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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934)
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
(NAME OF ISSUER)
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
(NAME OF PERSON(S) FILING STATEMENT)
3,500,000 SHARES OF COMMON STOCK, PAR VALUE $.01
(TITLE OF CLASS OF SECURITIES)
151 16N 108
(CUSIP NUMBER OF CLASS OF SECURITIES)
RICHARD J. LUBASCH, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
110 EAST 59TH STREET
NEW YORK, NY 10022
(212) 355-3466
(NAME, ADDRESS AND TELEPHONE NUMBER OF A PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPIES TO:
THOMAS H. KENNEDY, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NY 10022
(212) 735-3000
OCTOBER 15, 1998
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)
CALCULATION OF FILING FEE
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TRANSACTION VALUATION(1) AMOUNT OF FILING FEE
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$28,875,000...................................... $5,775...........................................
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(1) For purposes of calculating this filing Common Stock fee in accordance with
Rule 0-11(b)(2) under the Securities Exchange Act of 1934, as amended, the
market value of the Common Stock proposed to be acquired was established by
multiplying the average of $7.50 and $9.00 (the high and low sales prices on
October 9, 1998) by 3,500,000, the number of shares of Common Stock which
the Company has offered to acquire.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identity the previous filing by registration statement number of the form
or schedule and the date of its filing.
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Amount Previously Paid:..................................... N/A
Form or Registration No.:................................... N/A
Filing Party:............................................... N/A
Date Filed:................................................. N/A
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ITEM 1. SECURITY AND ISSUER.
(a) The issuer of the securities to which this Statement relates is
Cellular Communications of Puerto Rico, Inc., a Delaware corporation (the
"Company"). The principal executive offices of the Company are located at 110
East 59th Street, New York, New York 10022.
(b) As of October 12, 1998, there were approximately 13,204,000 shares
(exclusive of 383,000 treasury shares) of the Company's common stock, par value
$.01 per share ("Common Stock") outstanding. Upon the terms and subject to the
conditions set forth in the Offering Circular dated October 15, 1998 (the
"Offering Circular") and the related Letter of Transmittal, copies of which are
filed herewith as Exhibits 99.(a)(i) and 99.(a)(ii), respectively, the Company
is offering to exchange (the "Exchange Offer") $15.00 principal amount of 15%
Subordinated Notes (the "Notes"), to be issued, in exchange for up to 3,500,000
shares of its Common Stock outstanding. Under the terms of the Exchange Offer,
the Company reserves the right to alter the terms thereof, including the right
to increase or decrease the number of shares of Common Stock that the Company
may accept pursuant to the Exchange Offer in accordance with applicable law,
including Rule 13e-4(f)(l)(ii) of the Securities Exchange Act of 1934, as
amended. The information under the headings "The Exchange Offer -- General" and
"-- Terms of the Exchange Offer" in the Offering Circular is incorporated herein
by reference. Shares of Common Stock held by Officers and Directors at the time
of the Exchange Offer are eligible for exchange if properly tendered pursuant to
the Exchange Offer on the same basis as all other shares of Common Stock.
(c) The information under the heading "Description of the Capital
Stock -- Market Price of Capital Stock" in the Offering Circular is incorporated
herein by reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information on the cover page and under the heading "The Exchange
Offer" in the Offering Circular, respectively, attached hereto as Exhibit
99.(a)(i), is specifically incorporated herein by reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE EXCHANGE OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
The information on the cover page and under the headings "Offering
Summary -- The Exchange Offer" and "The Exchange Offer -- General" in the
Offering Circular discusses the purpose of the Exchange Offer and is
incorporated herein by reference. The shares of Common Stock are to be canceled
upon consummation of the Exchange Offer.
(a) The information on the cover page and under the headings "Offering
Summary -- The Exchange Offer" and "The Exchange Offer -- General" in the
Offering Circular is incorporated herein by reference.
(b) The information contained under the heading "Business -- Recent
Developments" in the Offering Circular is incorporated herein by reference.
