,
Lake Charles, Louisiana. He has been an officer and Director of the Company
since 1988. He also serves as an officer and director of other Wireless
Entities.
WILLIAM L. HENNING, SR. practiced law for 10 years, following which he has
for more than 40 years been an executive officer and director of the Landline
Entities. He has been a Director of the Company since its incorporation in 1967.
He has been a director of the National Rural Telecom Association (formerly known
as the National REA Telephone Association) since 1973. He was President of the
Louisiana Telephone Association in 1955; a director of the West Calcasieu Port,
Harbor and Terminal District from 1964 to 1978; a director of the Calcasieu
Parish Industrial Development Board from 1972 to 1986; a director of the United
States Telephone Association from 1982 to 1988; a director of Calcasieu Marine
National Bank from 1985 to 1996; and a commissioner of the Chenault Industrial
Airpark Authority from 1986 to 1988.
JOHN A. HENNING served, from 1987 to 1995, as President of the Wireless
Entity that operated the Louisiana Cluster. Since 1988 he has served as an
officer of various Landline Entities. He has been an officer and Director of the
Company since 1988. He was a director of the Louisiana Telephone Association
from 1984 to 1995 and served as its President from 1993 to 1995. He has served
as a director of Cameron State Bank since 1988.
William L. Henning, Jr., Thomas G. Henning and John A. Henning are
brothers. William L. Henning, Sr. is their father.
The Company has undertaken, pursuant to a resolution of the Board of
Directors, to appoint within 12 months of the consummation of this Offering and
to maintain thereafter at least one independent director (defined as a director
who (a) is not an officer or employee of the Company or any of its subsidiaries,
(b) is not related to such officers, (c) is not the beneficial owner of 10% or
more of the Common Stock of the Company or related to such an owner, and (d) in
the view of the Company's Board of Directors, is free of any relationship that
would interfere with the exercise of independent judgment) on its Board of
Directors.
The Board of Directors is divided into three classes of nearly equal size
serving three-year staggered terms each. The initial Class I directors are John
A. Henning and Thomas G. Henning, whose terms expire in 1998. The initial Class
II directors are William L. Henning, Sr. and Robert Piper, whose terms expire in
1999. The initial Class III director is William L. Henning, Jr., whose term
expires in 2000. The independent director will be elected to Class III.
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. William L. Henning, Sr. and John A. Henning are the
members of both committees. The independent director referred to in the
preceding paragraph will serve on the Audit Committee, and it is expected that
he or she will serve on the Compensation Committee. The Audit Committee
recommends the annual engagement of the Company's auditors, with whom the Audit
Committee will review the scope of audit and non-audit assignments, related
fees, the accounting principles used by the Company in financial reporting,
internal financial auditing procedures and the adequacy of the Company's
internal control procedures. The Compensation Committee determines officers'
salaries and bonuses. The Board of Directors or a committee appointed by the
Board of Directors will administer the Company's benefit plans that involve
stock or interests therein. Further, the approval of disinterested directors
will be required for any material agreements or arrangements between the Company
and directors, officers, existing principal shareholders and their affiliates.
Prior to October 1996, the Company did not have a compensation committee, and
the functions of such a committee were performed by the Board of Directors.
William L. Henning, Jr., Thomas G. Henning and Robert Piper, who are executive
officers of the Company and serve on its Board of Directors, participated in
deliberations of the Board of Directors concerning executive officer
compensation.
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<PAGE> 58
Under the Company's By-Laws, the Board of Directors may establish an
Executive Committee which, if appointed, will consist of up to five members and
will have all powers of the Board of Directors when the Board is not in session
except powers expressly reserved to other committees. A unanimous vote of the
Executive Committee would be required for that committee to authorize the
issuance and sale of any shares of capital stock or any indebtedness other than
trade indebtedness incurred in the ordinary course of the Company's business and
other than indebtedness not in excess of $1.0 million.
NO EMPLOYMENT AGREEMENTS
The Company has no employment agreements with its officers or employees,
each of whom may terminate his or her employment, or be terminated, at will.
Persons employed by the Company within the last five years have agreed to be
subject to restrictions on competing with the Company should his or her
employment with the Company terminate.
DIRECTOR COMPENSATION
Directors have not previously been paid fees for service in their capacity
as directors. The Company anticipates that, following consummation of this
Offering, it will pay director fees to, and reimburse expenses incurred in
attending meetings of the Board and its Committees to, its independent
directors.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
executive officers for the year ended December 31, 1995 and expected to have
been earned for the year ended December 31, 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------------
BONUS
------------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY CASH STOCK COMPENSATION(1)
--------------------------- ---- ------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C>
William L. Henning, Jr.
Chairman & Chief Executive Officer 1995 $42,000 $ 10,850 $40,500 $2,326
1996 52,000 100,000 45,000 1,763
Robert Piper
President & Chief Operating Officer 1995 58,156 11,200 20,250 4,425
1996 73,608 -- 45,000 4,730
Thomas G. Henning
Secretary & General Counsel 1995 25,000 10,500 40,500 790
1996 35,000 100,000 45,000 1,049
</TABLE>
- ---------------
(1) Does not include compensation from affiliated companies.
1997 STOCK OPTION PLAN
The Board of Directors of the Company has adopted, and the shareholders of
the Company have approved, the US Unwired Inc. 1997 Stock Option Plan (the
"Stock Option Plan"). Under the Stock Option Plan, stock options and other
equity-based awards may be granted to directors, officers, management and other
selected employees and consultants of the Company and its subsidiaries. The
Stock Option Plan will be administered by the Board of Directors or a committee
appointed by the Board of Directors and consisting solely of two or more
"non-employee directors" (the "Administrator").
The Board of Directors expects to grant, upon consummation of this
Offering, five year options to purchase up to approximately 270,000 shares of
Class A Common Stock to certain executive officers, employees and consultants of
the Company pursuant to the Stock Option Plan. The exercise price of each option
granted will be the initial public offering price per share of the Class A
Common Stock offered hereby. Such options will vest in equal 25% annual
installments over a four-year period.
The Administrator may grant stock options, stock appreciation rights and
other stock-based awards to eligible persons. In no event, however, may the
Administrator grant awards relating to more than 1,400,000 shares of Class A
Common Stock pursuant to the Stock Option Plan. Shares subject to awards that
are cancelled, forfeited or otherwise settled without the delivery of shares,
and shares surrendered to or
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<PAGE> 59
withheld by the Company in satisfaction of the exercise price or withholding tax
arising in connection with the exercise of an award, shall be added back to the
total number of shares in respect of which awards may be granted under the Stock
Option Plan.
Awards may be satisfied by the delivery of either authorized but unissued
Class A Common Stock or treasury shares. The Administrator may grant one or more
types of awards in any combination to a particular participant in a particular
year; however, no individual may be granted awards under the Stock Option Plan
relating to more than 140,000 shares. No awards may be made under the Stock
Option Plan after the tenth anniversary of the effective date of the Stock
Option Plan, and no shares may be issued under the Stock Option Plan after that
date, except in respect of awards made prior to that date. Each award will be
confirmed by, and is subject to the terms of, an agreement executed by the
participant and the Company.
Following is a description of each type of award or grant that may be made
under the Stock Option Plan.
STOCK OPTIONS
Stock options may be incentive stock options that comply with the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") or nonqualified stock options that do not comply with Section 422
of the Code. The Administrator will determine the exercise price and other terms
and conditions of options, subject to the limitation that the exercise price of
options may not be less than fair market value of the underlying shares on the
date of grant.
To the extent permitted by the Administrator, the exercise price for an
option may be paid in shares of Class A Common Stock valued at their then fair
market value.
STOCK APPRECIATION RIGHTS
Stock appreciation rights ("SARs") may be granted in conjunction with all
or any part of a stock option or independently. Upon the exercise of an SAR, the
participant will be entitled to receive, for each share of Class A Common Stock
to which the exercised SAR relates, the excess of the fair market value per
share of Class A Common Stock on the date of exercise over the grant price of
the SAR. SARs shall have such terms and conditions as may be established by the
Administrator.
OTHER STOCK-BASED AWARDS
The Administrator has the authority under the Stock Option Plan to make
other awards that are valued in whole or in part by reference to, or are payable
in or otherwise based upon, shares of Class A Common Stock, including awards
valued by reference to the performance of a subsidiary of the Company. The
Administrator will determine the participants to whom and the times at which
these awards will be made, the number of shares of Class A Common Stock to be
awarded and all other terms and conditions of the awards.
Any award granted under the Stock Option Plan may include the right to
receive, either currently or on a deferred basis, dividends or dividend
equivalents with respect to the number of shares covered by the award.
If the Administrator determines that any stock split, stock dividend or
other distribution (whether in the form of cash, securities or other property),
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of shares, issuance of warrants or other
rights to purchase shares at a price below fair market value, or other similar
corporate event affects the Class A Common Stock such that an adjustment is
required in order to preserve the benefits intended under the Stock Option Plan,
then the Administrator may in its discretion (i) make equitable adjustments (a)
in the number and kind of shares that may be the subject of future awards under
the Stock Option Plan or (b) the number and kind of shares (or other securities
or property) subject to outstanding awards and the respective grant or exercise
thereof and (ii) if appropriate, provide for the payment of cash to a
participant.
The Stock Option Plan may be amended or terminated at any time by the Board
of Directors, except that no amendment may be made without shareholder approval
if such approval is necessary to comply with any tax or regulatory requirement.
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<PAGE> 60
The Stock Option Plan is not subject to any provision of ERISA and is not
qualified under Section 401(a) of the Code.
PRINCIPAL SHAREHOLDERS
The following table provides certain information regarding the beneficial
ownership of the Company's Common Stock upon the consummation of this Offering
by (i) each of the Company's directors and officers listed in the summary
compensation table, (ii) all directors and officers as a group and (iii) each
person known to the Company to be the beneficial owner of 5% or more of any
class of the Company's voting securities.
<TABLE>
<CAPTION>
CLASS A AND CLASS B
COMMON STOCK(1)
CLASS A CLASS B -------------------------
COMMON STOCK(1) COMMON STOCK(1) PERCENTAGE
------------------- ---------------------- PERCENTAGE OF COMBINED
PERCENTAGE PERCENTAGE OF COMBINED VOTING
NAME OF BENEFICIAL OWNER SHARES OF CLASS SHARES OF CLASS CLASSES POWER
------------------------ ------ ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
William L. Henning, Sr. ........... -- -- 4,613,011(2) 41.0% 35.6% 40.4%
William L. Henning, Jr. ........... -- -- 1,043,988(3) 9.3 8.1 9.1
John A. Henning.................... -- -- 994,058(3) 8.8 7.7 8.7
Thomas G. Henning.................. -- -- 1,343,561(4) 11.9 10.4 11.8
Thomas D. Henning.................. -- -- 779,596 6.9 6.0 6.8
Robert Piper....................... -- -- 33,286(5) 0.3 0.3 0.3
All officers and directors as a
group (8 persons total, 5 with
ownership interests)............. -- -- 8,027,904 71.4 62.0 70.3
</TABLE>
- ---------------
(1) As used in this table "beneficial ownership" means the sole or shared power
to vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed as of any date to have "beneficial ownership"
of any security that such person has a right to acquire within 60 days after
such date, except that shares of Class A Common Stock issuable upon
conversion of Class B Common Stock (see "Description of Capital Stock") are
shown only as Class B Common Stock beneficially owned and not also as Class
A Common Stock beneficially owned. Any security that any person named above
has the right to acquire within 60 days (other than Class A Common Stock
issuable upon conversion of Class B Common Stock) is deemed to be
outstanding for purposes of calculating the ownership percentage of any
other person.
(2) Includes the community property interest of Mrs. Henning. Also includes Mr.
Henning's proportionate interest in 33,286 shares held by a general
partnership comprised of Mr. and Mrs. William L. Henning, Sr., William L.
Henning, Jr., John A. Henning and Thomas G. Henning, based on his interest
in that partnership.
(3) Excludes 116,501 shares held in each of two trusts for the benefit of the
minor children of William L. Henning Jr. and John A. Henning, respectively,
of which shares each of them disclaims beneficial ownership. Includes each
of William L. Henning, Jr.'s and John A. Henning's proportionate interest in
33,286 shares held by a general partnership comprised of Mr. and Mrs.
William L. Henning, Sr., William L. Henning, Jr., John A. Henning and Thomas
G. Henning, based on each of their respective interests in that partnership.
(4) Includes 233,002 shares held by Mr. Henning as trustee for the minor
children of William L. Henning, Jr. and John A. Henning (see Note (3)
above), and 116,501 shares held by Mr. Henning as trustee for his own minor
children, of all of which shares he disclaims beneficial ownership. Also
includes Mr. Henning's proportionate interest in 33,286 shares held by a
general partnership comprised of Mr. and Mrs. William L. Henning, Sr.,
William L. Henning, Jr., John A. Henning and Thomas G. Henning, based on his
interest in that partnership.
(5) Includes the community property interest of Dr. Eileen Piper, the spouse of
Robert Piper.
CERTAIN TRANSACTIONS
TAX-FREE RESTRUCTURING
In preparation for this Offering, the Company and its affiliate through
common control, Cameron Communications Corporation ("Cameron"), completed a
restructuring plan pursuant to which the wireless communications interests of
Cameron were separated from its landline telephone business and combined with
the wireless communications interests of the Company (the "Tax-Free
Restructuring"). To accomplish this restructuring, on September 19, 1996
Cameron, the Company, MCTC (of which Cameron then owned 96%, and the Company
then owned 4%), Mercury Cellular of Kansas, Inc. (then a wholly-owned subsidiary
of
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MCTC), Mississippi One Cellular Telephone Company (a wholly-owned subsidiary of
the Company), Cameron Telephone Company (then a wholly-owned subsidiary of
Cameron), Elizabeth Telephone Company (a 98% subsidiary of Cameron Telephone
Company), and CCC Holding Company ("Newco," then a wholly-owned subsidiary of
Cameron formed to facilitate the restructuring) entered into an Agreement and
Plan of Reorganization (the "Reorganization Agreement"). Pursuant to the
Reorganization Agreement, the following transactions occurred on October 31,
1996. Cameron transferred to Newco all of Cameron's assets and liabilities,
other than its 96% interest in MCTC. Next, Cameron "spun off" (transferred), as
a distribution to its shareholders, all of the shares of Newco. Then, Cameron
was merged into the Company. In consideration for this merger, shareholders of
Cameron received, in exchange for their shares of Cameron, shares of common
stock of the Company which, together with all other then outstanding shares,
have been reclassified into Class B Common Stock. Following the restructuring,
the name of Newco was changed to "Cameron Communications Corporation," and the
name of the Company, which had been Mercury, Inc., was changed to "US Unwired
Inc."
The Reorganization Agreement further provides for the allocation of
obligations and liabilities between Newco and the Company. In general, Newco
will be responsible for all obligations and liabilities relating to the landline
communications business and the Company will be responsible for those relating
to the wireless communications business. Liabilities of a corporate nature, such
as indemnification of officers and directors and securities law liabilities
relating to the issuance of securities in connection with the restructuring, are
allocated to Newco if the liability is attributable to Cameron as it existed
prior to the restructuring, and otherwise to the Company. If an obligation or
liability that is to be allocated to Newco or the Company is asserted against
the other of them, the one to which the obligation or liability was allocated by
the Reorganization Agreement will defend and indemnify the one against which it
is asserted.
Prior to the restructuring, Cameron received from the Internal Revenue
Service a private letter ruling to the effect that no gain or loss would be
recognized by Cameron or its shareholders by virtue of the transfer of assets to
Newco or the spin-off of Newco to Cameron's shareholders, because those
transactions would qualify as a reorganization under Section 368(a)(1)(D) of the
Code and a distribution under Section 355 of the Code. In addition, tax counsel
for the Company had informed it that the merger of Cameron into the Company
would qualify as a reorganization under Section 368(a)(1)(A) of the Code so that
no gain or loss would be recognized by the respective corporations or their
shareholders by virtue of that merger.
AFFILIATE TRANSACTIONS
GENERAL
During a period of many years prior to the restructuring described in the
preceding section, the Company, Cameron and their respective subsidiaries
entered into a variety of contractual relationships with one another and with
other companies under common control. Certain current transactions are
summarized below. There have been additional transactions which have included
cost sharing arrangements among the companies and their affiliates, sharing of
services and salary expenses of personnel, including officers of the companies,
and inter-company sales of assets, including transfers of the assets of a local
long distance company that was subsequently sold by the Company to a third
party.
BILL PROCESSING SERVICES
In 1995, Cameron entered into agreements with MCTC, Cameron Telephone
Company, Elizabeth Telephone Company, Mississippi One Cellular Telephone
Company, Mercury Cellular of Kansas, Inc. and MS 34, all of which were then
subsidiaries of it and/or the Company, under which Cameron performs bill
processing and related services for each of those corporations. Each agreement
had an initial term of six months and is now subject to termination by either
party on 30 days' notice. Prior to the execution of these agreements, Cameron
provided comparable services under oral agreements. The aggregate amounts paid
to Cameron by subsidiaries engaged in the wireless communications business for
all such services during the years ended December 31, 1993, 1994 and 1995 were
$553,000, $635,000 and $1.1 million, respectively, and $1.3 million for the
nine-month period ended September 30, 1996.
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Upon consummation of the restructuring transactions described above, Newco
succeeded to the interest of Cameron in these agreements. The Company believes
that the terms of these agreements are no less favorable to it than terms that
would be available from unaffiliated third persons.
SYSTEM MANAGEMENT AND CONSTRUCTION SERVICES
On May 1, 1996, the Company entered into agreements with MCTC and Mercury
Cellular of Kansas, Inc. (then subsidiaries of Cameron and now, because of the
restructuring, wholly-owned subsidiaries of the Company) under which the Company
provides construction and management services for the respective systems owned
by those corporations. Such services include reviewing and, if necessary,
modifying system design; obtaining governmental and regulatory approvals;
preparation of control point, base station and business office sites; purchase
and installation of switching and base station equipment; negotiating
interconnection to the local exchange switched telephone network; and general
management of the operations of the system. In return for these services, each
of the corporations pays the Company a management fee and reimburses it for all
of its expenses. The management fees used by the two corporations under the
agreements have been $216,000 per month and $42,000 per month. Prior to these
agreements being entered into, the Company provided comparable services for the
corporations under oral arrangements. The aggregate amounts paid to the Company
for such services, including expense reimbursements, during the years ended
December 31, 1993, 1994 and 1995, respectively, were $1.4 million, $1.7 million
and $3.3 million. These amounts have been eliminated in the consolidated
financial statements of the Company.
LONG DISTANCE SERVICES
The Company purchases long distance service from Cameron and resells the
service to the Company's customers. The rates paid by the Company for this
service are comparable to rates at similar volumes charged by Cameron to other
customers and are competitive with rates that the Company would expect to pay
for similar service from an unaffiliated third party. In the years ending
December 31, 1993, 1994 and 1995, the Company paid Cameron $225,000, $228,000
and $386,000, respectively. For the nine months ended September 30, 1996, the
Company paid Cameron $495,000 for long distance service.
FLIGHT SERVICES
The Company has been and is expected to continue to be permitted to use,
for the rate of $2.75 per air mile, a Mitsubishi Diamond 1A aircraft owned and
operated by Cameron. In the years ended December 31, 1993, 1994 and 1995, the
Company paid Cameron $21,000, $23,000 and $85,000, respectively, for flight
services. It is believed that the rates paid for these services are rates that
the Company would be required to pay to an unaffiliated third party for
equivalent services. For the nine months ended September 30, 1996, the Company
paid Cameron $56,000 for such flight services.
MISCELLANEOUS EXPENSE ARRANGEMENTS
The Company and Cameron have historically used certain common vendors and
suppliers to provide various materials and routine services, such as office
supplies, advertising, computer programming and maintenance services. Each of
the Company, Cameron and their subsidiaries bears its proportionate share of
such expenses.
LOAN FROM CAMERON SUBSIDIARY
The Company's acquisition of the Mississippi and Alabama Clusters has been
financed by a direct loan from Cameron Telephone Company, a subsidiary of
Cameron, and a series of pass-through financings from CoBank through CTC
Financial, Inc., a subsidiary of Cameron Telephone Company, to the Company and
its subsidiaries, MCTC and Mississippi One Cellular Telephone Company. On
November 27, 1996, the Company repaid the direct loan from Cameron Telephone
Company with proceeds from an amendment of the pass-through financing.
Thereafter, CTC Financial, Inc. assigned its interest in the pass-through
financings to Mercury Cellular of Kansas, Inc., a subsidiary of the Company. As
of November 30, 1996 the pass-through
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financings were in an aggregate principal amount of $67.7 million. These loans
are represented by a series of promissory notes executed between September 1994
and July 1996. The notes were executed in stages as funds were required for the
acquisition and build-out of the Company's cellular telephone properties. The
notes bear rates of interest ranging from 8.12% to 10.11% and mature at
different times between December 31, 1996 and December 20, 2003. The notes are
governed by the terms of loan agreements to which the Company, Mississippi One
Cellular Telephone Company, MCTC and Mercury Cellular of Kansas are parties and
which provide, generally as to the bulk of the borrowings, that the Company will
pay interest, only, for a period of up to two years and will thereafter pay
principal and interest in monthly installments for a fixed term. The loans are
secured by mortgages of the Company's Kansas, Alabama and Mississippi real
property, the grant of a security interest in the Company's personal property
and continuing guarantees of the Company. All of these loans are secured in
their entirety by pledges of or mortgages on the assets of the Company and its
subsidiaries, guarantees of the Company. Up to $5 million of the amount of the
loans is secured by the guarantee of William L. Henning, Sr., a principal
shareholder of the Company. After this Offering, the Company intends to
consolidate the loans from CoBank to the Company and its subsidiaries.