(c) Not applicable.
(d) Not applicable.
(e) The information under the headings "Summarized Financial Information"
and "Capitalization" in the Offering Circular is incorporated herein by
reference.
(f) Not applicable.
(g) Not applicable.
(h) The information under the heading "Risk Factors -- Effect of Exchange
Offer on Unconverted Securities" is incorporated herein by reference.
(i) Not applicable.
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(j) Not applicable.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The following sets forth each transaction in the shares of Common Stock
effected since (and including) August 14, 1998 by the Company, by any person
referred to in Instruction C of Schedule 13E-4 (i.e., by each executive officer
and director of the Company, any person "controlling" the Company and each
director and executive officer of any "controlling" person) or by any associate
or subsidiary of such person, including any director or officer of any such
subsidiary:
None.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
Neither the Company nor, to the best of the Company's knowledge, any of its
directors or executive officers, or any of the executive officers or directors
of any of its subsidiaries, is party to any contract, arrangement or
understanding relating to the Exchange Offer nor is there any relationship
relating to the Exchange Offer between any of such executive officers and
directors and any other person with respect to any securities of the Company.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
There have been no persons employed, retained or to be compensated to make
solicitations or recommendations in connection with the Exchange Offer.
ITEM 7. FINANCIAL INFORMATION.
(a)(1) Audited financial statements of the Company for the two most recent
fiscal years are included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 filed with the Securities and Exchange
Commission, constituting pages F-1 through F-22, inclusive thereof and are
incorporated herein by reference. A copy of pages F-1 through F-22, inclusive,
of the Company's Annual Report on Form 10-K is annexed hereto as Exhibit
99.(a)(vi).
(a)(2) Unaudited balance sheets and comparative year-to-date statements of
operations and cash flows and related earnings or loss per share amounts at June
30, 1998 and for the six-month period then ended are included on pages 2 through
11, inclusive, in the Company's quarterly report on Form 10-Q for the quarter
ended June 30,1998, and are incorporated herein by reference. A copy of pages 2
through 11, inclusive, of the Form 10-Q is annexed hereto as Exhibit
99.(a)(vii).
(a)(3) The information under the heading "Summarized Financial Information"
in the Offering Circular is incorporated herein by reference.
(a)(4) See the response to Item 7(a)(3) above.
(b)(1)-(3) The information under the heading "Summarized Financial
Information" in the Offering Circular is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) The Notes issued upon exchange of shares of Common Stock will be issued
by the Company in reliance on the exemption from the registration requirements
of the Securities Act of 1933, as amended, provided in Section 3(a)(9) thereof.
The Company believes that the Notes issued by the Company to holders of Common
Stock not deemed affiliates (as defined under Rule 144 of the Securities Act of
1933, as amended) upon the exchange of shares of Common Stock will be freely
tradable by such holders of Common Stock because such Common Stock has been
registered pursuant to an effective registration statement under
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the Securities Act of 1933, as amended. Holders of Common Stock deemed
affiliates will be subject to the restrictions contained in Rule 144.
In connection with the proposed issuance of 15% Subordinated Notes due 2008
upon consummation of the Exchange Offer, an application has been filed with the
Securities and Exchange Commission on Form T-3 for qualification of the
Indenture under which the Notes will be issued. A copy of the form of the
Indenture has been attached hereto as Exhibit 99.(b).
(c) While the Notes will remain marginable, they will not automatically be
entitled to the 50% margin afforded to shares of Common Stock. Rather, the Notes
will be marginable in accordance with the good faith determination of the broker
or other creditor margining the securities, as provided for under Regulation T
promulgated by the Board of Governors of the Federal Reserve System.
(d) Not applicable.
(e) Additional material information is set forth in the Offering Circular
and related Letter of Transmittal, which are attached hereto as Exhibits
99.(a)(i) and 99.(a)(ii), respectively, and such material information is
incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
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99.(a)(i) Form of Offering Circular dated October 15, 1998.
99.(a)(ii) Form of Letter of Transmittal along with guidelines for
Certification of Taxpayer Identification Number on
Substitute Form W-9.
99.(a)(iii) Form of Letter from the Company to Brokers, Dealers and
Nominees.
99.(a)(iv) Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees to Clients.
99.(a)(v) Form of Notice of Guaranteed Delivery.
99.(a)(vi) Copies of the Report to Independent Auditors and Audited
Financial Statements of the Company's 1997 Annual Report to
Stockholders (which are incorporated by reference in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997) constituting pages F-1 through
F-22, inclusive.
99.(a)(vii) Copies of unaudited balance sheets and comparative
year-to-date statements of operations and cash flows and
related earnings (loss) per share amounts constituting pages
2 through 11, inclusive, of the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998.
99.(a)(viii) Unaudited pro forma data showing the effect of the
conversion of 3,500,000 shares of Common Stock for
$52,500,000 aggregate principal amount of Notes for the year
ended December 31, 1997 and for the six months ended June
30, 1998, on the Company's balance sheet, statement of
operations, loss per share amounts, ratio of earnings to
fixed charges and book value as of its most recent fiscal
year and latest interim period (which is set forth in
Exhibit 99(a)(i) above under the heading "Summarized
Financial Information").
99.(a)(ix) Press Release, dated October 15, 1998.
99.(a)(x) Letter to holders of shares of Common Stock, dated October
15, 1998.
99.(a)(xi) Consent of Ernst & Young LLP.
99.(a)(xii) Form of Summary Advertisement
99.(b) Form of Indenture between the Company and The Chase
Manhattan Bank, as Trustee, relating to the Notes.
99.(c) None.
99.(d) None.
99.(e) Not applicable.
99.(f) None.
</TABLE>
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SIGNATURE
After due inquiry and to the best of the Company's knowledge and belief,
the undersigned certifies that the information set forth in this Statement is
true, complete and correct.
Dated: October 15, 1998
CELLULAR COMMUNICATIONS OF
PUERTO RICO, INC.
By: /s/ RICHARD J. LUBASCH
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Name: Richard J. Lubasch
Title: Senior Vice
President -- General Counsel
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EXHIBIT INDEX
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<CAPTION>
SEQUENTIAL
NAME EXHIBIT PAGE NUMBER
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99.(a)(i) Form of Offering Circular dated October 15, 1998............
99.(a)(ii) Form of Letter of Transmittal along with guidelines for
Certification of Taxpayer Identification Number on
Substitute Form W-9.........................................
99.(a)(iii) Form of Letter from the Company to Brokers, Dealers and
Nominees....................................................
99.(a)(iv) Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees to Clients.....................
99.(a)(v) Form of Notice of Guaranteed Delivery.......................
99.(a)(vi) Copies of the Report of Independent Auditors and Audited
Financial Statements of the Company's 1997 Annual Report to
Stockholders (which are incorporated by reference in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, constituting pages F1 through F22,
inclusive)..................................................
99.(a)(vii) Copies of unaudited balance sheets and comparative
year-to-date statements of operations and cash flows and
related earnings (loss) per share amounts constituting pages
2 through 11, inclusive, of the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998............
99.(a)(viii) Unaudited pro forma data showing the effect of the
conversion of 3,500,000 shares of Common Stock for
$52,500,000 aggregate principal amount of Notes for the year
ended December 31, 1997 and for the six months ended June
30, 1998, on operations, loss per share amounts, ratio of
earnings to fixed charges and book value as of its most
recent fiscal year and latest interim period (which is set
forth in Exhibit 99.(a)(i) above under the heading
"Summarized Financial Information").........................
99.(a)(ix) Press Release, dated October 15, 1998.......................
99.(a)(x) Letter to holders of shares of Common Stock, dated October
15, 1998....................................................
99.(a)(xi) Consent of Ernst & Young LLP................................
99.(a)(xii) Form of Summary advertisement...............................