MANAGEMENT AND OTHER SERVICES
William L. Henning, Jr., the Company's Chairman of the Board and Chief
Executive Officer and a principal shareholder of the Company; John A. Henning, a
Director and a principal shareholder of the Company; and Thomas G. Henning, the
Secretary and General Counsel and a principal shareholder of the Company, own
equal interests in MIT, which has, since January 1, 1996, paid the Company a
monthly fee of $2,300 for certain accounting services and a monthly fee of
$3,218 for certain management services. In 1994, in connection with the
Company's decision to focus on its wireless communication services, the Company
sold its voicemail operations and assets to MIT for $424,497. MIT provides the
Company with voicemail services which the Company uses itself and also resells
to its cellular subscribers. During the nine months ended September 30, 1996,
the Company has paid MIT $216,000 for such services and paid MIT $154,000 for
such services during the year ended December 31, 1995. Pursuant to an agreement
dated October 27, 1995, the Company retains 15% of the revenues from customer
voicemail services to the Company in exchange for the Company providing MIT with
billing, collecting, advertising and network services associated with the
voicemail services offered by MIT. Before October 27, the terms of the October
27, 1995 agreement were implemented pursuant to an oral agreement between the
Company and MIT. The Company believes that the terms of these arrangements are
no less fair to the Company than would be expected in comparable arrangements
with unaffiliated third persons. However, since the exchange of services between
the Company and MIT provides each with substantial information about the
business operations of the other, it is unlikely that the Company would be
willing to enter into such arrangements with unaffiliated third persons. Under
an agreement dated June 6, 1996, with Maas.net, LLC, a limited liability company
that is owned 63% by MIT and 27% by Mr. Henning, Jr., the Company pays Maas.net
$2,000 per month for certain Internet services.
PCS PARTNERSHIP
MIT owns a one-third interest in Wireless Management Corporation, the
corporation that serves as general partner of the PCS Partnership. For
information concerning the partnership agreement, see
"Business -- Organization."
MOBILITY
The Company and Cameron each own 50% of Mobility. The Company has been
designated as the manager of Mobility and is currently negotiating with Cameron
the terms under which the Company will manage the design, construction and daily
operations of Mobility's PCS Systems.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, par value $.01 per share; 60,000,000 shares of Class B
Common Stock, par value $.01 per share; and
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40,000,000 shares of preferred stock, no par value (the "Preferred Stock").
Immediately prior to the Company's issuance of Class A Common Stock pursuant to
this Offering, there were 11,250,000 shares of Class B Common Stock and no
shares of Class A Common Stock or Preferred Stock issued and outstanding and the
Company had approximately 16 holders of record of its Class B Common Stock.
COMMON STOCK
The Company has two classes of authorized Common Stock, Class A Common
Stock and Class B Common Stock. Other than as described herein with respect to
voting rights and transfer restrictions applicable to the Class B shares, the
Class A and Class B shares have identical rights. The Class A Common Stock has
one vote per share and the Class B Common Stock has 10 votes per share. The
Class A and Class B shares vote together in the election of Directors and
generally with respect to all matters for which a vote of shareholders is
required.
Shares of Class B Common Stock generally convert automatically into shares
of Class A Common Stock on a share-for-share basis immediately upon any transfer
of the Class B Common Stock other than a transfer from an original holder of
Class B Common Stock to certain "qualified holders," who are other original
holders of Class B Common Stock, descendants or spouses of such persons,
entities owned exclusively by any of such persons, or trustees or other
fiduciaries for any of them. Holders of Class B Common Stock are subject to
certain transfer restrictions that are described under the heading "Shares
Eligible for Future Sale," including a requirement that Class B shares be first
offered to other Class B shareholders before any transfer can be made to anyone
other than a "qualified holder" and before any related conversion into Class A
Common Stock. Such restrictions do not apply to the Class A Common Stock.
Holders of Common Stock have no cumulative voting rights and no preemptive,
subscription or sinking fund rights. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, holders of Common Stock will
be entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefore. See "Dividend Policy." In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock will be entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference to any then outstanding
Preferred Stock.
PREFERRED STOCK
The Company is authorized under its Articles of Incorporation to issue
40,000,000 shares of Preferred Stock, which may be issued from time to time in
one or more series upon authorization by the Company's Board of Directors. The
Board of Directors, without further approval of the shareholders, is authorized
to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences and any other rights,
preferences, privileges and restrictions applicable to each series of Preferred
Stock. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, make it more difficult for a third party to
gain control of the Company, discourage bids for the Company's Common Stock at a
premium or otherwise adversely affect the market price of the Class A Common
Stock. The Company has no current plans to issue any Preferred Stock.
SHAREHOLDER AGREEMENT
In December 1996 the Company entered into an agreement with William L.
Henning, Sr., Lena B. Henning, William L. Henning, Jr., John A. Henning, Thomas
G. Henning, Hansen Evans Scobee, Renee Scobee, Marie Scobee Williams, Henry Rice
Scobee, Robert Piper, Thomas G. Henning, as trustee of the William L. Henning,
Jr. Exempt Class Trust No. 1, Thomas G. Henning, as trustee of the John A.
Henning Exempt Class Trust No. 1, Thomas G. Henning, as trustee of the Thomas G.
Henning Exempt Class Trust No. 1, James D. Spates, Thomas D Henning, Joyce P.
Spates, AVCO, L.L.C., Thomas B. Shearman, Jr., Lake Charles American Press, Pine
Island Oil Corporation and Henco Partnership, all of whom are holders of Class B
Common Stock. The agreement provides, among other things, that the signatory
shareholders agree to vote in favor of adoption of the Articles of Incorporation
and that they will not approve any amendment to the
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Articles of Incorporation that restricts the transfer of Class B Common Stock
beyond the restrictions contained in the Articles of Incorporation. The
agreement also provides that the signatory shareholders will agree to vote in
favor of the waiver of the timing and volume restrictions on the sale of shares
of Class A Common Stock issued upon conversion of Class B Common Stock contained
in the Articles of Incorporation (i) for any shareholder who, within 90 days of
learning that a waiver has been granted to any other shareholder, requests a
comparable waiver and (ii) for the estate of any of the signatory shareholders
under certain conditions. The agreement also contains piggyback registration
rights in favor of the signatory shareholders. See "Share Eligible for Future
Sale." The registration rights terminate six years after the date of the
agreement, and the other provisions terminate 25 years after the date of the
agreement, unless otherwise extended pursuant to the terms of the agreement.
CERTAIN CHARTER, BY-LAW AND STATUTORY PROVISIONS
The following sections describe certain provisions of the Company's
Articles of Incorporation and By-Laws, and of the Louisiana Business Corporation
Law ("LBCL").
CLASSIFIED BOARD OF DIRECTORS
The Articles of Incorporation divide the members of the Board of Directors
into three classes as nearly equal in size as possible serving three-year
staggered terms each. The initial Class I directors are John A. Henning and
Thomas G. Henning, whose terms expire in 1998. The initial Class II directors
are William L. Henning, Sr. and Robert Piper, whose terms expire in 1999. The
initial Class III director is William L. Henning, Jr., whose term expires in
2000. The independent director will be appointed to Class III.
SPECIAL MEETINGS OF SHAREHOLDERS
The Articles of Incorporation and By-Laws provide that meetings of the
shareholders of the Company may be called upon written request of any
shareholder or shareholders holding in the aggregate 60% of the total voting
power of the Company. In addition, a special meeting of shareholders of any
class or series may be called upon written request of any shareholder or group
of shareholders holding in the aggregate 60% of the total voting power of such
class or series.
ADVANCE NOTICE REQUIREMENTS FOR DIRECTOR NOMINATIONS
The Company's By-Laws provide that nominations of persons for election to
the Board of Directors of the Company may be made at a meeting of shareholders
by or at the direction of the Board of Directors or by any shareholder of record
of the Company entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in the By-Laws. Such nominations,
other than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the Company. To be
timely, a shareholder's notice must be delivered or mailed and received at the
principal office of the Company not less than 45 days nor more than 90 days
prior to the meeting, provided, however, that in the event that less than 55
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be received no
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIMITATION OF LIABILITY
As permitted by the LBCL, the Company's Articles of Incorporation contain
provisions eliminating the personal liability of directors and officers to the
Company and its shareholders for monetary damages for breaches of their
fiduciary duties as directors or officers, except for (i) a breach of a
director's or officer's duty of loyalty to the Company or its shareholders, (ii)
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) liability for unlawful distributions of the
Company's assets to, or redemptions or repurchases of the Company's shares from,
shareholders of the Company, under and to the extent provided in the LBCL, and
(iv) any transaction in which a director or officer receives an
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improper personal benefit. As a result of the inclusion of such provisions,
shareholders may be unable to recover monetary damages against directors or
officers for actions taken by them that constitute negligence or gross
negligence or that are in violation of their fiduciary duties, although it may
still be possible to obtain injunctive or other equitable relief with respect to
such actions. If equitable remedies are found not to be available to
shareholders in any particular case, shareholders may not have any effective
remedy against the challenged conduct.
The Company's Articles of Incorporation and By-Laws provide in effect that
the Company shall, to the fullest extent permitted by the LBCL, as amended from
time to time, indemnify and advance expenses to each of its directors and
officers, and may so indemnify and advance expenses to employees and agents.
The Company believes the foregoing provisions are necessary to attract and
retain qualified persons as directors and officers. Prior to the consummation of
this Offering, the Company intends to enter into separate indemnification
agreements with each of its directors and executive officers in order to
effectuate such provisions.
REDEMPTION OF CAPITAL STOCK
The Company's Articles of Incorporation permit it to redeem shares of its
capital stock from any shareholder(s) whose ownership causes the Company to
violate foreign ownership restrictions applicable to FCC licensees (see
"Business -- Governmental Regulation -- Foreign Ownership") or otherwise would
prevent the Company from holding or delay it in obtaining any governmental
license or franchise that is necessary to conduct any material portion of its
communications business or would materially increase the Company's cost of
obtaining or operating under any such license or franchise. Shares to be
redeemed are to be selected in a manner determined by the Board of Directors.
The redemption price is the average market price for the 10 trading days
preceding the day on which notice of redemption is given. The redemption price
may be paid in cash or in debt or equity securities of the Company or any other
entity.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON BOARD OF DIRECTORS
The Articles of Incorporation provide that any director elected by holders
of the Common Stock may be removed, with or without cause, by a vote of a
majority of the total voting power of the Common Stock at any meeting of
shareholders. The Articles of Incorporation provide that any vacancies on the
Board of Directors (including any resulting from an increase in the authorized
number of directors) may be filled by the affirmative vote of a majority of the
directors remaining in office, provided that the shareholders have the right, at
any special meeting called for that purpose prior to such action by the Board,
to fill the vacancy.
ADOPTION AND AMENDMENT OF BY-LAWS
The Articles of Incorporation and By-Laws provide that the By-Laws may be
adopted, amended, or repealed by a majority vote of the Board of Directors,
subject to any power granted by the LBCL to shareholders to change or repeal any
By-Laws so adopted or amended. Any amendment to the By-Laws that would add a
matter not expressly covered in the By-Laws prior to such amendment will be
deemed the adoption of a new By-Law and not an amendment.
SPECIAL SHAREHOLDER VOTING REQUIREMENTS
The Articles of Incorporation provide that any proposal to approve a
merger, consolidation, share exchange, disposition of all or substantially all
of the Company's assets, dissolution, or any amendment to the Articles of
Incorporation, requires the affirmative vote of a majority of the total voting
power, with all classes and series voting together as if a single class,
provided that the Board of Directors has previously approved and/or recommended
such proposal by the affirmative vote of three-fourths of the number of
Directors constituting the full Board of Directors. Otherwise, the affirmative
vote of holders of at least two-thirds of the total voting power, with all
classes and series voting together as if a single class, is required to approve
such a proposal. The LBCL provides that if a proposed amendment to the Articles
of Incorporation would adversely affect, within the meaning of the LBCL, the
shares of any class of capital stock, then the amendment must
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also be approved by holders of the shares of that class. Under the Company's
Articles of Incorporation, such approval would require the affirmative vote of
holders of a majority of the voting power present of that class.
TRANSFER AGENT
The Company's transfer agent for its Class A Common Stock is First Chicago
Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Class A Common
Stock of the Company. Future sales of substantial amounts of Class A Common
Stock in the public market could adversely affect prevailing market prices.
Upon the closing of this Offering, the Company will have 12,950,000 shares
of Common Stock outstanding (13,205,000 shares if the Underwriters'
over-allotment option is exercised in full), of which 1,700,000 shares will be
shares of Class A Common Stock sold in this Offering (1,955,000 shares if the
Underwriters' over-allotment option is exercised in full), and 11,250,000 shares
will be shares of Class B Common Stock. Of these shares, the 1,700,000 shares of
Class A Common Stock sold in this Offering (1,955,000 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradeable without restriction (except as to affiliates of the Company) and the
11,250,000 outstanding shares of Class B Common Stock will be "restricted
securities" as defined in Rule 144 under the Securities Act. Without
consideration of the restrictions described below, 3,861,184 of the restricted
shares would be available for immediate sale in the public market 91 days after
the date of this Prospectus, subject to volume and other limitations under Rule
144 described in the following paragraph; and on February 14, 1997 and February
19, 1998, 116,501 shares and 66,572 shares will become eligible, respectively,
subject to the Rule 144 restrictions and limitations described in the following
paragraph. In addition, 7,588,532 shares will become eligible for sale in the
public market on October 31, 1998, subject for one additional year to the Rule
144 restrictions and limitations. The Rule 144 restrictions generally terminate,
except as to affiliates of the Company, three years after the securities are
acquired from the Company or any affiliate of the Company. The Commission is
considering certain amendments to Rule 144 that, if adopted, would shorten by
one year each of the time periods referred to in the three preceding sentences,
except that no such date would be earlier than the 91st day after the date of
this Prospectus. The 7,588,532 shares referred to above are also subject to
restrictions on sale that arise by virtue of the Tax-Free Restructuring and
generally last until October 31, 1998.
All of the officers, directors and shareholders of the Company who hold in
the aggregate 11,250,000 of the Class B shares have agreed, subject to certain
limitations, that for a period of 180 days after the date of this Prospectus
they will not, without the prior written consent of The Robinson-Humphrey
Company, Inc. on behalf of the Underwriters, offer, sell, contract to sell,
grant any option to purchase, or otherwise dispose of any Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
in any other manner transfer all or a portion of the economic consequences
associated with the ownership of Common Stock. If and to the extent The
Robinson-Humphrey Company, Inc. should release such shares earlier, they would
be available for immediate sale in the public market subject to restrictions
contained in the Company's Articles of Incorporation and applicable to shares of
Class B Common Stock. Under these restrictions, a holder of Class B Common Stock
who desires to sell them in the public market must first offer them at a price
determined pursuant to a formula based on the public market price to all other
holders of Class B Common Stock and to the Company and, to any extent to which
the shares are not thereby purchased, may convert them to Class A Common Stock
for sale in the public market. The offering shareholder may withdraw the offer
under certain circumstances, depending on changes in the market price. The
Articles of Incorporation further provide, however, that no holder may sell such
converted shares in the public market if such sale would cause the number of
such shares that have been sold in the public market by such holder and such
holder's affiliates (and any other holder(s) acting in concert with them) during
the three-month period ending on the date of such sale to exceed 1% of the total
number of shares of Class A Common Stock outstanding on such date. This
limitation may be waived by holders of a majority of the Class B Common
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Stock, and such holders have agreed to grant a waiver for sales made for the
purpose of paying estate and similar taxes of a deceased shareholder. In
addition, the Company has agreed with the holders of Class B Common Stock,
subject to certain limitations, to provide piggyback registration rights
entitling holders of Class B Common Stock to register shares should the Company
register additional shares for sale in the future.
The Company has also agreed that, without the prior written consent of The
Robinson-Humphrey Company, Inc. on behalf of the Underwriters, it will not
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock, for a period of 180 days after the date of this Prospectus, subject to
certain limited exceptions. See "Underwriting." The Company intends to file a
registration statement covering the sale of shares of Class A Common Stock
available for issuance upon exercise of options under the 1997 Stock Option Plan
within 180 days after the date of this Prospectus.
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of acquisition of restricted shares from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the acquiror or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Company's Class A Common
Stock (such 1% would be 17,000 shares immediately after this Offering or 19,550
shares if the Underwriter's over-allotment option is exercised in full) or the
average weekly trading volume of the Company's Common Stock on all exchanges
and/or reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding the date of
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain manner of sales provisions, notice requirements and the
availability of current public information about the Company. If three years
have elapsed since the later of the date of acquisition of restricted shares
from the Company or from any affiliate of the Company, and the acquiror or
subsequent holder thereof is deemed not to have been an affiliate of the Company
at any time during the 90 days preceding a sale, such person would be entitled
to sell such shares in the public market under Rule 144(k) without regard to the
volume limitations, manner of sales provisions, public information requirements
or notice requirements.
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the Underwriters named below (the
"Underwriters"), for whom The Robinson-Humphrey Company, Inc. and A.G. Edwards &
Sons, Inc. are acting as representatives (the "Representatives"), have severally
agreed to purchase from the Company the respective number of shares of Class A
Common Stock set forth in the table below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
The Robinson-Humphrey Company, Inc. ........................
A.G. Edwards & Sons, Inc. ..................................
---------
Total............................................. 1,700,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval of certain legal matters by counsel
and to certain other conditions. If any shares of Class A Common Stock are
purchased by the Underwriters pursuant to the Underwriting Agreement, all such
shares (other than shares covered by the over-allotment option described below)
must be purchased.
66
<PAGE> 69
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Class A Common Stock to the public initially at the price
to the public set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price less a concession not
to exceed $ per share. The Underwriters may allow, and such dealers may
reallow, discounts not in excess of $ per share to any other Underwriter and
certain other dealers. After this Offering, the offering price and other selling
terms may be changed by the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Company has granted the Underwriters an option to purchase up to an
aggregate of 255,000 additional shares of Class A Common Stock, at the public
offering price net of the underwriting discount, solely to cover
over-allotments. Such option may be exercised at any time within 30 days after
the date of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
The Company, all of the current officers and directors and certain
shareholders of the Company have agreed, subject to certain limited exceptions,
not to offer, sell, contract to sell, grant any option to purchase, or otherwise
dispose of any Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or in any other manner transfer all or a portion
of the economic consequences associated with the ownership of Common Stock for a
period of 180 days after the date of this Prospectus, without the prior written
consent of The Robinson-Humphrey Company, Inc. on behalf of the Underwriters.
Up to an aggregate of 85,000 shares of Class A Common Stock, or
approximately 5% of the shares offered hereby, have been reserved for sale to
certain employees of the Company and its affiliates and other persons designated
by the Company. The price per share of the shares to be sold to these persons is
the same as the price to the public in this Offering. The maximum investment of
any such person may be limited by the Company in its sole discretion. This
program will be administered by The Robinson-Humphrey Company, Inc. The
Underwriters do not intend to confirm sales of the Class A Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
Prior to this Offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be determined by
negotiations among the Company and the Representatives. Among the factors to be
considered in such negotiations will be the history of, and the prospects for,
the Company and the industry in which it competes, an assessment of the
Company's management, the Company's past and present operations, its past and
present income and the trend of such income, the prospects for future income of
the Company, the present state of the Company's development, the general
condition of the securities markets at the time of this Offering and the market
prices of publicly traded common stocks of comparable companies in recent
periods.
LEGAL MATTERS
The validity of the Class A Common Stock and certain other legal matters in
connection with this Offering will be passed upon for the Company by Correro
Fishman Haygood Phelps Weiss Walmsley & Casteix, L.L.P., New Orleans, Louisiana.
Certain legal matters in connection with the Class A Common Stock offered hereby
will be passed upon for the Underwriters by Latham & Watkins, Los Angeles,
California.
EXPERTS
The consolidated financial statements of US Unwired Inc. and subsidiaries
as of December 31, 1994 and 1995 and September 30, 1996 and for each of the
years in the three-year period ended December 31, 1995 and the nine months ended
September 30, 1996, and the financial statements of Miscellco Communications,
Inc. for the year ended December 31, 1994 and the four-month period ended April
30, 1995, and the financial statements of West Alabama Cellular Telephone
Company, Inc. as of December 31, 1995 and May 15, 1996
67
<PAGE> 70
and for the year ended December 31, 1995 and the period from January 1, 1996 to
May 15, 1996, and the financial statements of Alabama 4 System as of June 30,
1996 and for the period October 1, 1995 to November 6, 1995 and the period from
November 7, 1995 to June 30, 1996, have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the financial statements of
Alabama 4 System contains an explanatory paragraph that refers to a business
combination in 1995 accounted for as a purchase involving assets comprising a
portion of Alabama 4 System. As a result of the acquisition, financial
information of Alabama 4 System for periods after November 6, 1995 is presented
on a different cost basis than that for periods before November 6, 1995 and,
therefore, such information is not comparable.
The balance sheet of Alabama 4 System as of September 30, 1995 and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the years ended September 30, 1994 and 1995 have been included herein and in
the Registration Statement in reliance on the report of Elliot H. Goldberg, CPA,
P.C., independent auditor, upon the authority of such person as an expert in
accounting and auditing.
The statements of operations, stockholders' equity and cash flows of
Miscellco Communications, Inc. for the year ended December 31, 1993 have been
included herein and in the Registration Statement in reliance upon the report of
Smith, Turner & Reeves, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
68
<PAGE> 71
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
US UNWIRED INC.:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1994 and
1995 and
September 30, 1996..................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1993, 1994 and 1995 and the nine months
ended September 30, 1995 (unaudited) and 1996.......... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1993, 1994 and 1995 and the
nine months ended September 30, 1996................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1994 and 1995 and the nine months
ended September 30, 1995 (unaudited) and 1996.......... F-6
Notes to Consolidated Financial Statements................ F-7
MISCELLCO COMMUNICATIONS, INC.:
Independent Auditors' Report.............................. F-19
Independent Auditors' Report.............................. F-20
Statements of Operations for the years ended December 31,
1993, 1994 and the four months ended April 30, 1995.... F-21
Statements of Stockholders' Equity for the years ended
December 31, 1993 and 1994 and the four months ended
April 30, 1995......................................... F-22
Statements of Cash Flows for the years ended December 31,
1993 and 1994 and the four months ended April 30,
1995................................................... F-23
Notes to Financial Statements............................. F-24
WEST ALABAMA CELLULAR TELEPHONE COMPANY, INC.:
Independent Auditors' Report.............................. F-26
Balance Sheets as of December 31, 1995 and May 15, 1996... F-27
Statements of Operations for the year ended December 31,
1995 and the period from January 1, 1996 to May 15,
1996................................................... F-28
Statements of Stockholders' Equity (Deficit) for the year
ended December 31, 1995 and the period from January 1,
1996 to May 15, 1996................................... F-29
Statements of Cash Flows for the year ended December 31,
1995 and the period from January 1, 1996 to May 15,
1996................................................... F-30
Notes to Financial Statements............................. F-31
ALABAMA 4 SYSTEM:
Independent Auditors' Report.............................. F-34
Independent Auditors' Report.............................. F-35
Balance Sheets as of September 30, 1995 and June 30,
1996................................................... F-36
Statements of Operations for the years ended September 30,
1994 and 1995, the period
from October 1, 1995 to November 6, 1995 and the period
from November 7, 1995
to June 30, 1996....................................... F-37
Statements of Stockholders' Equity (Deficit) for the years
ended September 30, 1994 and 1995, the period from
October 1, 1995 to November 6, 1995 and the period from
November 7, 1995 to June 30, 1996...................... F-38
Statements of Cash Flows for the years ended September 30,
1994 and 1995, the period from October 1, 1995 to
November 6, 1995 and the period from November 7, 1995
to June 30, 1996....................................... F-39
Notes to Financial Statements............................. F-40
</TABLE>
F-1
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
The Board of Directors
US Unwired Inc.
We have audited the accompanying consolidated balance sheets of US Unwired
Inc. and subsidiaries as of December 31, 1994 and 1995, and September 30, 1996,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1995 and the nine-month period ended September 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of US Unwired
Inc. and subsidiaries as of December 31, 1994 and 1995, and September 30, 1996
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995 and the nine-month period ended
September 30, 1996 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New Orleans, Louisiana
December 13, 1996, except as to note 15
which is as of January 16, 1997
F-2
<PAGE> 73
US UNWIRED INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 5,323,594 $ 5,101,601 $ 8,366,783
Restricted cash.................................. -- -- 1,735,000
Subscriber receivables (less allowance for
doubtful accounts of $339,898, $1,006,000 and
$2,213,570 at December 31, 1994 and 1995 and
September 30, 1996, respectively)............. 2,445,891 5,474,179 7,977,430
Receivable from affiliate........................ 424,497 -- --
Other receivables................................ 266,066 235,439 693,521
Inventory........................................ 804,878 1,600,570 1,683,137
Prepaid expenses................................. 121,644 133,515 355,431
----------- ----------- ------------
Total current assets..................... 9,386,570 12,545,304 20,811,302
Investments in unconsolidated affiliates........... 554,291 5,449,719 5,426,434
Property and equipment, net of accumulated
depreciation of $9,702,939, $13,484,855 and
$17,473,925 as of December 31, 1994 and 1995 and
September 30, 1996, respectively................. 13,261,076 20,911,272 26,407,022
Cellular licenses, net of accumulated amortization
of $1,008,478, $2,779,000 and $5,282,800 as of
December 31, 1994 and 1995 and September 30,
1996, respectively............................... 10,094,786 38,784,432 76,355,260
Deferred income taxes.............................. 351,635 483,862 578,950
Other assets....................................... 1,992,064 579,262 1,354,495
----------- ----------- ------------
Total assets............................. $35,640,422 $78,753,851 $130,933,463
=========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 1,368,685 $ 2,821,966 $ 4,842,935
Accrued expenses................................. 1,030,227 2,034,406 4,938,173
Current maturities of long-term debt............. 665,762 2,776,828 7,996,363
----------- ----------- ------------
Total current liabilities................ 3,064,674 7,633,200 17,777,471
Long-term debt..................................... 13,020,412 49,274,443 87,681,399
Minority interest.................................. 896,902 442,981 139,935
Shareholders' equity:
Preferred stock, authorized 40,000,000 shares;
none issued or outstanding.................... -- -- --
Common stock, $0.01 par value
Class A: Authorized 100,000,000 shares; none
issued or outstanding....................... -- -- --
Class B: Authorized 60,000,000 shares; issued
and outstanding, 11,066,927, 11,183,428 and
11,250,000 shares at December 31, 1994 and
1995 and September 30, 1996, respectively... 110,669 111,834 112,500
Additional paid-in capital....................... 1,514,724 1,655,309 1,834,643
Retained earnings................................ 17,033,041 19,636,084 23,387,515
----------- ----------- ------------
Total shareholders' equity............... 18,658,434 21,403,227 25,334,658
Commitments and contingencies
----------- ----------- ------------
Total liabilities and shareholders'
equity................................. $35,640,422 $78,753,851 $130,933,463
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 74
US UNWIRED INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Cellular service:
Subscriber...................... $ 9,059,203 $14,547,619 $28,801,812 $19,262,669 $32,635,016
Roaming......................... 4,084,268 6,603,242 8,909,395 6,248,134 9,609,479
Merchandise sales.................. 540,961 1,002,221 1,403,425 998,339 1,286,595
Other revenue...................... 661,369 400,257 136,962 160,077 327,844
----------- ----------- ----------- ----------- -----------
14,345,801 22,553,339 39,251,594 26,669,219 43,858,934
----------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of service.................... 4,512,823 7,444,662 11,430,334 7,891,366 11,621,569
Merchandise cost of sales.......... 719,884 2,517,994 3,372,820 1,922,518 3,376,837
General and administrative......... 1,692,353 2,498,484 5,308,109 3,553,544 7,078,436
Sales and marketing................ 2,735,772 3,768,069 6,261,559 3,986,169 5,448,448
Depreciation and amortization...... 2,036,877 2,892,457 5,685,911 3,853,731 6,432,076
----------- ----------- ----------- ----------- -----------
11,697,709 19,121,666 32,058,733 21,207,328 33,957,366
----------- ----------- ----------- ----------- -----------
Operating income..................... 2,648,092 3,431,673 7,192,861 5,461,891 9,901,568
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense................... (177,472) (789,856) (3,401,424) (2,253,020) (4,516,120)
Interest income.................... 269,548 160,405 336,253 234,771 213,952
Gain (loss) on sale of assets...... 9,984 24,611 (32,137) -- --
----------- ----------- ----------- ----------- -----------
Total other income
(expense)................ 102,060 (604,840) (3,097,308) (2,018,249) (4,302,168)
----------- ----------- ----------- ----------- -----------
Income before income taxes, minority
interest and equity in income of
affiliates......................... 2,750,152 2,826,833 4,095,553 3,443,642 5,599,400
Income tax expense................... 1,316,648 1,914,112 2,290,857 1,776,572 2,375,089
----------- ----------- ----------- ----------- -----------
Income before minority interest and
equity in income of affiliates..... 1,433,504 912,721 1,804,696 1,667,070 3,224,311
Minority interest in losses of
subsidiary......................... 401,292 439,172 453,921 379,170 303,046
Equity in income of affiliates....... 73,739 397,795 344,426 272,316 224,074
----------- ----------- ----------- ----------- -----------
Net income........................... $ 1,908,535 $ 1,749,688 $ 2,603,043 $ 2,318,556 $ 3,751,431
=========== =========== =========== =========== ===========
Net income per share................. $ 0.17 $ 0.16 $ 0.23 $ 0.21 $ 0.33
=========== =========== =========== =========== ===========
Weighted average shares
outstanding........................ 10,933,782 11,108,874 11,242,334 11,239,783 11,250,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 75
US UNWIRED INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
PREFERRED COMMON COMMON PAID-IN RETAINED
STOCK STOCK STOCK CAPITAL EARNINGS TOTAL
--------- ------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993..................... $ -- $ -- $108,672 $1,143,428 $13,374,818 $14,626,918
Net income..................................... -- -- -- -- 1,908,535 1,908,535
-------- ------- -------- ---------- ----------- -----------
Balance at December 31, 1993................... -- -- 108,672 1,143,428 15,283,353 16,535,453
Issuance of 199,716.42 shares of Class B Common
Stock........................................ -- -- 1,997 112,003 -- 114,000
Contributed capital............................ -- -- -- 259,293 -- 259,293
Net income..................................... -- -- -- -- 1,749,688 1,749,688
-------- ------- -------- ---------- ----------- -----------
Balance at December 31, 1994................... -- -- 110,669 1,514,724 17,033,041 18,658,434
Issuance of 116,501.24 shares of Class B Common
Stock........................................ -- -- 1,165 140,585 -- 141,750
Net income..................................... -- -- -- -- 2,603,043 2,603,043
-------- ------- -------- ---------- ----------- -----------
Balance at December 31, 1995................... -- -- 111,834 1,655,309 19,636,084 21,403,227
Issuance of 66,572.14 shares of Class B Common
Stock........................................ -- -- 666 179,334 -- 180,000
Net income..................................... -- -- -- -- 3,751,431 3,751,431
-------- ------- -------- ---------- ----------- -----------
Balance at September 30, 1996.................. $ -- $ -- $112,500 $1,834,643 $23,387,515 $25,334,658
======== ======= ======== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 76
US UNWIRED INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 1,908,535 $ 1,749,688 $ 2,603,043 $ 2,318,556 $ 3,751,431
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 2,036,877 2,892,457 5,685,911 3,853,731 6,432,076
Minority interest...................... (401,292) (439,172) (453,921) (379,171) (303,046)
Unearned revenue....................... 89,000 158,000 227,000 160,000 153,000
Bad debt provision..................... 154,344 106,349 589,338 299,717 1,120,351
Deferred tax expense................... 75,593 (330,179) (132,227) (56,419) (95,088)
Gain on the sale of assets............. (9,984) (24,611) (32,137) --
Equity in income of affiliates......... (73,739) (397,795) (344,426) (272,316) (224,074)
Non-cash compensation.................. -- 114,000 141,750 141,750 180,000
Changes in operating assets and
liabilities:
Subscriber receivables................... (185,758) (1,087,295) (2,834,096) (1,449,966) (2,861,574)
Receivable from affiliates............... (542,139) 542,139 424,497 424,497 --
Other receivables........................ (272,892) 11,658 30,627 29,374 (458,082)
Inventory................................ (99,524) (578,223) (639,131) (111,782) 47,981
Prepaid expenses......................... (75,323) (23,313) 357 (262,147) (215,285)
Other assets............................. 1,485,346 937,485 2,534,922 2,556,359 (407,300)
Accounts payable......................... 1,576,843 (876,938) 1,199,684 (1,104,527) 933,174
Accrued expenses......................... 1,870,811 (1,190,584) (2,263,800) (536,087) 884,142
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities...................... 7,536,698 1,563,666 6,737,391 5,611,569 8,937,706
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment....... (8,038,020) (4,460,389) (5,850,687) (3,498,578) (3,554,589)
Proceeds from sale of property and
equipment.............................. 20,800 756,443 404,084 420,535 2,226
Acquisition of Kansas RSAs............... -- -- (35,111,038) (35,111,038) --
Acquisition of Alabama RSA 3............. -- -- -- -- (17,871,173)
Acquisition of Alabama RSA 4............. -- -- -- -- (27,776,313)
Acquisition of Mississippi RSA 1......... (6,000,000) -- -- -- --
Acquisition of Mississippi RSAs 3 and
4...................................... (3,042,608) -- -- -- --
Transfer to escrow....................... -- (1,736,517) -- -- --
Distributions from unconsolidated
affiliates............................. -- 360,909 368,998 285,299 2,247,359
Investment in unconsolidated
affiliates............................. (184,016) (104,828) (4,920,000) (2,920,000) (2,000,000)
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities...................... (17,243,844) (5,184,382) (45,108,643) (40,823,782) (48,952,490)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt, including
interest capitalized................... 6,539,970 7,625,966 40,321,946 37,862,813 46,026,906
Principal payments on long-term debt..... -- (1,668,076) (1,956,849) (1,448,203) (2,400,415)
Deferred financing costs................. -- (155,189) (215,838) (322,935) (346,525)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities...................... 6,539,970 5,802,701 38,149,259 36,091,675 43,279,966
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash... (3,167,176) 2,181,985 (221,993) 879,462 3,265,182
Cash at beginning of period................ 6,308,785 3,141,609 5,323,594 5,323,594 5,101,601
------------ ------------ ------------ ------------ ------------
Cash at end of period...................... $ 3,141,609 $ 5,323,594 $ 5,101,601 $ 6,203,056 $ 8,366,783
============ ============ ============ ============ ============
Supplemental disclosures of cash flow
information:
Cash paid for interest................... $ 60,361 $ 30,532 $ 2,190,027 $ 2,094,352 $ 4,108,555
============ ============ ============ ============ ============
Cash paid for income taxes............... $ 1,530,595 $ 2,534,902 $ 2,280,200 $ 1,756,200 $ 2,315,000
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 77
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Organization
US Unwired Inc. ("Company") is principally engaged in the ownership and
operation of wireless communications systems in the south-central and the
mid-western United States. At December 31, 1995, the Company owned and operated
cellular communications systems in 14 Rural Service Areas ("RSAs"), excluding
two RSAs which it operates under interim operating authority from the Federal
Communications Commission ("FCC"), and one Metropolitan Statistical Area
("MSA"). These markets are clustered into geographic regions that include
portions of Louisiana, Mississippi, Alabama, Texas, Kansas and Oklahoma.
(b) Consolidation Policy
The consolidated financial statements include the accounts of US Unwired
Inc. and its majority-owned subsidiaries. All significant intercompany balances
and transactions are eliminated in consolidation. Losses of subsidiaries
attributable to minority shareholders in excess of the minority interest in the
equity capital of the subsidiary are not eliminated in consolidation.
(c) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with remaining maturities of three
months or less to be cash equivalents.
(d) Inventory
Inventory consists of cellular telephones and related accessories and is
carried at the lower of cost or market. Cost is determined by the first-in,
first-out method.
(e) Property and Equipment
Property and equipment is stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Buildings................................................... 31.5
Leasehold improvements...................................... 5
Cellular facilities and equipment........................... 5 to 7
Furniture and fixtures...................................... 5
Vehicles.................................................... 5
</TABLE>
Routine maintenance and repairs are charged to operating expense while
costs of betterments and renewals are capitalized.
Cellular equipment held under capital leases is amortized on a
straight-line basis over the lease term of 5 years. Amortization of assets held
under capital leases is included in depreciation and amortization.
(f) Cellular Licenses and Other Assets
Cellular licenses consist primarily of costs incurred in connection with
the Company's acquisition of cellular licenses and systems. These assets are
recorded at cost and amortized using the straight-line method over an estimated
useful life of 20 years. The Company annually evaluates the propriety of the
carrying values
F-7
<PAGE> 78
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
of its cellular licenses and other system-related assets using estimated
undiscounted future cash flows of the market to which the license relates to
determine whether current events or circumstances warrant adjustments to reduce
the carrying amounts to fair value. There have been no such reductions through
December 31, 1995.
Other assets include deferred financing costs incurred in connection with
the issuance of the Company's long-term debt which are capitalized and amortized
over the terms of the related debt using the interest method.
(g) Investments in Unconsolidated Affiliates
The Company's investments in less than majority-owned affiliated companies
in which the Company's interest is 20% or more are accounted for using the
equity method and equity in earnings are reported as investment income.
(h) Revenue Recognition
The Company earns revenue by providing access to and usage of its cellular
and paging networks and sales of cellular and paging merchandise. Access revenue
is billed one month in advance and is recognized when earned. Usage revenue is
recognized when the service is rendered. Both access and usage revenues are
classified as service revenues in the accompanying statements of operations.
Revenues from sales of merchandise are recognized when the merchandise is
delivered.
(i) Commissions
Commissions are paid to sales agents for customer activations and are
recognized in the month the customer is activated within the cellular system.
(j) Income Taxes
The Company accounts for income taxes using the asset and liability method,
under which deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(k) Stock Based Compensation
The Company plans to adopt a stock option plan providing for the grant of a
fixed number of shares to employees with an exercise price equal to the fair
value of the shares at the date of grant. The Company will account for stock
option grants in accordance with APB Opinion 25, Accounting for Stock Issued to
Employees, and accordingly, will recognize no compensation expense for stock
option grants. The Company will continue to apply the provision of APB 25 with
regard to financial statement recognition of stock-based compensation to
employees.
(l) Net Income Per Share
Net income per share is based on net income divided by the weighted average
number of common shares outstanding during the period presented. All share and
per share data have been restated to give effect to the recapitalization and
reorganization discussed in notes 2 and 15 to the Consolidated Financial
Statements. All shares issued within one year of this Offering have been treated
as outstanding for all periods presented.
F-8
<PAGE> 79
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
(m) Use of Estimates
The preparation of financial statements in accordance 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.
(n) Interim Financial Information
In the opinion of management, the accompanying interim consolidated
financial information of the Company contains all adjustments, consisting only
of those of a normal recurring nature, necessary to present fairly the Company's
results of its operations and cash flows for the nine-month period ended
September 30, 1995 and 1996. These interim results are not necessarily
indicative of the results to be expected for the full fiscal year.
(2) RECAPITALIZATION AND REORGANIZATION
The Company was incorporated as Mercury, Inc. in 1967 by the principal
shareholders of Cameron Communications Corporation ("Cameron") to provide
complimentary services to Cameron's local landline telephone service. Prior to
October 31, 1996, the cellular and paging communications services provided by
the Company were conducted by a subsidiary of Cameron and by the Company and its
subsidiaries, all of which were affiliated through common stock ownership
control by a related group of shareholders. In anticipation of the Company's
initial public offering of its common stock, effective October 31, 1996, the
Company and Cameron completed a reorganization plan for the purpose of combining
the wireless communications businesses of these related entities and separating
the wireless communications business of Cameron from its traditional landline
telephone business.
To accomplish the restructuring, the Company and Cameron executed a series
of transactions which included the following: (i) transfer of the landline
telephone business to a newly-formed subsidiary of Cameron ("Newco") and
spin-off of Newco to its shareholders, and (ii) merger of Cameron into the
Company and issuance of 2.192108 shares of Class B Common Stock of the Company
on a pro-rata basis to Cameron shareholders, resulting in the combination of all
wireless telecommunications businesses within the Company. In October 1996, the
Board of Directors of the Company authorized the issuance of Class A Common
Stock, $0.01 par value per share, to be registered under Securities Act of 1933
in the Company's initial public offering.
The combination of the wireless communications business represents a
combination of entities under common control and has been accounted for at
historical cost in a manner similar to that in pooling-of-interests accounting.
The spin-off of the landline telephone business, which has been consummated
prior to the date of this Prospectus, has been treated as a change in reporting
entity, and the historical financial statements have been restated in accordance
with Staff Accounting Bulletin No. 93 since the Company and Newco are in
dissimilar businesses, have been managed and financed historically as if they
were autonomous and will continue to be managed and financed autonomously after
the spin-off. In addition, all share and per share amounts have been
retroactively adjusted to give effect to the issuance of Class B Common Stock
described above.
(3) ACQUISITIONS
In December 1992, the Company acquired a 36.25% interest in Mississippi 34
Cellular Corporation ("MS 34") for approximately $2.6 million. In April 1993,
the Company purchased an additional 14.75%
F-9
<PAGE> 80
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
interest in MS 34 for approximately $900,000 bringing the total investment to
51%. The Company's investment in MS 34 was accounted for using the equity method
from December 1992 until April 1993, when the Company acquired its controlling
interest. The acquisition of MS 34 has been accounted for using the purchase
method of accounting and, accordingly, the results of operations of MS 34 have
been consolidated from the date on which the Company acquired majority ownership
of MS 34.
In April 1995, the Company purchased the assets of Miscellco
Communications, Inc., principally consisting of the Kansas-1, 2, 6, 7, 11, 12
and 13 RSAs for a purchase price of approximately $35.1 million. In May 1996,
the Company purchased the assets of West Alabama Cellular Telephone Company,
Inc., principally consisting of the Alabama-3 RSA, for a purchase price of
approximately $17.9 million. In July 1996, the Company purchased the Alabama 4
System assets from PriCellular Corporation principally consisting of the
Alabama-4 RSA, for a purchase price of approximately $27.8 million. These
acquisitions have been accounted for using the purchase method of accounting
and, accordingly, the results of operations of the acquired businesses are
included in the results of operations of the Company from the effective dates of
the acquisitions. The Company recorded cellular licenses acquired in these
transactions in the amounts of $30.5 and $39.9 million, respectively, during the
year ended December 31, 1995 and the nine months ended September 30, 1996, which
are being amortized over a twenty-year period using the straight-line method.
Pro forma unaudited consolidated operating results of the Company and the
acquired businesses for the years ended December 31, 1994 and 1995 and the nine
months ended September 30, 1996, assuming the acquisitions had been made as of
January 1, 1994 with respect to Miscellco and January 1, 1995 with respect to
the Alabama-3 and Alabama-4 RSAs, are summarized below:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
<S> <C> <C> <C>
Revenues...................................... $28,544,000 $49,868,000 $48,401,000
Net income (loss)............................. $(1,277,000) $ (357,000) $ 3,100,000
Net income (loss) per common share............ $ (0.11) $ (0.03) $ 0.28
</TABLE>
(4) PROPERTY AND EQUIPMENT
Major categories of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ------------ -------------
<S> <C> <C> <C>
Land...................................... $ 1,102,897 $ 1,130,302 $ 1,130,302
Buildings................................. 1,411,592 1,854,277 2,374,293
Leasehold improvements.................... 55,409 207,158 210,499
Cellular facilities and equipment......... 19,604,054 29,407,076 36,698,825
Furniture and fixtures.................... 599,450 1,110,567 1,544,510
Vehicles.................................. -- 156,756 178,998
Construction in progress.................. 190,613 529,991 1,743,520
----------- ------------ ------------
22,964,015 34,396,127 43,880,947
Less accumulated depreciation... (9,702,939) (13,484,855) (17,473,925)
----------- ------------ ------------
$13,261,076 $ 20,911,272 $ 26,407,022
=========== ============ ============
</TABLE>
F-10
<PAGE> 81
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
During the year ended December 31, 1995, the Company began leasing certain
cellular equipment under agreements classified as capital leases. The following
is a summary of equipment held under capital leases as of December 31, 1995 and
September 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Cellular facilities and equipment.......................... $3,144,276 $3,144,276
Less accumulated depreciation.............................. (302,352) (766,364)
---------- ----------
$2,841,924 $2,377,912
========== ==========
</TABLE>
(5) INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Investments in unconsolidated affiliates at December 31, 1994 and 1995 and
September 30, 1996 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
PERCENTAGE --------------------- SEPTEMBER 30,
OWNERSHIP 1994 1995 1996
---------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Meretel Communications, L.P............ 24.33% $ -- $2,920,000 $2,920,000
Mercury Mobility, L.L.C................ 50% 1,500 2,001,500 2,001,500
GTE Mobilnet of Texas RSA #21 Limited
Partnership.......................... 25% 552,791 528,219 504,934
-------- ---------- ----------
$554,291 $5,449,719 $5,426,434
======== ========== ==========
</TABLE>
Summary financial information for GTE Mobilnet of Texas RSA #21 Limited
Partnership is as follows for the years ended December 31, 1994 and 1995 and the
nine months ended September 30, 1996 (unaudited) respectively:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Total assets.................................. $2,307,919 $2,248,559 $2,379,779
Total liabilities............................. 96,752 135,679 103,530
---------- ---------- ----------
Partners' capital............................. $2,211,167 $2,112,880 $2,276,249
========== ========== ==========
Revenues...................................... $2,281,484 $2,067,719 $1,659,820
========== ========== ==========
Operating expenses............................ $ 707,786 $ 716,345 $ 523,587
========== ========== ==========
Net income.................................... $1,591,181 $1,377,703 $1,152,806
========== ========== ==========
</TABLE>
In June 1995 the Company invested approximately $2.9 million in Meretel
Communications L.P. (the "PCS Partnership") and has committed to make additional
capital contributions of up to approximately $10.1 million upon the successful
acquisition of one or more licenses in certain FCC auctions for broadband
personal communications services ("PCS") licenses. In May 1996, the FCC
completed the auctions for which the PCS Partnership was formed to participate,
and the PCS Partnership was the high bidder for five PCS licenses for a total
bid price of $61.2 million. Four of these licenses were granted in October 1996.
F-11
<PAGE> 82
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Mercury Mobility, L.L.C. ("Mobility") was organized in September 1994 for
the purpose of participating in certain FCC auctions for PCS licenses. The
Company and a related party each have a 50% equity interest in Mobility. As of
September 30, 1996, Mobility has not commenced active operations.
(6) ACCRUED EXPENSES
Accrued expenses consists of the following at December 31, 1994 and 1995
and September 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Accrued taxes, other than income.............. $ 186,791 $ 382,593 $ 482,148
Accrued interest expense...................... 32,493 295,471 777,256
Accrued payroll............................... 100,000 262,312 300,000
Unearned revenue and customer deposits........ 429,359 700,017 899,360
Escrow payable................................ -- -- 1,735,000
Other......................................... 281,584 394,013 744,409
---------- ---------- ----------
$1,030,227 $2,034,406 $4,938,173
========== ========== ==========
</TABLE>
(7) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
<S> <C> <C> <C>
Debt outstanding under credit facilities:
Bank financing.............................. $ 2,446,075 $36,448,395 $80,356,066
Vendor financing............................ 7,763,922 9,690,298 9,690,298
Capitalized lease obligation.................. -- 2,950,869 2,549,208
Subordinated note payable to a related party,
interest at 5.45%, principal and interest
payable in quarterly installments, due
January 2002................................ 2,740,415 2,891,709 3,012,190
Other notes payable to related parties........ 735,762 70,000 70,000
----------- ----------- -----------
13,686,174 52,051,271 95,677,762
Less current maturities............. (665,762) (2,776,828) (7,996,363)
----------- ----------- -----------
Long-term debt, excluding current
maturities.................................. $13,020,412 $49,274,443 $87,681,399
=========== =========== ===========
</TABLE>
Long-term obligations mature as follows:
<TABLE>
<CAPTION>
DEBT LEASES TOTAL
----------- ---------- -----------
<S> <C> <C> <C>
September 30, 1997........................... $ 7,463,387 $ 764,135 $ 8,227,522
September 30, 1998........................... 8,018,528 764,135 8,782,663
September 30, 1999........................... 11,044,892 764,135 11,809,027
September 30, 2000........................... 13,002,696 685,608 13,688,304
September 30, 2001........................... 15,979,157 31,012 16,010,169
Thereafter................................... 37,619,894 -- 37,619,894
----------- ---------- -----------
$93,128,554 $3,009,025 $96,137,579
=========== ========== ===========
</TABLE>
F-12
<PAGE> 83
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Long-term lease obligation includes amounts representing interest at 8.24%
totaling $613,437 and $459,817 at December 31, 1995 and September 30, 1996,
respectively.
The notes outstanding under the bank credit facilities include a loan from
Cameron Telephone Company, a subsidiary of Cameron, and joint financing
arrangements with CTC Financial, Inc., a subsidiary of Cameron Telephone
Company, pursuant to which funds have been loaned to CTC Financial, Inc. and
reloaned on a pass-through basis to the Company. On November 22, 1996, CTC
Financial, Inc. assigned its interest in the loans to Mercury Cellular of
Kansas, Inc., a subsidiary of the Company. The notes outstanding under the bank
credit facilities generally provide for monthly amortization of principal and
interest with final maturities at various dates through December 20, 2002. The
notes outstanding under the vendor credit facility provide for quarterly
interest payments beginning March 1996 and quarterly amortization of principal
beginning December 1997 with the final maturity on December 20, 2003. Weighted
average interest rates, under the credit facilities are comprised of a
combination of fixed rates over the term of the note or variable rates based on
either a variable lending rate established by a commercial bank plus a margin
ranging up to 1% or the average offering rate for three-month commercial paper
of major corporations, are 9.33%, 8.92% and 8.27% at December 31, 1994 and 1995
and September 30, 1996, respectively. As of September 30, 1996, the Company had
an unused commitment with a commercial bank of approximately $2.1 million which
expires December 31, 1996. Substantially all of the assets of the Company are
pledged to secure the Company's obligations under the various loans and credit
facilities described above. Under key covenants outlined in the credit
facilities, the Company is restricted from paying dividends, and must meet
certain minimum operating results, a maximum leverage ratio, and a minimum debt
service coverage ratio, among other requirements.
(8) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1993, 1994,
and 1995 and the nine months ended September 30, 1996 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------ SEPTEMBER 30,
1993 1994 1995 1996
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Federal:
Current........................... $1,051,668 $1,923,534 $2,082,151 $2,117,134
Deferred.......................... 67,636 (295,423) (118,307) (85,079)
---------- ---------- ---------- ----------
1,119,304 1,628,111 1,963,844 2,032,055
---------- ---------- ---------- ----------
State:
Current........................... 189,387 320,757 340,933 353,043
Deferred.......................... 7,957 (34,756) (13,920) (10,009)
---------- ---------- ---------- ----------
197,344 286,001 327,013 343,034
---------- ---------- ---------- ----------
Total..................... $1,316,648 $1,914,112 $2,290,857 $2,375,089
========== ========== ========== ==========
</TABLE>
F-13
<PAGE> 84
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Income tax benefit differed from the amounts computed by applying the U.S.
federal income tax rate of 34% for the years ended December 31, 1993, 1994 and
1995 and the nine months ended September 30, 1996 to income before income taxes,
minority interest and equity in income of affiliates as a result of the
following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------ SEPTEMBER 30,
1993 1994 1995 1996
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Computed "expected" tax expense..... $ 935,052 $ 961,123 $1,392,488 $1,903,796
Change in valuation allowance....... 315,840 594,716 635,622 137,419
State income taxes, net of federal
income taxes...................... 127,007 183,859 208,332 193,172
Gain from sale of voice mail
operations........................ -- 88,159 -- --
Equity in income of affiliates...... 25,071 135,250 117,105 76,185
Other, net.......................... (86,322) (48,995) (62,690) 64,517
---------- ---------- ---------- ----------
$1,316,648 $1,914,112 $2,290,857 $2,375,089
========== ========== ========== ==========
</TABLE>
The tax effects of temporary differences that give rise to the significant
components of deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1994 1995 1996
---------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Operating loss carryforwards................. $1,306,123 $ 2,359,372 $ 2,473,872
Allowance for doubtful accounts.............. 129,161 382,280 841,157
Accrued interest to related parties.......... 277,109 304,901 330,948
Unearned revenue............................. 140,000 231,000 316,000
Other........................................ 38,000 76,000 114,000
---------- ----------- -----------
Gross deferred tax asset............. 1,890,393 3,353,553 4,075,977
Less valuation allowance....................... (947,041) (1,582,663) (1,720,082)
---------- ----------- -----------
Net deferred tax asset............... 943,352 1,770,890 2,355,895
Deferred tax liabilities --
Fixed assets, principally due to differences
in depreciation........................... 484,447 1,179,758 1,669,675
Other........................................ 107,270 107,270 107,270
---------- ----------- -----------
Deferred tax liabilities............. 591,717 1,287,028 1,776,945
---------- ----------- -----------
$ 351,635 $ 483,862 $ 578,950
========== =========== ===========
</TABLE>
In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. The Company
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. Based upon
these considerations, the Company has provided a valuation allowance to reduce
the carrying value of deferred tax assets related to net operating losses of the
Company's 51% owned subsidiary to the amounts that can be realized through
future reversals of existing taxable temporary differences.
Prior to consummation of the reorganization described in Note 2, certain of
the Company's cellular and paging activities were included in the consolidated
federal income tax returns of Cameron and US Unwired Inc. Effective November 1,
1996, the Company will file a consolidated federal income tax return which will
F-14
<PAGE> 85
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
include US Unwired Inc. and its qualifying subsidiaries. MS 34, a 51%-owned
subsidiary, files a separate federal income tax return.
The Company has obtained a private letter ruling from the Internal Revenue
Service to the effect that no gain or loss would be recognized by Cameron or its
shareholders by virtue of the transfer of assets or spin-off of Cameron's
landbased telephone business. In addition, tax counsel for the Company has
informed it that the merger of Cameron into the Company qualifies as a
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code so that
no gain or loss would be recognized by the respective corporations or their
shareholders by virtue of the merger.
The Company had the following net operating loss carryforwards ("NOL") as
of September 30, 1996 for Federal income tax purposes, expiring in the year
indicated.
<TABLE>
<CAPTION>
COMPANY NOL EXPIRATION
------- ---------- ----------
<S> <C> <C>
US Unwired Inc.............................................. $1,340,000 2007
MS 34....................................................... 4,790,000 2007
</TABLE>
(9) SHAREHOLDERS' EQUITY
The Company is authorized by its Articles of Incorporation to issue
40,000,000 shares of preferred stock upon the authorization of the Company's
Board of Directors. The Board of Directors is authorized to fix the dividend
rights and terms, conversion and voting rights, redemption rights and other
privileges and restrictions applicable to the stock.
The Company has two classes of authorized common stock, Class A Common
Stock and Class B Common Stock. Other than as to voting rights and transfer
restrictions applicable to the Class B shares, the Class A and Class B shares
have identical rights.
Class A shares have one vote per share and Class B shares have ten votes
per share. Shares of Class B Common Stock generally convert automatically into
shares of Class A Common Stock on a share-for-share basis upon the transfer of
the Class B shares to other than a "qualified holder," generally the original
holders of Class B shares. Class B shares are also subject to other transfer
restrictions.
In February 1994, January 1995 and January 1996 the Company granted to key
employees shares of Common Stock that, after the reclassification of Common
Stock discussed in Note 2, amounts to 199,716.42, 116,501.24 and 66,572.14
shares, respectively, of Class B Common Stock. The shares were issued at the
fair market value of the Company's common stock, based upon an independent
valuation, at the date of the grant. The Company recognized compensation expense
of $114,000 and $141,750, respectively, during the years ended December 31, 1994
and 1995, and $180,000 during the nine months ended September 30, 1996 in
accordance with APB 25.
(10) COMMITMENTS AND CONTINGENCIES
The Company participates in a 401(k) retirement plan (the "401(k) plan")
sponsored by a related party for the benefit of its employees. Employees are
eligible to participate in the 401(k) plan when the employee has completed one
year of service and has attained an age of 18. Under the 401(k) plan,
participating employees may defer a portion of their pretax earnings up to
certain limits prescribed by the Internal Revenue Service. The Company
contributes a discretionary match equal to a percentage of the amount deferred
by the employee and a discretionary amount determined by the Company from
current or accumulated net profits. The Company's contributions are fully vested
upon the completion of 5 years of service. Compensation expense related to the
401(k) plan was approximately $37,000, $63,000, $118,000 and $82,000 for the
years ended December 31, 1993, 1994, 1995 and the nine months ended September
30, 1996, respectively.
F-15
<PAGE> 86
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
The Company is a party to various operating leases for facilities and
equipment. Future minimum lease payments due under operating leases are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30,
- --------------------------
<S> <C> <C>
1997............................................. $384,881
1998............................................. 294,448
1999............................................. 264,479
2000............................................. 175,245
2001............................................. 139,294
Thereafter....................................... 316,141
</TABLE>
Rental expense related to operating leases was $147,529, $214,444, $459,740
and $542,873, for the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1996, respectively.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
The Company has agreed to guarantee repayment of up to $6.2 million, plus
interest and fees thereon, under a commitment for financing obtained by the PCS
Partnership from Rural Telephone Finance Corporation ("RTFC").
(11) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Financial Accounting Standards
Board Statement No. 105, consist primarily of cash and accounts receivable. The
Company places its cash and temporary cash investments with high credit quality
financial services companies. Collectibility of subscriber receivables is
impacted by economic trends in each of the Company's markets and the Company has
provided an allowance which it believes is adequate to absorb losses from
uncollectible accounts.
(12) SUPPLEMENTAL CASH FLOW DISCLOSURE
The Company has consummated the acquisition of various cellular operations,
along with certain other assets, during the three years ended December 31, 1995
and the nine months ended September 30, 1995 (unaudited) and 1996. In connection
with these acquisitions, the following assets were acquired and liabilities
assumed:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- --------------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ --------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Property and equipment.... $ 246,451 $ -- $ 4,625,989 $ 4,625,989 $ 5,252,898
Intangible assets......... 11,076,716 -- 30,544,636 30,544,636 39,825,102
Long-term debt............ (570,000) -- -- -- --
Other assets and
liabilities excluding
cash and cash
equivalents............. 26,807 -- (59,587) (59,587) 569,486
Minority interest......... (1,737,366) -- -- -- --
----------- ----------- ------------ ------------ -----------
$ 9,042,608 $ -- $ 35,111,038 $ 35,111,038 $45,647,486
=========== =========== ============ ============ ===========
</TABLE>
F-16
<PAGE> 87
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Included in the acquisition amounts at September 30, 1996 is $1,735,000
placed in escrow as restricted cash, and a corresponding liability has been
included in accrued expenses in the accompanying balance sheet.
In 1994, the Company received a note receivable for the sale of the assets
of the voicemail operations in the amount of $424,497 from a related party.
(13) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, subscriber receivables,
accrued interest and other receivables, and accounts payable and accrued
expenses approximate fair value because of the short maturity of these items.
The estimated fair value of the Company's long-term debt at September 30, 1996
is $97,784,725, compared to its carrying value of $95,677,762. The estimated
fair value of the Company's long-term debt at December 31, 1995 is $54,595,646,
compared to its carrying value of $52,051,271. The fair value of long-term debt
is valued at future cash flows discounted using the current borrowing rate for
loans of a comparable maturity.
Fair value estimates are subject to inherent limitations. Estimates of fair
value are made at a specific point in time, based on relevant market information
and information about the financial instrument. The estimated fair values of
financial instruments presented above are not necessarily indicative of amounts
the Company might realize in actual market transactions. Estimates of fair value
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
(14) RELATED PARTY TRANSACTIONS
During 1994, in connection with the Company's decision to focus on its
wireless communications services, the Company completed a transaction to divest
its voicemail operation and assets to Mercury Information Technologies, Inc.
("MIT"), a company owned by certain of the Company's principal shareholders for
a sales price of $424,497. The carrying value of the assets sold was $165,204,
resulting in contributed capital of $259,293 reflected in the 1994 statement of
stockholders' equity.
During each of the three years ended December 31, 1995, and for the nine
months ended September 30, 1996 the Company has utilized certain bill processing
services of Cameron. The aggregate amounts paid to Cameron for such services
during the years ended December 31, 1993, 1994 and 1995 and for the nine months
ended September 30, 1996 totaled $552,448, $634,573, $1,049,607 and $1,294,699,
respectively.
The Company also purchases long distance services from Cameron pursuant to
an oral agreement and resells the service to the Company's customers. The
aggregate amounts paid to Cameron for such services during the years ended
December 31, 1993, 1994 and 1995, and for the nine months ended September 30,
1996 totaled $225,000, $228,000, $386,000 and $495,000, respectively.
During the year ended December 31, 1995 and the nine months ended September
30, 1996, the Company paid $154,000 and $216,000, respectively, to MIT for
voicemail services which the Company uses itself and also resells to its
cellular subscribers.
(15) SUBSEQUENT EVENTS
In January 1997 the Company issued 16,643.034544 shares of Class B Common
Stock in exchange for each outstanding share of Common Stock of the Company in a
reclassification of the Common Stock. The Company also changed its name from
Mercury, Inc. to US Unwired Inc. Accordingly, the accompanying financial
statements of the Company reflect the change of Company's name to US Unwired
Inc., and all share and per share amounts therein have been retroactively
adjusted to give effect to the reclassification of the Common Stock.
F-17
<PAGE> 88
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
In January 1997, the Company adopted the US Unwired Inc. 1997 Stock Option
Plan (the "Plan"), which provides for the grant of stock options and other
equity-based awards to key employees of the Company. The total number of shares
of Class A Common Stock which may be granted pursuant to the Plan is 1,400,000.
The Plan will terminate on the tenth anniversary of the effective date of the
Plan.
Option awards and the exercise price of options granted under the Plan will
be determined by the Compensation Committee of the Board of Directors, but may
not be less than 100% of the fair market value of the Class A Common Stock on
the date of the grant, and the term of the grant may not exceed 10 years from
the date of the grant. Options granted under the Plan will vest upon a proposed
sale of substantially all of the assets of the Company, or the merger of the
Company with or into another corporation. Options vest over a four-year period
commencing on the date of the grant and expire five years from the date of the
grant.
On or about December 1, 1996 the Company completed agreements with the
minority shareholders of MS 34 to acquire the remaining 49% of the outstanding
stock for approximately $11.6 million in cash, bringing the Company's ownership
of MS 34 to 100%. The agreement is contingent upon completion of the Company's
initial public offering, and will be funded with proceeds from the offering.
In December 1996, the FCC granted to the PCS Partnership the fifth C-block
license for which the PCS Partnership was the high bidder in the C-block auction
completed in May 1996.
In January 1997, the FCC concluded the D, E and F-block auction. Mobility
was the high bidder for 22 broadband PCS licenses for a total bid price of $9.5
million.
F-18
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Miscellco Communications, Inc.:
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Miscellco Communications, Inc. for the year ended
December 31, 1994 and the four-month period ended April 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Miscellco
Communications, Inc. for the year ended December 31, 1994 and the four-month
period ended April 30, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
August 2, 1996
New Orleans, Louisiana
F-19
<PAGE> 90
The Board of Directors
Miscellco Communications, Inc.
Jackson, Mississippi
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Miscellco Communications, Inc. for the year ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Miscellco
Communications, Inc. for the year ended December 31, 1993, in conformity with
generally accepted accounting principles.
SMITH, TURNER & REEVES
March 3, 1994
Jackson, Mississippi
F-20
<PAGE> 91
MISCELLCO COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED
------------------------- APRIL 30,
1993 1994 1995
----------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Cellular service.................................... $ 3,124,105 $5,428,903 $2,224,085
Merchandise and installation sales.................. 610,311 562,119 132,280
----------- ---------- ----------
3,734,416 5,991,022 2,356,365
----------- ---------- ----------
Operating expenses:
System operations................................... 955,166 1,069,816 415,660
Cost of equipment and installation sales............ 752,310 874,094 357,433
Marketing and selling............................... 1,100,950 1,212,686 366,066
General and administrative.......................... 1,098,935 1,992,729 550,210
Depreciation and amortization....................... 486,889 683,197 249,736
----------- ---------- ----------
4,394,250 5,832,522 1,939,105
----------- ---------- ----------
Operating income (loss)............................... (659,834) 158,500 417,260
----------- ---------- ----------
Other income (expense):
Interest expense.................................... (403,235) (729,280) (317,680)
Other............................................... 13,455 1,402 843
----------- ---------- ----------
Total other expense......................... (389,780) (727,878) (316,837)
----------- ---------- ----------
Net income (loss)........................... $(1,049,614) $ (569,378) $ 100,423
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 92
MISCELLCO COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1992............... $ 420,400 $2,827,948 $(3,452,492) $ (204,144)
Net loss................................... -- -- (1,049,614) (1,049,614)
Issuance of 22,105 shares of common
stock.................................... 22,105 359,006 -- 381,111
Exercise of stock options (note 2)......... 15,631 109,417 -- 125,048
--------- ---------- ----------- -----------
Balance at December 31, 1993............... 458,136 3,296,371 (4,502,106) (747,599)
Net loss................................... -- -- (569,378) (569,378)
Exercise of stock options (note 2)......... 4,981 61,705 -- 66,686
Repurchase and retirement of 102,956 shares
of common stock.......................... (102,956) (692,565) (2,954,479) (3,750,000)
--------- ---------- ----------- -----------
Balance at December 31, 1994............... 360,161 2,665,511 (8,025,963) (5,000,291)
Net income................................. -- -- 100,423 100,423
--------- ---------- ----------- -----------
Balance at April 30, 1995.................. $ 360,161 $2,665,511 $(7,925,540) $(4,899,868)
========= ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 93
MISCELLCO COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED
-------------------------- APRIL 30,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $(1,049,614) $ (569,378) $ 100,423
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 486,889 683,197 249,736
Compensation expense for employee stock options
exercised..................................... 109,417 61,705 --
(Gain) loss on sale of assets................... (10,265) 862 --
Increase in allowance for uncollectible
accounts...................................... 8,000 13,000 5,000
Changes in operating assets and liabilities:
Receivables................................... (312,662) (322,223) (269,167)
Inventory..................................... (82,787) (106,718) 152,399
Prepaid expenses.............................. (108,170) 70,018 73,041
Other assets.................................. (319) (1,778) 18
Accounts payable.............................. 396,975 (271,529) (197,843)
Customer deposits and advance billings........ 166,724 91,669 32,380
Accrued expenses.............................. (21,672) 158,115 (114,582)
----------- ----------- ---------
Net cash provided by (used in) operating
activities............................... (417,484) (193,060) 31,405
----------- ----------- ---------
Cash flows from investing activities:
Purchases of property and equipment................ (592,253) (1,944,641) (450,505)
Disposals of property and equipment................ 352,352 3,514 --
Acquisition of intangible assets................... (12,631) (594,392) (7,608)
----------- ----------- ---------
Net cash used in investing activities...... (252,532) (2,535,519) (458,113)
----------- ----------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........... 558,144 11,393,588 355,000
Principal payments on long-term debt............... (210,962) (4,835,245) (33,334)
Proceeds from issuance of common stock............. 381,111 4,981 --
Payments to repurchase common stock................ -- (3,750,000) --
----------- ----------- ---------
Net cash provided by financing
activities............................... 728,293 2,813,324 321,666
Net increase (decrease) in cash and cash
equivalents.............................. 58,277 84,745 (105,042)
Cash and cash equivalents, beginning of period....... 13,420 71,697 156,442
----------- ----------- ---------
Cash and cash equivalents, end of period............. $ 71,697 $ 156,442 $ 51,400
=========== =========== =========
Cash payments for interest........................... $ 379,938 $ 641,827 $ 354,873
=========== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 94
MISCELLCO COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND THE FOUR-MONTH PERIOD ENDED APRIL 30, 1995
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Miscellco Communications, Inc. (the Company) owns and operates cellular
telephone service in the following rural service areas (RSAs) of Kansas and
Oklahoma: KS1, KS2, KS6, KS7, KS11, KS12, KS13 and OK1. The RSAs are
geographically outlined by the Federal Communications Commission (FCC). In 1989
through 1994 the Company was awarded the non-wireline A band rights and given
construction permits to construct the above RSAs in compliance with FCC
regulations and guidelines. The OK1 RSA is operated under an interim operating
authority granted by the FCC.
Effective April 30, 1995, the assets of the Company were sold to Mercury
Cellular of Kansas, Inc. (Mercury), a Louisiana corporation for a purchase price
of $35,895,663. The accompanying financial statements reflect the results of
operations of the Company for the respective periods prior to the sale of the
Company's assets to Mercury.
(b) Property and Equipment
Property and equipment are stated at cost and include, among other items,
the cost of transmission equipment, structures and installation equipment.
Depreciation is calculated on a straight-line basis over the estimated useful
lives of the assets. Routine maintenance and repairs are charged to operating
expense while costs of betterments and renewals are capitalized.
(c) Intangible Assets
Intangible assets consist primarily of costs incurred in connection with
the Company's acquisition of cellular licenses. These assets are recorded at
cost and amortized using the straight-line method over a ten year period.
(d) Inventory
Inventory consists of cellular telephones and equipment held for resale and
is stated at the lower of average cost or market.
(e) Revenue Recognition
The Company earns revenue by providing access to the cellular network and
for usage of the cellular network. Access revenue is billed one month in advance
and is recognized when earned. Usage revenue is recognized when the service is
rendered. Both access and usage revenues are classified as cellular service
revenues in the accompanying statements of operations. Revenues from the sale
and installation of merchandise is recognized when merchandise is delivered.
(f) Income Taxes
No income taxes have been provided as the stockholders of the Company
elected to file as an S-corporation.
(g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-24
<PAGE> 95
MISCELLCO COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(h) Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit and money market mutual
funds.
(2) STOCKHOLDERS' EQUITY
In March 1991, the Company adopted stock option plans (the Plans) for two
key employees. The Plans, as amended, provided the right and option to acquire
37,051 shares of the Company's common stock. The exercise price of the options
granted under the plan was $1 per share. Effective August 24, 1994, the plans
were amended and terminated resulting in the issuance of the final 4,981 shares
to be issued under the plan. During 1993 and 1994, 15,631 and 4,981 shares of
common stock were issued under the plan with related compensation expense of
$109,417 and $61,705, respectively.
(3) OPERATING LEASES
The Company leases equipment, towers and office space under operating
leases having expiration dates 1995 through 2003. Generally, the Company is
responsible for executory costs such as maintenance and taxes. The minimum
future rental payments under the noncancelable operating leases for each of the
succeeding five years and in the aggregate follow:
<TABLE>
<S> <C>
1995.............................................. $106,100
1996.............................................. 68,445
1997.............................................. 63,034
1998.............................................. 62,616
1999.............................................. 62,616
Thereafter........................................ 189,098
--------
$551,909
========
</TABLE>
Rental expense associated with the operating leases was $202,236, $249,061
and $108,048 for the years ended December 31, 1993 and 1994, and for the
four-month period ended April 30, 1995, respectively. Management anticipates
that these leases will be renewed or replaced upon expiration.
F-25
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
The Board of Directors
West Alabama Cellular Telephone Company, Inc.:
We have audited the accompanying balance sheets of West Alabama Cellular
Telephone Company, Inc. as of December 31, 1995 and May 15, 1996, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the year ended December 31, 1995 and the period from January 1, 1996 to May
15, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of West Alabama Cellular
Telephone Company, Inc. as of December 31, 1995 and May 15, 1996, and the
results of its operations and cash flows for the year ended December 31, 1995
and the period from January 1, 1996 to May 15, 1996 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
New Orleans, Louisiana
August 16, 1996
F-26
<PAGE> 97
WEST ALABAMA CELLULAR TELEPHONE COMPANY, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 15,
1995 1996
------------ ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 568,756 739,044
Subscriber receivables (less allowance for doubtful
accounts of $85,500 and $11,813 at December 31, 1995
and May 15, 1996, respectively)........................ 399,143 567,392
Inventory................................................. 88,262..... 54,160
Prepaid expenses.......................................... 11,319 5,538
---------- ----------
Total current assets.............................. 1,067,480 1,366,134
Property and equipment, net................................. 1,447,612 1,364,882
Other assets................................................ 7,302 4,564
---------- ----------
Total assets...................................... $2,522,394 2,735,580
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of vendor note payable.................... 300,564 300,564
Note payable to affiliate................................. 300,000 300,000
Accounts payable.......................................... 218,644 183,397
Accrued expenses.......................................... 165,746 146,481
---------- ----------
Total current liabilities......................... 984,954 930,442
---------- ----------
Long-term vendor note payable............................... 1,577,973 1,427,691
Stockholders' equity (deficit):
Common stock, $1 par value, 5,000 shares authorized, 1,150
issued and outstanding at December 31, 1995 and May 15,
1996, respectively..................................... 1,150 1,150
Additional paid-in capital................................ 61,963 61,963
Retained earnings (deficit)............................... (103,646) 314,334
---------- ----------
Total stockholders' equity (deficit).............. (40,533) 377,447
---------- ----------
Commitments and contingencies
Total liabilities and stockholders' equity
(deficit)....................................... $2,522,394 2,735,580
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 98
WEST ALABAMA CELLULAR TELEPHONE COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1996 TO
DECEMBER 31, MAY 15,
1995 1996
------------ -----------
<S> <C> <C>
Revenues:
Cellular service.......................................... $3,226,218 1,541,434
Merchandise sales......................................... 114,029 52,939
Miscellaneous............................................. 25,634 46,589
---------- ----------
3,365,881 1,640,962
---------- ----------
Operating expenses:
Cost of service........................................... 854,388 339,173
Merchandise cost of sales................................. 336,664 154,728
Sales and marketing....................................... 72,490 36,788
General and administrative................................ 908,112 521,073
Bad debt expense.......................................... 220,896 7,969
Depreciation and amortization............................. 252,400 102,265
---------- ----------
2,644,950 1,161,996
---------- ----------
Operating income.................................. 720,931 478,966
---------- ----------
Other (income) expense:
Interest expense.......................................... 213,998 69,995
Interest income........................................... (43,737) (9,009)
Gain on sale of assets.................................... (333) --
---------- ----------
Total other expense............................... 169,928 60,986
---------- ----------
Net income........................................ $ 551,003 417,980
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 99
WEST ALABAMA CELLULAR TELEPHONE COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1995.......................... $1,150 61,963 (319,128) (256,015)
Net income.......................................... -- -- 551,003 551,003
Distributions....................................... -- -- (335,521) (335,521)
------ ------ -------- --------
Balance at December 31, 1995........................ 1,150 61,963 (103,646) (40,533)
Net income.......................................... -- -- 417,980 417,980
------ ------ -------- --------
Balance at May 15, 1996............................. $1,150 61,963 314,334 377,447
====== ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 100
WEST ALABAMA CELLULAR TELEPHONE COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1996 TO
DECEMBER 31, MAY 15,
1995 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 551,003 417,980
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 252,400 102,265
Gain on sale of assets................................. (333) --
Changes in operating assets and liabilities:
Subscriber receivables............................... (83,869) (168,249)
Inventory............................................ 20,163 34,102
Prepaid expenses..................................... (3,116) 5,781
Accounts payable..................................... 128,393 (35,247)
Accrued expenses..................................... 10,175 (19,265)
--------- --------
Net cash provided by operating activities......... 874,816 337,367
--------- --------
Cash flows from investing activities:
Proceeds from sale of equipment........................... 7,000 --
Capital expenditures...................................... (789,517) (16,797)
--------- --------
Net cash used in investing activities............. (782,517) (16,797)
--------- --------
Cash flows from financing activities:
Principal payments on note payable........................ (226,737) (150,282)
Distributions to shareholders............................. (335,521) --
Proceeds from note payable to affiliate................... 300,000 --
--------- --------
Net cash flows used in financing activities....... (262,258) (150,282)
--------- --------
Net increase (decrease) in cash and cash equivalents........ (169,959) 170,288
Beginning cash and cash equivalents......................... 738,715 568,756
--------- --------
Ending cash and cash equivalents............................ $ 568,756 739,044
========= ========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 101
WEST ALABAMA CELLULAR TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Organization
West Alabama Cellular Telephone Company, Inc. (the Company) was
incorporated on February 2, 1991 under the laws of Alabama. The Company provides
cellular telephone service to the general public and commercial customers in the
Demopolis, Fayette, and Marengo, Alabama area.
On May 15, 1996, the Company sold substantially all of its assets to
Mississippi One Cellular Telephone Company for $17,870,000. The assets sold
included the cellular licenses for the Rural Service Area known as Alabama 3,
the related system subscribers, permits and authorizations, and certain personal
property used in the operation of the system. The accompanying financial
statements reflect the financial position and results of operations of the
Company as of and for the period immediately prior to the sale of the assets to
Mississippi One Cellular Telephone Company.
(b) Inventory
Inventory consists of cellular telephone equipment for sale in the course
of the Company's activities and is valued using the lower of cost, on a
first-in, first-out basis, or market.
(c) Property and equipment
Property and equipment are stated at cost. Depreciation is being provided
by the straight-line and accelerated methods over the estimated useful lives of
the assets as follows:
<TABLE>
<S> <C>
Cellular equipment.......................................... 5 to 15 years
Buildings................................................... 15 to 31 years
Automobiles................................................. 5 years
Office equipment............................................ 5 to 7 years
</TABLE>
Routine maintenance and repairs are charged to operating expense while
costs of betterments and renewals are capitalized.
(d) Revenue Recognition
The Company earns revenue by providing access to its cellular network and
for usage of the cellular network. Access revenue is billed one month in advance
and is recognized when earned. Usage revenue is recognized when the service is
rendered. Both access and usage revenues are classified as cellular service
revenues in the accompanying statements of operations. Revenues from the sale
and installation of merchandise is recognized when merchandise is delivered.
(e) Commissions
Commissions are paid to sales agents for customer activations and are
recognized in the month the customer is activated within the cellular system.
(f) Income Taxes
The Company is an S-Corporation for federal and state income tax reporting
purposes. Federal and state income taxes are paid by the stockholders on their
respective share of the Company's income.
F-31
<PAGE> 102
WEST ALABAMA CELLULAR TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(g) Cash Flow Information
The Company considers all short-term investments with remaining maturities
of three months or less to be cash equivalents.
Cash paid for interest for the year ended December 31, 1995 and the period
from January 1, 1996 to May 15, 1996 was $200,125 and $90,631, respectively.
(h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) PROPERTY AND EQUIPMENT
Major categories of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 15,
1995 1996
------------ -----------
<S> <C> <C>
Cellular equipment........................................ $ 2,506,422 $ 2,519,467
Buildings................................................. 109,194 109,194
Automobiles............................................... 20,481 20,481
Office equipment.......................................... 48,770 52,521
----------- -----------
2,684,867 2,701,663
Less accumulated depreciation........................... (1,237,255) (1,336,781)
----------- -----------
$ 1,447,612 $ 1,364,882
=========== ===========
</TABLE>
(3) NOTE PAYABLE
The note payable is to the Company's principal supplier of equipment used
to construct the cellular telephone system. The funds advanced were used for
acquisition of equipment and services and working capital. The principal amount
of the note is due in quarterly payments of $75,141 over a seven-year period
beginning three years after the date of conditional acceptance which was in
December 1991. Interest is payable quarterly, in addition to any principal
amounts due, and is calculated at 1.25% per annum in excess of the Corporate
Base Rate of Chase Manhattan Bank in effect on the first day of each calendar
quarter. The interest rate on the note is 9.0% as of May 15, 1996.
Subsequent to May 15, 1996, the unpaid principal balance was paid in full
with proceeds received from the sale of the assets of the Company.
(4) OPERATING LEASES
The Company is obligated under several noncancelable operating lease
commitments having remaining terms in excess of one year. The annual minimum
lease payments under noncancelable operating leases as of May 15, 1996, are as
follows:
<TABLE>
<S> <C>
1997............................................... $38,260
1998............................................... 28,740
1999............................................... 21,665
2000............................................... 5,950
</TABLE>
F-32
<PAGE> 103
WEST ALABAMA CELLULAR TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rental expense under the operating leases was $34,116 and $14,161 for the
year ended December 31, 1995 and the period from January 1, 1996 to May 15,
1996, respectively. Management anticipates these leases will be renewed or
replaced upon expiration.
(5) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Financial Accounting Standards
Board Statement No. 105, consist primarily of cash and accounts receivable. The
Company places its cash and temporary cash investments with high credit quality
financial services companies. Collectibility of subscriber accounts receivable
is impacted by economic trends in each of the Company's markets and the Company
has provided an allowance which it believes is adequate to absorb losses from
uncollectible accounts.
(6) RELATED PARTY TRANSACTIONS
The Company has a note payable in the amount of $300,000 to a company that
is 100% owned by the Company's shareholders as of December 31, 1995 and May 15,
1996. The terms of the note call for interest at the rate of 5% with the
principal balance to be paid on January 14, 1997. Accrued interest on the note
as of December 31, 1995 and May 15, 1996 was $15,000 and $20,625, respectively.
(7) DISCLOSURE ABOUT FAIR VALUE
The carrying amounts of financial instruments approximate fair value
principally because of the short maturity or variable interest rate of the
instruments. Fair value estimates are subject to inherent limitations. Estimates
of fair value are made at a specific point in time, based on relevant market
information and information about the financial instrument. The estimated fair
values of financial instruments presented above are not necessarily indicative
of amounts the Company might realize in actual market transactions. Estimates of
fair value are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
F-33
<PAGE> 104
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Alabama 4 System:
We have audited the accompanying balance sheet of Alabama 4 System as of
June 30, 1996, and the related statements of operations, stockholders' equity
(deficit), and cash flows for the period from October 1, 1995 to November 6,
1995 and the period from November 7, 1995 to June 30, 1996. These financial
statements are the responsibility of the System's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alabama 4 System as of June
30, 1996, and the results of its operations and its cash flows for the period
from October 1, 1995 to November 6, 1995 and the period from November 7, 1995 to
June 30, 1996, in conformity with generally accepted accounting principles.
As discussed in note 1 to the financial statements, on November 7, 1995,
PriCellular and its wholly owned subsidiary Northland Cellular purchased certain
assets of the Alabama 4 System in a business combination accounted for as a
purchase. As a result of the acquisition, financial information for the period
after November 6, 1995 is presented on a different cost basis than that for the
periods before November 6, 1995 and, therefore, such information is not
comparable.
KPMG Peat Marwick LLP
New Orleans, Louisiana
September 18, 1996
F-34
<PAGE> 105
INDEPENDENT AUDITORS' REPORT
Dominion Cellular, Inc.
Clanton, Alabama
We have audited the accompanying balance sheet of Dominion Cellular, Inc.
(Alabama 4 System) as of September 30, 1995, and the statements of operations,
stockholders' equity (deficit), and cash flows for the years ended September 30,
1994 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dominion Cellular, Inc.
(Alabama 4 System) as of September 30, 1995, and the results of its operations
and its cash flow for the years ended September 30, 1994 and 1995, in conformity
with generally accepted accounting principles.
Elliot H. Goldberg, CPA, P.C.
Rockville Centre, N.Y.
December 16, 1995
F-35
<PAGE> 106
ALABAMA 4 SYSTEM
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 322,057 $ 44,033
Subscriber receivables (less allowance for doubtful
accounts of $133,070 and $77,734 at September 30, 1995
and June 30, 1996,
respectively).......................................... 808,780 634,866
Receivable from parent.................................... 2,100,000 2,470,978
Receivable from affiliates................................ -- 412,632
Inventory................................................. 43,535 79,287
Prepaid expenses and other................................ 33,592 5,216
---------- -----------
Total current assets.............................. 3,307,964 3,647,012
Property and equipment, net................................. 4,007,474 3,736,719
Cellular telephone license costs, net of accumulated
amortization of $103,839 and $357,395 at September 30,
1995 and June 30, 1996, respectively...................... 28,284 21,215,502
---------- -----------
Total assets...................................... $7,343,722 $28,599,233
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 288,877 $ 279,516
Accrued expenses and other liabilities.................... 263,358 82,578
Payable to affiliates..................................... -- 659,441
Payable to parent......................................... 1,019,537 --
Current maturities of long-term debt...................... 4,986,057 --
---------- -----------
Total current liabilities......................... 6,557,829 1,021,535
Stockholders' equity:
Common stock, $.001 par value, 50,000 shares authorized,
issued and outstanding at September 30, 1995........... 50 --
Common stock, $.01 par value, 1,000 shares authorized, 100
shares issued and outstanding at June 30, 1996......... -- 1
Additional paid-in capital................................ 50,050 26,817,177
Retained earnings......................................... 735,793 760,520
---------- -----------
Total stockholders' equity........................ 785,893 27,577,698
Commitments and contingencies
---------- -----------
Total liabilities and stockholders' equity........ $7,343,722 $28,599,233
========== ===========
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 107
ALABAMA 4 SYSTEM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, OCTOBER 1, 1995 NOVEMBER 7, 1995
----------------------- TO TO
1994 1995 NOVEMBER 6, 1995 JUNE 30, 1996
---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Cellular service:
Subscriber.................... $ 881,364 $1,268,938 $143,770 $1,858,815
Roaming....................... 2,126,971.. 3,357,745 401,796 1,833,219
Merchandise sales................ 147,725 150,985 7,654 60,049
Other revenue.................... 28,997 115,912 2,636 15,300
---------- ---------- -------- ----------
3,185,057 4,893,580 555,856 3,767,383
---------- ---------- -------- ----------
Operating expenses:
Cost of service.................. 752,245 1,420,857 176,948 896,420
Merchandise cost of sales........ 251,744 351,395 26,794 291,890
General and administrative....... 807,529 665,985 92,898 358,070
Sales and marketing.............. 116,967 185,400 21,383 251,405
Depreciation and amortization.... 336,643 454,953 45,495 756,648
---------- ---------- -------- ----------
2,265,128 3,078,590 363,518 2,554,433
---------- ---------- -------- ----------
Operating income................... 919,929 1,814,990 192,338 1,212,950
Other expense -- interest.......... 306,007 460,476 185,076 --
---------- ---------- -------- ----------
Income before income taxes......... 613,922 1,354,514 7,262 1,212,950
Income tax provision............... -- 437,720 2,709 452,430
---------- ---------- -------- ----------
Net income......................... $ 613,922 $ 916,794 $ 4,553 $ 760,520
========== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 108
ALABAMA 4 SYSTEM
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------ ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance at October 1, 1993..................... $ 50 $ 50,050 $(794,923) $ (744,823)
Net income for year............................ -- -- 613,922 613,922
---- ----------- --------- -----------
Balance at September 30, 1994.................. 50 50,050 (181,001) (130,901)
Net income for year............................ -- -- 916,794 916,794
---- ----------- --------- -----------
Balance at September 30, 1995.................. 50 50,050 735,793 785,893
Net income for period October 1, 1995 to
November 6, 1995............................. -- -- 4,553 4,553
---- ----------- --------- -----------
Balance at November 6, 1995.................... 50 50,050 740,346 790,446
Elimination of Dominion equity................. (50) (50,050) (740,346) (790,446)
Investment of PriCellular...................... 1 26,817,177 -- 26,817,178
Net income for period November 7, 1995 to
June 30, 1996................................ -- -- 760,520 760,520
---- ----------- --------- -----------
Balance at June 30, 1996....................... $ 1 $26,817,177 $ 760,520 $27,577,698
==== =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 109
ALABAMA 4 SYSTEM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30 OCTOBER 1, 1995 NOVEMBER 7, 1995
------------------------- TO TO
1994 1995 NOVEMBER 6, 1995 JUNE 30, 1996
----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income...................... $ 613,922 $ 916,794 $ 4,553 $ 760,520
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and
amortization............... 336,643 454,953 45,495 756,648
Bad debt provision........... 134,000 (82,140) -- --
Changes in operating assets
and liabilities:
(Increase) decrease in:
Subscriber
receivables........... (413,924) (232,525) (168,281) (357,654)
Inventory............... (40,739) 24,897 -- (47,010)
Prepaid expenses and
other................. (13,318) (4,607) (200) 7,127
Receivable from parent
and affiliates........ 288,906 (2,100,000) -- (1,558,720)
Increase (decrease) in:
Accounts payable,
accrued expenses and
other liabilities..... 403,343 (101,967) (60,314) (235,997)
Payable to parent....... -- 753,034 (35,291) --
Payable to affiliate.... -- -- -- 659,441
----------- ----------- --------- -----------
Net cash provided by (used
in) operating activities... 1,308,833 (371,561) (214,038) (15,645)
----------- ----------- --------- -----------
Cash flows from investing
activities:
Capital expenditures............ (1,406,510) (1,154,793) (4,886) (60,264)
Acquisition of Alabama 4 RSA.... -- -- -- 16,809
----------- ----------- --------- -----------
Net cash used in investing
activities................. (1,406,510) (1,154,793) (4,886) (43,455)
----------- ----------- --------- -----------
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt............... 55,441 2,000,000 -- --
Principal payments on long-term
debt......................... -- (299,272) -- --
----------- ----------- --------- -----------
Net cash provided by
financing activities....... 55,441 1,700,728 -- --
----------- ----------- --------- -----------
Net increase (decrease) in
cash....................... (42,236) 174,374 (218,924) (59,100)
Cash at beginning of period....... 189,919 147,683 322,057 103,133
----------- ----------- --------- -----------
Cash at end of period............. $ 147,683 $ 322,057 $ 103,133 $ 44,033
=========== =========== ========= ===========
Supplemental disclosure of cash
flow information -- cash payment
for interest.................... $ 306,007 $ 345,079 $ 246,954 $ --
=========== =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 110
ALABAMA 4 SYSTEM
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Background and Basis of Presentation
The accompanying financial statements reflect the historical financial
position, results of operations and cash flows of the assets and liabilities
comprising the wireless communication system in the Bibb County, Alabama, Rural
Service Area ("RSA") Alabama 4 ("the System"). Until November 7, 1995, the
assets and liabilities comprising the System were owned by Dominion Cellular,
Inc. ("Dominion"), a wholly owned subsidiary of Dominion Resources, Inc.
Accordingly, the financial statements as of September 30, 1995 and for the
years ended September 30, 1994 and 1995 and the period from October 1, 1995 to
November 6, 1995 reflects Dominion's historical cost of the assets and
liabilities comprising the System.
On November 7, 1995, PriCellular and its wholly owned subsidiary Northland
Cellular ("PriCellular") purchased for approximately $25,300,000 the cellular
assets comprising the System from Dominion (see note 7). PriCellular accounted
for the acquisition as a purchase and, accordingly, established a new cost basis
with respect to the assets purchased from Dominion.
The financial information as of June 30, 1996 and for the period from
November 7, 1995 to June 30, 1996 reflects PriCellular's historical cost of the
assets and liabilities comprising the System. As a result of the acquisition and
the different cost basis with respect to the assets and liabilities comprising
the System, financial information for periods before and after November 7, 1995
are not comparable.
On July 1, 1996, Mercury, Inc. purchased substantially all of the System's
assets from PriCellular for approximately $27,500,000. The assets acquired
included the licenses in the RSA known as Alabama 4, the related system
subscribers, permits and authorization, and certain personal property used in
the operation of the system.
(b) Cash and Cash Equivalents
For purposes of the statement of cash flows, the System considers all
temporary cash investments with original maturities of three months or less to
be cash and cash equivalents.
(c) Inventory
Inventory is stated at the lower of cost or market. Cost is determined by
the first-in, first-out method. Inventory consists principally of cellular
telephones and related accessories.
(d) Property and Equipment
Property and equipment is stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and leasehold improvements........................ 30 years
Operating equipment......................................... 10 years
Furniture and fixtures...................................... 7 years
</TABLE>
Routine maintenance and repairs are charged to operating expense while costs of
betterments and renewals are capitalized.
(e) Cellular Licenses and Other Assets
Cellular telephone license costs prior to November 7, 1995, represent
expenses incurred by the System for the acquisition of site locations, zoning
approvals, and technical and other expenses related to construction and
obtaining the necessary approvals and licenses to operate and preparing to
operate a cellular telephone
F-40
<PAGE> 111
ALABAMA 4 SYSTEM
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
system. These costs are capitalized and are amortized through charges to
operations over their estimated useful lives, currently estimated to be five
years.
Cellular licenses recorded in connection with the acquisition of the system
on November 7, 1995 are recorded at cost and amortized using the straight-line
method over the assets estimated useful lives, 40 years. The System annually
evaluates the propriety of the carrying values of its cellular licenses using
estimated undiscounted future cash flows of the market to which the license
relates, and estimates of the market value of the cellular systems to determine
whether current events or circumstances warrant adjustments to reduce the
carrying amounts to fair value. There have been no such reductions through June
30, 1996.
(f) Revenue Recognition
The System earns revenue by providing access to and usage of the cellular
network and sales of cellular merchandise. Access revenue is billed one month in
advance and is recognized when earned. Usage revenue is recognized when the
service is rendered. Both access and usage revenues are classified as service
revenues in the accompanying statements of operations. Revenues from the sale
and installation of merchandise is recognized when the merchandise is delivered.
(g) Commissions
Commissions are paid to sales agents for customer activations and are
recognized in the month the customer is activated within the cellular system.
(h) Income Taxes
The System accounts for income taxes using the asset and liability method,
under which deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The System is included in the consolidated federal income tax return of
Dominion Resources, Inc. and PriCellular for the respective periods of
ownership. An income tax provision is reflected in the System's separate
financial statements based on applicable statutory rates. Amounts to be settled
among members of the group are included in amounts payable to parent in the
accompanying balance sheet. The related payables to parent were $437,720 and
$452,430 at September 30, 1995 and June 30, 1996, respectively.
The principal temporary difference between the basis of assets and
liabilities for financial reporting and tax purposes relates to operating losses
incurred prior to 1993. Net deferred tax assets related to such differences were
offset by a valuation allowance. The valuation allowance was reduced during 1994
and 1995 in the amounts of $233,000 and $69,000, respectively, which accounts
for the difference between the actual effective tax rate and the expected tax
rate for 1994 and 1995.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
F-41
<PAGE> 112
ALABAMA 4 SYSTEM
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) PROPERTY AND EQUIPMENT
Major categories of property and equipment are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- ---------
<S> <C> <C>
Operating equipment......................................... $ 3,245,769 4,029,379
Cell site preparation and equipment......................... 1,764,489 --
Furniture and fixtures...................................... 117,459 106,592
----------- ---------
5,127,717 4,135,971
Less accumulated depreciation and amortization.............. (1,120,243) (399,252)
----------- ---------
$ 4,007,474 3,736,719
=========== =========
</TABLE>
(3) LONG-TERM DEBT
Long-term debt at September 30, 1995 includes notes payable to Motorola,
Inc. ("Motorola") in the amount of $2,986,057. The System entered into a
Cellular System Purchase Agreement with Motorola ("Purchase Agreement") pursuant
to which the System purchased and Motorola designed, manufactured, and produced
specified cellular fixed network equipment together with expansion products,
hardware, and software products and related services. Pursuant to the Purchase
Agreement, Motorola assisted in the construction and implementation of the
system.
Motorola agreed to lend up to $1,650,000 to purchase equipment and services
to be provided primarily by Motorola for construction and installation of the
cellular telephone system and up to $950,000 for working capital. All such loans
were repayable interest only until the third year after Dominion placed the
cellular telephone system into commercial service and then paid over a four year
period on a seven year amortization schedule. Interest was calculated at the
rate of 3% per annum in excess of the Chase Manhattan Bank's Corporate Base
Rate, which was 9% at September 30, 1995. Dominion has the right to repay such
loans in whole or in part and the Financing Agreement also provides for certain
mandatory prepayments including prepayments equal to 75% of Dominion's "Free
Cash Flow" (operating cash flow less non-financed capital purchases and debt
service).
The Financing Agreement required the parent Company (Dominion Resources) to
execute a Stock Pledge Agreement pledging all of the issued and outstanding
capital stock of Dominion with Motorola as collateral. As additional collateral,
Dominion has assigned all of its cell site, tower, and building leases to
Motorola together with a security interest in all of its tangible and intangible
assets. The Financing Agreement contains certain financial covenants and
restrictions on the payment of dividends, which Dominion has complied with.
In conjunction with the sale of the System's cellular telephone system, the
outstanding indebtedness to Motorola was paid from proceeds of the sale which
took place in November 1995.
In anticipation of the execution of the Asset Purchase Agreement,
PriCellular extended a $2,000,000 loan to the System on April 7, 1995. From the
$2,000,000 of loan proceeds, the System (1) made a $1,417,598 loan to an entity
of which the System's principal stockholder is a creditor; (2) paid $250,000 to
a corporation owned by the System's president and her husband in payment of
bills rendered for previously completed cell site and tower construction for the
System; and (3) prepaid $125,000 of indebtedness owed to an entity owned by
members of the principal stockholder's immediate family. The balance was applied
to legal and professional fees related to the sale of the System. The $2,000,000
loan was repaid with interest at 8% from proceeds of the sale of the System
which took place in November 1995.
F-42
<PAGE> 113
ALABAMA 4 SYSTEM
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) COMMITMENTS AND CONTINGENCIES
The Company is obligated under several noncancelable operating lease
commitments having remaining terms in excess of one year. Future minimum lease
payments due under these leases as of June 30, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $10,500
1998........................................................ 6,000
1999........................................................ 2,600
2000........................................................ 2,400
2001........................................................ 2,000
</TABLE>
Rental expense related to other operating leases were $72,000, $101,100,
$5,800 and $23,800 for the years ended September 30, 1994 and 1995 the period
from October 1, 1995 to November 6, 1995 and the period from November 7, 1995 to
June 30, 1996, respectively.
(5) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Financial Accounting Standards
Board Statement No. 105, consist primarily of cash and accounts receivable. All
deposits in demand deposit accounts are within existing FDIC insurance levels.
The Company has not experienced any losses on its deposits. Subscriber accounts
receivable collectibility is impacted by economic trends in each of the
Company's markets. Such receivables are typically collected between thirty and
sixty days.
(6) RELATED PARTY TRANSACTIONS
At September 30, 1995, Dominion has $581,817 included in due to parent
related to funds provided during the fiscal year in connection with new cell
site equipment purchases.
Effective August 1, 1995, PriCellular became the manager of the System
pursuant to a management agreement providing for a management fee to be paid to
PriCellular equal to 7% of the gross revenues of the System during the term of
the management agreement. Through November 7, 1995, the Company accrued $114,600
in connection with the management agreement.
(7) PURCHASE OF ASSETS FROM DOMINION BY PRICELLULAR
On November 7, 1995 the sale of the System from Dominion was recorded and
payable by PriCellular in cash and stock for approximately $25,300,000. The cash
portion of the purchase price received by Dominion was reduced to the extent
required to repay Dominion's outstanding debt to Motorola (approximately
$2,864,000) and to repay the 8%, $2,000,000 loan extended to Dominion by
PriCellular. An aggregate $400,000 was placed in escrow for a one year period
following the closing to ensure the accuracy of Dominion's representations and
warranties.
In connection with this purchase, the following assets were acquired and
liabilities assumed by PriCellular and contributed to their wholly owned
subsidiary:
<TABLE>
<S> <C>
Property and equipment...................................... $ 4,075,707
Intangible assets........................................... 21,572,898
Contributed capital......................................... (25,346,898)
Other assets and liabilities excluding cash and cash
equivalents............................................... (318,516)
------------
Increase in cash due to acquisition......................... $ (16,809)
============
</TABLE>
F-43
<PAGE> 114
ALABAMA 4 SYSTEM
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL STATEMENTS
The carrying amounts of financial instruments approximate fair value
principally because of the short maturity of these items. Fair value estimates
are subject to inherent limitations. Estimates of fair value are made at a
specific point in time, based on relevant market information and information
about the financial instrument. The estimated fair values of financial
instruments presented above are not necessarily indicative of amounts the
Company might realize in actual market transactions. Estimates of fair value are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
F-44
<PAGE> 115
[US Unwired logo]
[Five Photographs of various facilities]
219 W. Prien Lake Road
Lake Charles, Louisiana
1101 Main Street, Great Bend, Kansas
321 AA Sunset Plaza
Grenada, Mississippi
Highway 31, Dive Shopping Center
Clanten, Alabama
118 Norfleet Drive
Senatobia, Mississippi
<PAGE> 116
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Terms......................... 2
Additional Information................ 2
Prospectus Summary.................... 3
Risk Factors.......................... 9
Cautionary Statement Regarding Risks
and Uncertainties that may Affect
Future Results...................... 12
Use of Proceeds....................... 12
Dividend Policy....................... 13
Dilution.............................. 13
Capitalization........................ 14
Unaudited Pro Forma Condensed Combined
Financial Data...................... 15
Selected Consolidated Financial
Data................................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 34
Management............................ 54
Principal Shareholders................ 58
Certain Transactions.................. 58
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 65
Underwriting.......................... 66
Legal Matters......................... 67
Experts............................... 67
Index to Financial Statements......... F-1
</TABLE>
---------------------
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,700,000 SHARES
[US UNWIRED INC. LOGO]
CLASS A COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
LOGO
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of expenses incurred in connection
with this Registration Statement. All such expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 14,375
NASD fee.................................................... 5,244
NASDAQ National Market listing fee.......................... 1,000
Legal fees and expenses..................................... 100,000
Accounting fees and expenses................................ 250,000
Printing and engraving expenses............................. 115,000
Blue Sky fees and expenses.................................. 5,000
Miscellaneous expenses...................................... 9,381
--------
TOTAL............................................. $500,000
========
</TABLE>
- ---------------
* To be filed by amendment.
All of the above items are estimates except the Securities and Exchange
Commission registration fee and the NASD filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 83 of the Louisiana Business Corporation Law (the "LBCL") gives
Louisiana corporations broad powers to indemnify their present and former
directors and officers and those of affiliated corporations against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers; subject to specific
conditions and exclusions gives a director or officer who successfully defends
an action the right to be so indemnified; and authorizes Louisiana corporations
to buy directors' and officers' liability insurance. Such indemnification is not
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, authorization of shareholders or otherwise.
The Company's By-laws make mandatory the indemnification of directors and
officers permitted by the LBCL. The standard to be applied in evaluating any
claim for indemnification (excluding claims for expenses incurred in connection
with the successful defense of any proceeding or matter therein for which
indemnification is mandatory without reference to any such standard) is whether
the claimant acted in good faith and in a manner he reasonably believed to be in
or not opposed to, the best interests of the Company. With respect to any
criminal action or proceeding, the standard is that the claimant had no
reasonable cause to believe the conduct was unlawful. No indemnification is
permitted in respect of any claim, issue or matter as to which a director or
officer shall have been adjudged by a court of competent jurisdiction to be
liable for willful or intentional misconduct or to have obtained an improper
personal benefit, unless, and only to the extent that the court shall determine
upon application that, in view of all the circumstances of the case, he is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
In addition, the Company's Articles of Incorporation provide that, pursuant
to Louisiana law, its directors shall not be liable for monetary damages for
breach of the directors' fiduciary duty of care to the Company and its
shareholders. This provision in the Articles of Incorporation does not eliminate
the duty of care, and in appropriate circumstances equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available under
Louisiana law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under
II-1
<PAGE> 118
Louisiana law. The Company also intends to enter into separate indemnification
agreements with each of its directors to effectuate these indemnity provisions
and to purchase directors' and officers' liability insurance.
The Underwriters have also agreed to indemnify the directors and certain of
the Company's officers against certain liabilities, including liabilities under
the Securities Act of 1933, as amended, or to contribute to payments that such
directors and officers may be required to make in respect thereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On October 31, 1996, Cameron Communications Corporation ("Cameron") merged
into the Company (the "Merger"). In consideration of the Merger, shareholders of
Cameron received 2.192108 shares of Common Stock, par value $50 per share, of
the Company (the "Old Common Stock") in exchange for each share of common stock
of Cameron owned by them on the effective date of the Merger, for a total of
455.958460 shares of Old Common Stock. The issuance of Old Common Stock as
consideration for the Merger is exempt under Section 4(2) of the Securities Act
of 1933 (the "Act") and/or Regulation D thereunder as a transaction by an issuer
not involving any public offering. Fourteen Cameron shareholders received Old
Common Stock in the Merger. Seven of them were also shareholders of the Company
at the time of the Merger. Of those seven shareholders, four are officers and/or
directors of the Company. Of the remaining seven Cameron shareholders, four are
members of the same family who were represented by counsel in connection with
the Merger. All Cameron shareholders were provided with extensive information
about Cameron, the Company and the Merger before the Special Meeting of
Shareholders held on October 11, 1996 at which the Merger was approved.
Certificates representing the shares of Old Common Stock were appropriately
legended to prevent resales or retransfers in violation of registration
requirements. Subsequent to the Merger, each share of Old Common Stock of the
Company was reclassified into 16,643 shares of Class B Common Stock.
Certificates representing the Class B Common Stock contain the same restrictive
legends as those representing the Old Common Stock.
In each of 1994, 1995 and 1996, the Company awarded Old Common Stock as
bonuses to certain officers of the Company in recognition of services performed
on its behalf. Each of William L. Henning, Jr., John A. Henning and Thomas G.
Henning received four shares of Old Common Stock in 1994, two shares of Old
Common Stock in 1995 and one share of Old Common Stock in 1996. Robert Piper
received one share of Old Common Stock in 1995 and one share in 1996. A total of
23 shares of Old Common Stock were so awarded. The issuance of the Old Common
Stock as bonuses in each instance was exempt from registration under Section
4(2) of the Act as a transaction by an issuer not involving any public offering.
Each of the recipients was an officer and a director of the Company at the time
of each bonus award. Each share of Old Common Stock was subsequently
reclassified into 16,643 shares of Class B Common Stock. Certificates
representing the Class B Common Stock were appropriately legended to prevent
resales or retransfers in violation of registration requirements.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement*
2.1 -- Agreement and Plan of Reorganization by and among Cameron
Communications Corporation, Mercury, Inc., Mercury
Cellular Telephone Company, Mercury Cellular of Kansas,
Inc., Mississippi One Cellular Telephone Company, CCC
Holding Company, Cameron Telephone Company, and Elizabeth
Telephone Company dated September 19, 1996+
2.2 -- Joint Agreement of Merger of Cameron Communication
Corporation with and into Mercury, Inc.+
3.1 -- Articles of Incorporation of US Unwired Inc.*
</TABLE>
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<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
3.2 -- By-Laws of US Unwired Inc.+
3.3 -- Articles of Amendment of the Articles of Incorporation of
US Unwired Inc.*
4.1 -- Amended and Restated Loan Agreement By and Between
CoBank, ACB and CTC Financial, Inc., dated September 27,
1994, in the principal sum of $17,400,000+
4.2 -- Amended and Restated Continuing Guaranty By and Between
Miss One Cellular Telephone Co. and CoBank, ACB, dated
September 27, 1994, in the principal sum of $17,400,000+
4.3 -- Amended and Restated Promissory Note By CTC Financial,
Inc. in favor of CoBank dated May 15, 1996 in the
principal sum of $17,400,000+
4.4 -- First Amendment and Supplement to Security Agreement By
and Between Miss One and CoBank, ACB dated May 15, 1996+
4.5 -- First Amendment and Supplement to Deed of Trust, Security
Agreement, and Fixture Filing By and Between Miss One to
Karen Hawkins, Trustee in the principal sum of CoBank,
ACB dated May 15, 1996+
4.6 -- Mortgage By Miss One to and for the benefit of CoBank,
ACB dated May 15, 1996 in the principal sum of
$17,400,000+
4.7 -- Continuing Guaranty made by Mercury, Inc. for the benefit
of CoBank, ACB, dated May 15, 1996, in the principal sum
of $17,400,000+
4.8 -- First Amendment and Supplement to Pledge Agreement By and
Between Mercury, Inc. and CoBank, ACB, dated May 15,
1996, in the principal sum of $17,400,000+
4.9 -- Limited Recourse Continuing Guaranty By William Henning,
Sr., in favor of CoBank, ACB, dated May 15, 1996, in the
principal sum of $17,400,000+
4.10 -- Amended and Restated Act of Subordination By Cameron
Telephone and Miss One in favor of CoBank, ACB, dated
September 27, 1996+
4.11 -- Amended and Restated Promissory Note By Miss One in favor
of CTC Financial, dated May 15, 1996, in the principal
sum of $17,400,000+
4.12 -- Security Agreement By and Between Mercury, Inc. and
CoBank, ACB, dated July 1, 1996+
4.13 -- First Amendment and Supplement to Amended and Restated
Loan Agreement By and Between CoBank, ACB and CTC
Financial, Inc., dated July 1, 1996+
4.14 -- Second Amended and Restated Promissory Note By Miss One
in favor of CTC Financial, Inc., dated July 1, 1996, in
the principal sum of $32,400,000+
4.15 -- Second Amended and Restated Promissory Note By CTC
Financial, Inc. in favor of CoBank, ACB, dated July 1,
1996, in the principal sum of $32,400,000+
4.16 -- First Amendment and Supplement to Amended and Restated
Continuing Guaranty By and Between Miss One and CoBank,
ACB, dated July 1, 1996+
4.17 -- Second Amendment and Supplement to Security Agreement By
and Between Miss One and CoBank, ACB, dated July 1, 1996+
4.18 -- Second Amendment and Supplement to Deed of Trust By and
Between Miss One and Karen Hawkins, Trustee for CoBank,
ACB, dated July 1, 1996+
4.19 -- First Amendment and Supplement to Mortgage By and Between
Miss One and CoBank, ACB, dated July 1, 1996+
4.20 -- First Amendment and Supplement to Continuing Guaranty
Made by Mercury, Inc. in favor of CoBank, ACB, dated July
1, 1996+
</TABLE>
II-3
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.21 -- Second Amendment and Supplement to Pledge Agreement By
and Between Mercury, Inc. and CoBank, ACB, dated July 1,
1996+
4.22 -- First Amendment to Limited Recourse Continuing Guaranty
By and Between William Henning, Sr. and CoBank, ACB,
dated July 1, 1996+
4.23 -- First Amendment and Supplement to Amended and Restated
Act of Subordination by and Among Cameron Telephone, Miss
One and CoBank, ACB, dated July 1, 1996+
4.24 -- Promissory Note dated May 15, 1996 by CTC Financial, Inc.
in favor of CoBank, ACB, in the principal sum of
$5,000,000+
4.25 -- Promissory Note dated May 15, 1996 by Mercury, Inc. in
favor of CTC Financial, Inc. in the principal sum of
$5,000,000+
4.26 -- Loan Agreement By and Between CoBank, ACB, and CTC
Financial, Inc. dated July 1, 1996 in the principal sum
of $13,000,000+
4.27 -- Promissory Note By CTC Financial, Inc. in favor of
CoBank, ACB, dated July 1, 1996 in the principal sum of
$13,000,000+
4.28 -- First Amendment and Supplement to Continuing Guaranty By
and Between Mercury Cellular Telephone Co. and CoBank,
ACB, dated July 1, 1996+
4.29 -- First Amendment and Supplement to Security Agreement By
and Between Mercury Cellular Telephone Co. and CoBank,
ACB, dated July 1, 1996+
4.30 -- First Amendment and Supplement to Mortgage and Security
Agreement Mercury Cellular Telephone Co. and CoBank, ACB,
dated July 1, 1996+
4.31 -- First Amendment and Supplement to Limited Recourse
Continuing Guaranty By and Between Cameron Communications
Corporation and CoBank, ACB, dated July 1, 1996+
4.32 -- First Amendment and Supplement to Pledge Agreement By and
Between Cameron Communications Corporation and CoBank,
ACB, dated July 1, 1996+
4.33 -- First Amendment and Supplement to Limited Recourse
Continuing Guaranty By and Between Mercury and CoBank,
ACB, dated July 1, 1996+
4.34 -- First Amendment and Supplement to Pledge Agreement By and
Between Mercury, Inc. and CoBank, ACB, dated July 1,
1996+
4.35 -- Act of Subordination By Mercury Cellular Telephone
Company and Miss One, in favor of CoBank, ACB, dated July
1, 1996+
4.36 -- Promissory Note Mississippi-34 Cellular Corp. to Cameron
Communications Corp., dated November 20, 1992, in the
principal sum of $20,000+
4.37 -- Subordination Agreement By and Among Robert G. Mounger,
William M. Mounger, II, William Yandell, III and Wirt A.
Yerger, III, Mississippi-34 Cellular Corporation and
Mercury, Inc., dated November 20, 1992+
4.38 -- Promissory Note By Miss-3 Cellular Corporation in favor
of Robert Mounger, dated March 27, 1992, in the principal
sum of $16,500+
4.39 -- Promissory Note By Miss-3 Cellular Corporation in favor
of Robert Mounger, dated April 15, 1992, in the principal
sum of $7,500+
4.40 -- Promissory Note By Miss-3 Cellular Corporation in favor
of Robert Mounger, II, dated April 1, 1992, in the
principal sum of $17,500.00+
4.41 -- Promissory Note By Miss-3 Cellular Corporation in favor
of William M. Yandell, III dated April 30, 1992, in the
principal sum of $17,500.00+
</TABLE>
II-4
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.42 -- Promissory Note By Miss-3 Cellular Corporation in favor
of Wirt A. Yerger, III, dated May 12, 1992, in the
principal sum of $2,500.00+
4.43 -- Promissory Note By Miss-3 Cellular Corporation, in favor
of Wirt A. Yerger, III dated March 25, 1992, in the
principal sum of $25,000+
4.44 -- Pledge Agreement By and Among the owners of capital stock
of Miss-34 Cellular Corporation and AT&T Credit
Corporation, dated December 20, 1993+
4.45 -- Capital Note By Miss-34 Cellular Corporation to AT&T
Credit Corporation, dated December 30, 1993, in the
principal sum of $1,684,987+
4.46 -- Deed of Trust, Security Agreement, Financing Statement
and Assignment of Rents and Leases Entered into by
Miss-34 Cellular Corporation in favor of AT&T Credit
Corporation, dated December 20, 1993, in the principal
sum of $9,980,000+
4.47 -- Equipment Note Miss-34 By Cellular Corporation in favor
of AT&T Credit Corporation, dated December 30, 1993, in
the principal sum of $2,138,836+
4.48 -- This item intentionally left blank.
4.49 -- Mortgage and Security Agreement By Mercury Cellular
Telephone Co. in favor of CoBank, ACB, dated April 20,
1995+
4.50 -- Security Agreement By and Between Mercury Cellular
Telephone Company and CoBank dated, April 20, 1995+
4.51 -- Loan Agreement By and Between CoBank, ACB and CTC
Financial, Inc., dated April 20, 1995 dated April 20,
1995+
4.52 -- Continuing Guaranty By Mercury Cellular Telephone Company
for the benefit of CoBank, ACB dated April 20, 1995+
4.53 -- Limited Recourse Continuing By Mercury, Inc. for the
benefit of CoBank, ACB, dated April 20, 1995+
4.54 -- Limited Recourse Continuing Guaranty By Cameron
Communications Corporation for the benefit of CoBank,
ACB, dated April 20, 1995+
4.55 -- Promissory Note by CTC Financial, Inc. to CoBank, ACB,
dated April 20, 1995, in the principal sum of
$18,000,000+
4.56 -- Promissory Note By Mercury Cellular Telephone Co. in
favor of CTC Financial, Inc. dated April 20, 1995, in the
principal sum of $18,000,000+
4.57 -- Pledge Agreement By and Between Cameron Communications
Corporation and CoBank, ACB, dated April 20, 1995+
4.58 -- Pledge Agreement By and Between Mercury, Inc. and CoBank,
ACB, dated April 20, 1995+
4.59 -- Security Agreement By and Between Mercury Cellular
Telephone Company and CoBank, ACB, dated April 20, 1995+
4.60 -- Security Agreement By and Between Mercury Cellular of
Kansas, Inc. and CoBank, ACB, dated April 5, 1995+
4.61 -- Loan Agreement By and Between CoBank, ACB and Mercury
Cellular of Kansas, Inc., dated April 20, 1995, in the
principal sum of $17,100,000+
4.62 -- Limited Recourse Continuing Guaranty By Mercury Cellular
Telephone Company in favor of CoBank, ACB, dated April
20, 1995+
4.63 -- Collateral Assignment of Tenant's Interest in Leases By
and Between Mercury Cellular of Kansas, Inc. and CoBank,
ACB, dated April 20, 1995, in the principal sum of
$17,100,000+
</TABLE>
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<PAGE> 122
<TABLE>
<C> <S>
4.64 -- Security Agreement By and Between Mercury Cellular of Kansas, Inc. and CoBank, ACB,
dated April 20, 1995+
4.65 -- Pledge Agreement By and Between Mercury Cellular Telephone Company and CoBank, ACB,
dated April 20, 1995+
4.66 -- Promissory Note By Mercury Cellular of Kansas, Inc. in favor of CoBank, ACB, dated
April 20, 1995, in the principal sum of $17,100,000+
4.67 -- Loan and Security Agreement dated as of December 20, 1993 between Mississippi-34
Cellular Corporation and AT&T Credit Corporation+
4.68 -- Promissory Note dated April 14, 1993 in the principal sum of $2,779,924 by Mercury,
Inc. in favor of Cameron Telephone Company.+
4.69 -- First Amendment and Supplement to Loan Agreement between CoBank, ACB, and Mercury
Cellular of Kansas, Inc. dated as of December 15, 1996+
4.70 -- Agreement Regarding Amendments to Loan Documents between CTC Financial, Inc., Mercury,
Inc., Mississippi One Cellular Telephone Company, William L. Henning, Sr. and CoBank,
ACB, dated as of November 15, 1996+
4.71 -- Assignment, Assumption and Agreement Regarding Amendments to Loan Documents between
CoBank, ACB, Mercury Cellular of Kansas, Inc, Mercury, Inc., et al., dated as of
December 15, 1996+
4.72 -- Promissory Note by Mercury Cellular Telephone Company in favor of CTC Financial, Inc.
dated November 25, 1996 in the principal sum of $4,000,000+
4.73 -- Second Amendment and Supplement to Continuing Guaranty between Mercury Cellular
Telephone Company, Inc. and CoBank, ACB, dated as of November 25, 1996+
4.74 -- Loan Agreement between CTC Financial, Inc. and CoBank, ACB, dated as of November 25,
1996+
4.75 -- First Amendment and Supplement to Act of Subordination between Mercury Cellular
Telephone Company, Mississippi One Cellular Telephone Company and CoBank, ACB, dated as
of November 25, 1996+
4.76 -- Promissory Note by CTC Financial, Inc. in favor of CoBank, ACB, dated November 25, 1996
in the principal sum of $4,000,000+
4.77 -- Assumption Agreement between CoBank, ACB, and Mercury, Inc. dated October 31, 1996+
4.78 -- Specimen Class A Common Stock certificate+
4.79 -- Agreement dated as of December 26, 1996 among U.S. Unwired Inc., William L. Henning,
Sr., William L. Henning, Jr., John A. Henning, Thomas G. Henning, Lena B. Henning,
Robert Piper, Hansen Evans Scobee, Henry Rice Scobee, Renee Scobee, Marie Scobee
Williams, Robert Piper, Thomas G. Henning, as trustee of the William L. Henning, Jr.
Exempt Class Trust No. 1, Thomas G. Henning as Trustee of the John A. Henning Exempt
Class Trust No. 1, Thomas G. Henning as trustee of the Thomas G. Henning Exempt Class
Trust No. 1, James D. Spates, Thomas D. Henning, Joyce P. Spates, AVCO, L.L.C., Thomas
B. Shearman, Jr., Lake Charles American Press, Pine Island Oil Corporation and Henco
Partnership+
5.1 -- Opinion of Correro Fishman Haygood Phelps Weiss Walmsley & Casteix, L.L.P. re: legality
of Class A Common Stock*
</TABLE>
II-6
<PAGE> 123
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.1 -- BTA Management and Construction Services Agreement By and
Between Mercury, Inc. and Meretel Communications, Limited
Partnership dated July 1, 1996+
10.2 -- Articles of Partnership in Commendam of Meretel
Communications Limited Partnership By and Among Wireless
Management Corporation and Eatel Corp, Inc., Mercury
Cellular Telephone Company, Fort Bend Telephone Company
and Meretel Wireless, Inc. dated July 25, 1995+
10.3 -- Nationwide Messaging Reseller Agreement By and Between
MobileComm Nationwide Operations, Inc. and Mercury
Cellular Telephone Co. dated December 19, 1994+
10.4 -- Arch Nationwide Paging Reseller Agreement By and Between
Arch Nationwide Paging and Mercury Cellular Telephone
Company, dated April 7, 1995+
10.5 -- RSA Management and Construction Services Agreement By and
Between Mercury Inc. and Miss-34 Cellular Corporation
dated June 1, 1994+
10.6 -- RSA Management and Construction Services Agreement By and
Between Mercury, Inc. and Miss.-1 Telephone Co. dated May
1, 1996+
10.7 -- RSA Management and Construction Services Agreement By and
Between Mercury, Inc. and Mercury Cellular Telephone Co.
dated May 1, 1996+
10.8 -- RSA Management and Construction Services Agreement By and
Between Mercury, Inc. and Mercury Cellular of Kansas,
Inc., dated May 1, 1996+
10.9 -- Intentionally omitted
10.10 -- Asset Purchase Agreement By and Between West Alabama
Cellular telephone Company, Inc. and Mississippi One
Cellular Telephone Co., dated March 4, 1996+
10.11 -- CellularOne License Agreement Between CellularOne Group
and Mercury, Inc., dated April 13, 1993+
10.12 -- Management and Accounting Services By and Between Mercury
Information Technologies, Inc. and Mercury, Inc.
Agreement dated November 7, 1995+
10.13 -- MIS Services Agreement By and Between Mercury, Inc. and
Maas.net, LLC, dated June 6, 1996+
10.14 -- Lease Agreement By and Between William L. Henning and
Lena B. Henning and Mercury Cellular Telephone Company,
Inc., dated January 1, 1990+
10.15 -- Lease By and Between Mercury, Inc. ("Lessor") and Mercury
Cellular Telephone Company ("Lessee"), dated March 1,
1992+
10.16 -- Commitment Letter, dated September 13, 1996, from CoBank,
ACB+
10.17 -- Purchase Agreement By and Between Miscellco
Communications, Inc. and Mercury Cellular of Kansas, Inc.
dated April 19, 1995+
10.18 -- Letter Agreement dated October 18, 1995 between Cameron
Communications Corporation and Mercury Information
Technologies, Inc.+
10.19 -- Act of Sale dated August 31, 1994 between Mercury, Inc.
and Mississippi One Cellular Telephone Company.+
10.20 -- US Unwired Inc. 1997 Stock Option Plan+
10.21 -- Commitment Letter dated October 24, 1996 from Rural
Telephone Financial Cooperative to Wireless Management
Corporation+
</TABLE>
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<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.22 -- Form of Stock Purchase Agreement between Mercury, Inc.,
David Bailey, E. B. Martin, Jr., William M. Mounger, II,
Robert M. Mounger, James A. Murrell, III, William M.
Yandall, III and Wirt A. Yeager, III+
11 -- Statement regarding computation of per share earnings+
21 -- List of Subsidiaries+
23.1 -- Consent of KPMG Peat Marwick LLP*
23.2 -- Consent of KPMG Peat Marwick LLP*
23.3 -- Consent of KPMG Peat Marwick LLP*
23.4 -- Consent of KPMG Peat Marwick LLP*
23.5 -- Consent of Smith, Turner & Reeves*
23.6 -- Consent of Elliot Goldberg CPA*
23.7 -- Consent of Correro Fishman Haygood Phelps Weiss Walmsley
& Casteix, L.L.P. (included in opinion filed as Exhibit
5.1)*
24.1 -- Powers of Attorney (included on the Signature Page)+
27.1 -- Financial Data Schedule+
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery of each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons pursuant
to the provisions described in Item 14, above, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense
II-8
<PAGE> 125
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-9
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lake Charles, State of
Louisiana, on January 31, 1997.
MERCURY, INC.
By: /s/ WILLIAM L. HENNING,
JR.
------------------------------------
William L. Henning, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM L. HENNING, JR. Chairman, Chief Executive Officer January 31, 1997
- ----------------------------------------------------- and Director
William L. Henning, Jr.
/s/ ROBERT PIPER President, Chief Operating Officer January 31, 1997
- ----------------------------------------------------- and Director
Robert Piper
/s/ DUSTY J. DUMAS Chief Financial Officer January 31, 1997
- -----------------------------------------------------
Dusty J. Dumas
/s/ THOMAS G. HENNING Secretary, General Counsel and January 31, 1997
- ----------------------------------------------------- Director
Thomas G. Henning
/s/ WILLIAM L. HENNING, SR. Director January 31, 1997
- -----------------------------------------------------
William L. Henning, Sr.
/s/ JOHN A. HENNING Director January 31, 1997
- -----------------------------------------------------
John A. Henning
</TABLE>
II-10
<PAGE> 127
SCHEDULE II
US UNWIRED INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- -------- -------- ----------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES OTHER OF PERIOD
----------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
1993
Deducted in balance sheet from subscriber
receivables:
Allowance for doubtful accounts............. $ 22,686 $154,344 $ 68,165 $ 245,195
-------- -------- -------- ----------
1994
Deducted in balance sheet from subscriber
receivables:
Allowance for doubtful accounts............. $245,195 $106,349 $(11,646) $ 339,898
-------- -------- -------- ----------
1995
Deducted in balance sheet from subscriber
receivables:
Allowance for doubtful accounts............. $339,898 $589,338 $ 76,764 $1,006,000
-------- -------- -------- ----------
</TABLE>
<PAGE> 128
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1 -- Form of Underwriting Agreement+
2.1 -- Agreement and Plan of Reorganization by and among Cameron
Communications Corporation, Mercury, Inc., Mercury
Cellular Telephone Company, Mercury Cellular of Kansas,
Inc., Mississippi One Cellular Telephone Company, CCC
Holding Company, Cameron Telephone Company, and Elizabeth
Telephone Company dated September 19, 1996+
2.2 -- Joint Agreement of Merger of Cameron Communication
Corporation with and into Mercury, Inc.+
3.1 -- Articles of Incorporation of US Unwired Inc.+
3.2 -- By-Laws of US Unwired Inc.+
3.3 -- Articles of Amendment of the Articles of Incorporation of
US Universal Inc.*
4.1 -- Amended and Restated Loan Agreement By and Between
CoBank, ACB and CTC Financial, Inc., dated September 27,
1994, in the principal sum of $17,400,000+
4.2 -- Amended and Restated Continuing Guaranty By and Between
Miss One Cellular Telephone Co. and CoBank, ACB, dated
September 27, 1994, in the principal sum of $17,400,000+
4.3 -- Amended and Restated Promissory Note By CTC Financial,
Inc. in favor of CoBank dated May 15, 1996 in the
principal sum of $17,400,000+
4.4 -- First Amendment and Supplement to Security Agreement By
and Between Miss One and CoBank, ACB dated May 15, 1996+
4.5 -- First Amendment and Supplement to Deed of Trust, Security
Agreement, and Fixture Filing By and Between Miss One to
Karen Hawkins, Trustee in the principal sum of CoBank,
ACB dated May 15, 1996+
4.6 -- Mortgage By Miss One to and for the benefit of CoBank,
ACB dated May 15, 1996 in the principal sum of
$17,400,000+
4.7 -- Continuing Guaranty made by Mercury, Inc. for the benefit
of CoBank, ACB, dated May 15, 1996, in the principal sum
of $17,400,000+
4.8 -- First Amendment and Supplement to Pledge Agreement By and
Between Mercury, Inc. and CoBank, ACB, dated May 15,
1996, in the principal sum of $17,400,000+
4.9 -- Limited Recourse Continuing Guaranty By William Henning,
Sr., in favor of CoBank, ACB, dated May 15, 1996, in the
principal sum of $17,400,000+
4.10 -- Amended and Restated Act of Subordination By Cameron
Telephone and Miss One in favor of CoBank, ACB, dated
September 27, 1996+
4.11 -- Amended and Restated Promissory Note By Miss One in favor
of CTC Financial, dated May 15, 1996, in the principal
sum of $17,400,000+
4.12 -- Security Agreement By and Between Mercury, Inc. and
CoBank, ACB, dated July 1, 1996+
4.13 -- First Amendment and Supplement to Amended and Restated
Loan Agreement By and Between CoBank, ACB and CTC
Financial, Inc., dated July 1, 1996+
4.14 -- Second Amended and Restated Promissory Note By Miss One
in favor of CTC Financial, Inc., dated July 1, 1996, in
the principal sum of $32,400,000+
4.15 -- Second Amended and Restated Promissory Note By CTC
Financial, Inc. in favor of CoBank, ACB, dated July 1,
1996, in the principal sum of $32,400,000+
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
4.16 -- First Amendment and Supplement to Amended and Restated
Continuing Guaranty By and Between Miss One and CoBank,
ACB, dated July 1, 1996+
4.17 -- Second Amendment and Supplement to Security Agreement By
and Between Miss One and CoBank, ACB, dated July 1, 1996+
4.18 -- Second Amendment and Supplement to Deed of Trust By and
Between Miss One and Karen Hawkins, Trustee for CoBank,
ACB, dated July 1, 1996+
4.19 -- First Amendment and Supplement to Mortgage By and Between
Miss One and CoBank, ACB, dated July 1, 1996+
4.20 -- First Amendment and Supplement to Continuing Guaranty
Made by Mercury, Inc. in favor of CoBank, ACB, dated July
1, 1996+
4.21 -- Second Amendment and Supplement to Pledge Agreement By
and Between Mercury, Inc. and CoBank, ACB, dated July 1,
1996+
4.22 -- First Amendment to Limited Recourse Continuing Guaranty
By and Between William Henning, Sr. and CoBank, ACB,
dated July 1, 1996+
4.23 -- First Amendment and Supplement to Amended and Restated
Act of Subordination by and Among Cameron Telephone, Miss
One and CoBank, ACB, dated July 1, 1996+
4.24 -- Promissory Note dated May 15, 1996 by CTC Financial, Inc.
in favor of CoBank, ACB, in the principal sum of
$5,000,000+
4.25 -- Promissory Note dated May 15, 1996 by Mercury, Inc. in
favor of CTC Financial, Inc. in the principal sum of
$5,000,000+
4.26 -- Loan Agreement By and Between CoBank, ACB, and CTC
Financial, Inc. dated July 1, 1996 in the principal sum
of $13,000,000+
4.27 -- Promissory Note By CTC Financial, Inc. in favor of
CoBank, ACB, dated July 1, 1996 in the principal sum of
$13,000,000+
4.28 -- First Amendment and Supplement to Continuing Guaranty By
and Between Mercury Cellular Telephone Co. and CoBank,
ACB, dated July 1, 1996+
4.29 -- First Amendment and Supplement to Security Agreement By
and Between Mercury Cellular Telephone Co. and CoBank,
ACB, dated July 1, 1996+
4.30 -- First Amendment and Supplement to Mortgage and Security
Agreement Mercury Cellular Telephone Co. and CoBank, ACB,
dated July 1, 1996+
4.31 -- First Amendment and Supplement to Limited Recourse
Continuing Guaranty By and Between Cameron Communications
Corporation and CoBank, ACB, dated July 1, 1996+
4.32 -- First Amendment and Supplement to Pledge Agreement By and
Between Cameron Communications Corporation and CoBank,
ACB, dated July 1, 1996+
4.33 -- First Amendment and Supplement to Limited Recourse
Continuing Guaranty By and Between Mercury and CoBank,
ACB, dated July 1, 1996+
4.34 -- First Amendment and Supplement to Pledge Agreement By and
Between Mercury, Inc. and CoBank, ACB, dated July 1,
1996+
4.35 -- Act of Subordination By Mercury Cellular Telephone
Company and Miss One, in favor of CoBank, ACB, dated July
1, 1996+
4.36 -- Promissory Note Mississippi-34 Cellular Corp. to Cameron
Communications Corp., dated November 20, 1992, in the
principal sum of $20,000+
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
4.37 -- Subordination Agreement By and Among Robert G. Mounger,
William M. Mounger, II, William Yandell, III and Wirt A.
Yerger, III, Mississippi-34 Cellular Corporation and
Mercury, Inc., dated November 20, 1992+
4.38 -- Promissory Note By Miss-3 Cellular Corporation in favor
of Robert Mounger, dated March 27, 1992, in the principal
sum of $16,500+
4.39 -- Promissory Note By Miss-3 Cellular Corporation in favor
of Robert Mounger, dated April 15, 1992, in the principal
sum of $7,500+
4.40 -- Promissory Note By Miss-3 Cellular Corporation in favor
of Robert Mounger, II, dated April 1, 1992, in the
principal sum of $17,500.00+
4.41 -- Promissory Note By Miss-3 Cellular Corporation in favor
of William M. Yandell, III dated April 30, 1992, in the
principal sum of $17,500.00+
4.42 -- Promissory Note By Miss-3 Cellular Corporation in favor
of Wirt A. Yerger, III, dated May 12, 1992, in the
principal sum of $2,500.00+
4.43 -- Promissory Note By Miss-3 Cellular Corporation, in favor
of Wirt A. Yerger, III dated March 25, 1992, in the
principal sum of $25,000+
4.44 -- Pledge Agreement By and Among the owners of capital stock
of Miss-34 Cellular Corporation and AT&T Credit
Corporation, dated December 20, 1993+
4.45 -- Capital Note By Miss-34 Cellular Corporation to AT&T
Credit Corporation, dated December 30, 1993, in the
principal sum of $1,684,987+
4.46 -- Deed of Trust, Security Agreement, Financing Statement
and Assignment of Rents and Leases Entered into by
Miss-34 Cellular Corporation in favor of AT&T Credit
Corporation, dated December 20, 1993, in the principal
sum of $9,980,000+
4.47 -- Equipment Note Miss-34 By Cellular Corporation in favor
of AT&T Credit Corporation, dated December 30, 1993, in
the principal sum of $2,138,836+
4.48 -- This item intentionally left blank.
4.49 -- Mortgage and Security Agreement By Mercury Cellular
Telephone Co. in favor of CoBank, ACB, dated April 20,
1995+
4.50 -- Security Agreement By and Between Mercury Cellular
Telephone Company and CoBank dated, April 20, 1995+
4.51 -- Loan Agreement By and Between CoBank, ACB and CTC
Financial, Inc., dated April 20, 1995 dated April 20,
1995+
4.52 -- Continuing Guaranty By Mercury Cellular Telephone Company
for the benefit of CoBank, ACB dated April 20, 1995+
4.53 -- Limited Recourse Continuing By Mercury, Inc. for the
benefit of CoBank, ACB, dated April 20, 1995+
4.54 -- Limited Recourse Continuing Guaranty By Cameron
Communications Corporation for the benefit of CoBank,
ACB, dated April 20, 1995+
4.55 -- Promissory Note by CTC Financial, Inc. to CoBank, ACB,
dated April 20, 1995, in the principal sum of
$18,000,000+
4.56 -- Promissory Note By Mercury Cellular Telephone Co. in
favor of CTC Financial, Inc. dated April 20, 1995, in the
principal sum of $18,000,000+
4.57 -- Pledge Agreement By and Between Cameron Communications
Corporation and CoBank, ACB, dated April 20, 1995+
4.58 -- Pledge Agreement By and Between Mercury, Inc. and CoBank,
ACB, dated April 20, 1995+
</TABLE>
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
4.59 -- Security Agreement By and Between Mercury Cellular
Telephone Company and CoBank, ACB, dated April 20, 1995+
4.60 -- Security Agreement By and Between Mercury Cellular of
Kansas, Inc. and CoBank, ACB, dated April 5, 1995+
4.61 -- Loan Agreement By and Between CoBank, ACB and Mercury
Cellular of Kansas, Inc., dated April 20, 1995, in the
principal sum of $17,100,000+
4.62 -- Limited Recourse Continuing Guaranty By Mercury Cellular
Telephone Company in favor of CoBank, ACB, dated April
20, 1995+
4.63 -- Collateral Assignment of Tenant's Interest in Leases By
and Between Mercury Cellular of Kansas, Inc. and CoBank,
ACB, dated April 20, 1995, in the principal sum of
$17,100,000+
4.64 -- Security Agreement By and Between Mercury Cellular of
Kansas, Inc. and CoBank, ACB, dated April 20, 1995+
4.65 -- Pledge Agreement By and Between Mercury Cellular
Telephone Company and CoBank, ACB, dated April 20, 1995+
4.66 -- Promissory Note By Mercury Cellular of Kansas, Inc. in
favor of CoBank, ACB, dated April 20, 1995, in the
principal sum of $17,100,000+
4.67 -- Loan and Security Agreement dated as of December 20, 1993
between Mississippi-34 Cellular Corporation and AT&T
Credit Corporation+
4.68 -- Promissory Note dated April 14, 1993 in the principal sum
of $2,779,924 by Mercury, Inc. in favor of Cameron
Telephone Company.+
4.69 -- First Amendment and Supplement to Loan Agreement between
CoBank, ACB, and Mercury Cellular of Kansas, Inc. dated
as of December 15, 1996+
4.70 -- Agreement Regarding Amendments to Loan Documents between
CTC Financial, Inc., Mercury, Inc., Mississippi One
Cellular Telephone Company, William L. Henning, Sr. and
CoBank, ACB, dated as of November 15, 1996+
4.71 -- Assignment, Assumption and Agreement Regarding Amendments
to Loan Documents between CoBank, ACB, Mercury Cellular
of Kansas, Inc, Mercury, Inc., et al., dated as of
December 15, 1996+
4.72 -- Promissory Note by Mercury Cellular Telephone Company in
favor of CTC Financial, Inc. dated November 25, 1996 in
the principal sum of $4,000,000+
4.73 -- Second Amendment and Supplement to Continuing Guaranty
between Mercury Cellular Telephone Company, Inc. and
CoBank, ACB, dated as of November 25, 1996+
4.74 -- Loan Agreement between CTC Financial, Inc. and CoBank,
ACB, dated as of November 25, 1996+
4.75 -- First Amendment and Supplement to Act of Subordination
between Mercury Cellular Telephone Company, Mississippi
One Cellular Telephone Company and CoBank, ACB, dated as
of November 25, 1996+
4.76 -- Promissory Note by CTC Financial, Inc. in favor of
CoBank, ACB, dated November 25, 1996 in the principal sum
of $4,000,000+
4.77 -- Assumption Agreement between CoBank, ACB, and Mercury,
Inc. dated October 31, 1996+
4.78 -- Specimen Class A Common Stock certificate+
</TABLE>
<PAGE> 132
<TABLE>
<C> <S>
4.79 -- Agreement dated as of December 26, 1996 among U.S. Unwired Inc., William L. Henning,
Sr., William L. Henning, Jr., John A. Henning, Thomas G. Henning, Lena B. Henning,
Robert Piper, Hansen Evans Scobee, Henry Rice Scobee, Renee Scobee, Marie Scobee
Williams, Robert Piper, Thomas G. Henning, as trustee of the William L. Henning, Jr.
Exempt Class Trust No. 1, Thomas G. Henning as Trustee of the John A. Henning Exempt
Class Trust No. 1, Thomas G. Henning as trustee of the Thomas G. Henning Exempt Class
Trust No. 1, James D. Spates, Thomas D. Henning, Joyce P. Spates, AVCO, L.L.C., Thomas
B. Shearman, Jr., Lake Charles American Press, Pine Island Oil Corporation and Henco
Partnership+
5.1 -- Opinion of Correro Fishman Haygood Phelps Weiss Walmsley & Casteix, L.L.P. re: legality
of Class A Common Stock*
10.1 -- BTA Management and Construction Services Agreement By and Between Mercury, Inc. and
Meretel Communications, Limited Partnership dated July 1, 1996+
10.2 -- Articles of Partnership in Commendam of Meretel Communications Limited Partnership By
and Among Wireless Management Corporation and Eatel Corp, Inc., Mercury Cellular
Telephone Company, Fort Bend Telephone Company and Meretel Wireless, Inc. dated July
25, 1995+
10.3 -- Nationwide Messaging Reseller Agreement By and Between MobileComm Nationwide
Operations, Inc. and Mercury Cellular Telephone Co. dated December 19, 1994+
10.4 -- Arch Nationwide Paging Reseller Agreement By and Between Arch Nationwide Paging and
Mercury Cellular Telephone Company, dated April 7, 1995+
10.5 -- RSA Management and Construction Services Agreement By and Between Mercury Inc. and
Miss-34 Cellular Corporation dated June 1, 1994+
10.6 -- RSA Management and Construction Services Agreement By and Between Mercury, Inc. and
Miss.-1 Telephone Co. dated May 1, 1996+
10.7 -- RSA Management and Construction Services Agreement By and Between Mercury, Inc. and
Mercury Cellular Telephone Co. dated May 1, 1996+
10.8 -- RSA Management and Construction Services Agreement By and Between Mercury, Inc. and
Mercury Cellular of Kansas, Inc., dated May 1, 1996+
10.9 -- Intentionally omitted
10.10 -- Asset Purchase Agreement By and Between West Alabama Cellular telephone Company, Inc.
and Mississippi One Cellular Telephone Co., dated March 4, 1996+
10.11 -- CellularOne License Agreement Between CellularOne Group and Mercury, Inc., dated April
13, 1993+
10.12 -- Management and Accounting Services By and Between Mercury Information Technologies,
Inc. and Mercury, Inc. Agreement dated November 7, 1995+
10.13 -- MIS Services Agreement By and Between Mercury, Inc. and Maas.net, LLC, dated June 6,
1996+
10.14 -- Lease Agreement By and Between William L. Henning and Lena B. Henning and Mercury
Cellular Telephone Company, Inc., dated January 1, 1990+
10.15 -- Lease By and Between Mercury, Inc. ("Lessor") and Mercury Cellular Telephone Company
("Lessee"), dated March 1, 1992+
10.16 -- Commitment Letter, dated September 13, 1996, from CoBank, ACB+
</TABLE>
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.17 -- Purchase Agreement By and Between Miscellco
Communications, Inc. and Mercury Cellular of Kansas, Inc.
dated April 19, 1995+
10.18 -- Letter Agreement dated October 18, 1995 between Cameron
Communications Corporation and Mercury Information
Technologies, Inc.+
10.19 -- Act of Sale dated August 31, 1994 between Mercury, Inc.
and Mississippi One Cellular Telephone Company.+
10.20 -- US Unwired Inc. 1997 Stock Option Plan+
10.21 -- Commitment Letter dated October 24, 1996 from Rural
Telephone Financial Cooperative to Wireless Management
Corporation+
10.22 -- Form of Stock Purchase Agreement between Mercury, Inc.,
David Bailey, E. B. Martin, Jr., William M. Mounger, II,
Robert M. Mounger, James A. Murrell, III, William M.
Yandall, III and Wirt A. Yeager, III+
11 -- Statement regarding computation of per share earnings+
21 -- List of Subsidiaries+
23.1 -- Consent of KPMG Peat Marwick LLP*
23.2 -- Consent of KPMG Peat Marwick LLP*
23.3 -- Consent of KPMG Peat Marwick LLP*
23.4 -- Consent of KPMG Peat Marwick LLP*
23.5 -- Consent of Smith, Turner & Reeves*
23.6 -- Consent of Elliot Goldberg CPA*
23.7 -- Consent of Correro Fishman Haygood Phelps Weiss Walmsley
& Casteix, L.L.P. (included in opinion filed as Exhibit
5.1)*
24.1 -- Powers of Attorney (included on the Signature Page)+
27.1 -- Financial Data Schedule+
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
<PAGE> 1
EXHIBIT 3.3
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
US UNWIRED INC.
US Unwired Inc. (the "Corporation"), through its undersigned President
and Secretary, hereby certifies that:
1. Amendments to Articles. Amendments to the Articles of Incorporation, as
previously amended (the "Articles"), of the Corporation were duly
adopted by the shareholders of the Corporation by Written Consent of
such shareholders, executed as of January 31, 1997 by holders of
10,958,133 shares (or 97.40%) of the 11,250,000 total outstanding shares
of Class B voting common stock, $.01 par value, said class being the
only class or series of capital stock outstanding. The Articles permit
shareholder action by written consent of the proportion of the voting
power of the Corporation as is required to take such action. Said
Written Consent amends Article IV(A) of the Articles, to read in its
entirety as follows:
"ARTICLE IV
CAPITAL STOCK:
CLASS B COMMON STOCK SPECIAL PROVISIONS
A. Qualified Holders. Class B Common Stock may be held only by the
following holders (each of which is a "Qualified Holder"):
(i) Persons and entities who receive Class B Common Stock (a) in
connection with the reclassification referred to in Article IV(C), or (b) as a
distribution from any such entity which received Class B Common Stock in
connection with the reclassification referred to in Article IV(C) (each such
person or entity is hereinafter referred to as a "Founder"),
(ii) Any natural person who is:
(a) a descendent (including by adoption) of a Founder; and
(b) the spouse or surviving spouse of a Qualified Holder.
(iii) Any trustee or other fiduciary, but only if and so long as the
sole beneficial owners of the shares are one or more Qualified Holders;
(iv) Any corporation that is not a Founder, if the entire capital
stock thereof is owned by any one or more Qualified Holders; and
<PAGE> 2
(v) Any partnership or limited liability company that is not a
Founder, whose sole partners or owners are one or more Qualified Holders.
(vi) Any person or entity which is designated a Qualified Holder in
accordance with the following paragraph.
(vii) Any organization described in Section 501(c)(3) of the Internal
Revenue Code of 1986 (or any succeeding provision).
If a Qualified Holder ceases to be such (as would, for example, a
corporation that is not a Founder some of whose stock is transferred by a
Qualified Holder to a non-Qualified Holder; or a natural person who has been a
Qualified Holder solely by virtue of being the spouse of a Qualified Holder but
who becomes divorced from such Qualified Holder) then the shares of Class B
Common Stock owned by the former Qualified Holder shall be offered to the
remaining Qualified Holders and the Corporation according to the procedures of
Article IV(B), except that the "option period" described therein shall not
terminate until forty-five days after written notice of the cessation has been
given by the former Qualified Holder or any other Qualified Holder to the
Corporation and further except that the "market value per share" shall be the
lesser of that existing at the time of the cessation or that existing at the
time of such written notice. Any such shares not purchased by the remaining
Qualified Holders or the Corporation shall be automatically converted into
Class A Common Stock on a share-for-share basis and such converted shares shall
be subject to the limitations of Article IV(B)(7). Notwithstanding the
foregoing, such unpurchased shares shall not be converted into Class A Common
Stock if, within 30 days after the end of the Option Period, the holder is
designated a "Qualified Holder" by holders of a majority of the Class B Common
Stock then outstanding, in which event the unpurchased shares shall remain
Class B Common Stock and shall continue to be subject to Article IV. A
Qualified Holder who is a natural person does not cease to be a Qualified
Holder by reason of such person's death, but the transfer of such deceased
person's Class B Common Stock is subject to the restrictions of Article IV(B)."
/s/ WILLIAM L. HENNING, JR.
PRESIDENT
/s/ THOMAS G. HENNING
SECRETARY
<PAGE> 3
ACKNOWLEDGEMENT
STATE OF LOUISIANA
PARISH OF CALCASIEU
BEFORE ME, the undersigned authority personally came and appeared
William L. Henning, Jr. and Thomas G. Henning to me known to be the persons who
signed the foregoing instrument as President and Secretary, respectively, of US
Unwired Inc. and who, having been duly sworn, acknowledged and declared in the
presence of the witnesses whose names are subscribed below, that they signed
that instrument of their free act and deed for the purposes mentioned therein.
IN WITNESS WHEREOF, the appearers and witnesses and I have signed below
on this 31st day of January, 1997.
WITNESSES:
/s/ William L. Henning, Jr., President
/s/ Thomas G. Henning, Secretary
/s/ Willard H. Henson
Signature
Willard H. Henson
Print Name
NOTARY PUBLIC
My Commission Expires:
at death
<PAGE> 1
EXHIBIT 5.1
[CORRERO FISHMAN HAYGOOD
PHELPS WEISS WALMSLEY & CASTEIX LETTERHEAD]
January 31, 1997
US Unwired Inc.
CM Tower, Suite 1900
One Lakeshore Drive
Lake Charles, LA 70629
RE: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement, as amended, on Form S-1,
Registration No. 333-15783, that you filed with the Securities and Exchange
Commission on or about November 6, 1996 (as such may thereafter be amended or
supplemented, the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, and sale to the
underwriters named therein, for resale to the public as described in the
Registration Statement, of up to 1,955,000 shares of your Common Stock, $.01
par value (the "Shares"). As your legal counsel, we have examined the
proceedings taken, and are familiar with the proceedings proposed to be taken,
by you in connection with the issuance and sale of the Shares.
It is our opinion that, upon completion of the above-mentioned
proceedings prior to the issuance and sale of the Shares, the Shares, when
issued and sold in the manner described in the Registration Statement, will be
legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name under the caption "Legal
Matters" in the Prospectus constituting a part of the Registration Statement.
Very truly yours,
/s/ CORRERO FISHMAN HAYGOOD
PHELPS WEISS WALMSLEY & CASTEIX, L.L.P.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULE AND CONSENT
The Board of Directors
US Unwired Inc.:
The audits referred to in our report dated December 13, 1996, except as to
note 15 which is as of January 16, 1997, included the related financial
statement schedule for each of the years in the three-year period ended December
31, 1995, included in the registration statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein and to the references
to our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
KPMG Peat Marwick LLP
New Orleans, Louisiana
January 31, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Miscellco Communications, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
New Orleans, Louisiana
January 31, 1997
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
West Alabama Cellular Telephone Company, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
New Orleans, Louisiana
January 31, 1997
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Alabama 4 System
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
New Orleans, Louisiana
January 31, 1997
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
US Unwired Inc.
We consent to the use in this Amendment No. 3 to the Registration Statement
of US Unwired, Inc. on Form S-1 of our report dated March 3, 1994, appearing in
the Prospectus, which is part of the Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ SMITH, TURNER & REEVES, APA
SMITH, TURNER & REEVES, APA
January 29, 1997
Jackson, Mississippi
<PAGE> 1
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Alabama 4 System
We consent to the reference to our firm under the caption "Experts" and to
the use, in Amendment No. 3 to the Form S-1 Registration Statement to be filed
by US Unwired Inc. on or about January 29, 1997, for the registration of
1,700,000 shares of the Company's Class A Common Stock, of our report dated
December 16, 1995 relating to the financial statements of Dominion Cellular
Inc. (Alabama 4 System) for the years ended September 30, 1995, and 1994.
/s/ ELLIOT H. GOLDBERG, CPA, P.C.
- -----------------------------------
ELLIOT H. GOLDBERG, CPA, P.C.
Rockville Centre, New York
January 29, 1997