99.(b) Form of Indenture between the Company and The Chase
Manhattan Bank, as Trustee, relating to the Notes...........
99.(c) None........................................................
99.(d) None........................................................
99.(e) Not applicable..............................................
99.(f) None........................................................
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Exhibit 99(a)(i)
OFFERING CIRCULAR
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
OFFER TO EXCHANGE 15%
SUBORDINATED NOTES DUE 2008 FOR UP TO
3,500,000 SHARES OF ITS COMMON STOCK
Cellular Communications of Puerto Rico, Inc. ("CCPR" or the "Company")
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Offering Circular (the "Offering Circular"), and in
the accompanying Letter of Transmittal (the "Letter of Transmittal"), to
exchange $15.00 principal amount of a new issue of 15% Subordinated Notes due
2008 (the "Notes") in exchange for each share of its Common Stock, par value
$.01 share (the "Common Stock" or "Shares"), up to 3,500,000 shares (although
the Company may determine to accept a greater or lesser number of Shares in
accordance with the provisions for modifying the terms of the Exchange Offer and
in compliance with applicable law, including Rule 13e-4(f)(1)(ii) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")). As of October
12, 1998, there were approximately 13,204,000 shares exclusive of 383,000
treasury shares of Common Stock outstanding. The Exchange Offer is being made
for up to 3,500,000 shares of Common Stock. If more then 3,500,000 shares of
Common Stock are properly tendered prior to the Expiration Date, the Company may
accept for exchange 3,500,00 shares from shareholders who properly tender the
shares on a pro-rata basis. If the Company modifies the number of shares of
Common Stock that it will accept, in accordance with applicable provisions of
the Exchange Offer and law, and more than that number designated by the Company
are tendered, the Company may accept for exchange such designated number of
shares on a pro-rata basis. The Notes issued pursuant to the Exchange Offer will
be delivered as soon as practicable following the Expiration Date. The terms and
conditions of the Exchange Offer will not be applicable to any shares of Common
Stock that are not accepted pursuant to the Exchange Offer, or which are
delivered for exchange after the Expiration Date. The Exchange Offer is not
conditioned on any minimum number of shares being tendered.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 12,
1998 UNLESS EXTENDED (SUCH DATE AS EXTENDED FROM TIME TO TIME, THE "EXPIRATION
DATE"). SHARES OF COMMON STOCK TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
AFTER THE EXPIRATION DATE, SHARES OF COMMON STOCK TENDERED IN THE EXCHANGE OFFER
MAY NOT BE WITHDRAWN UNLESS THE EXCHANGE OFFER IS TERMINATED OR EXPIRES WITHOUT
CONSUMMATION THEREOF.
The purpose of the Company's offer to issue Notes in exchange for Shares is
to give Shareholders who prefer not to continue in an equity position as holders
of common stock in the Company an opportunity to obtain an alternative return on
their investment in the Company through the exchange of their Shares for Notes
and to reduce the equity capitalization of the Company.
The Company intends to enter into an indenture (the "Indenture") with The
Chase Manhattan Bank as trustee governing the issuance of the Notes. Notes will
be issued in the amount of $15.00 of principal amount for each share of Common
Stock tendered and accepted and will be issued in denominations of $15.00 and
multiples thereof. Interest on the Notes will accrue from November 15, 1998, and
be payable on May 15 and November 15. After the second semi-annual interest
payment, or November 15, 1999, interest may, at the option of CCPR, be paid in
whole or in part, in cash or through the issuance of additional Notes. The Notes
are redeemable at the Company's option at any time after November 15, 1999 at
102% of principal amount plus accrued interest to the redemption date. The Notes
are subordinated to all Senior Indebtedness (as defined) of the Company. See
"Description of the Notes" and "Risk Factors -- Subordination."
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Notwithstanding any other provision of the Exchange Offer, the Company's
obligation to accept for exchange, and to exchange, shares of Common Stock
properly tendered and not withdrawn pursuant to the Exchange Offer is
conditioned upon certain conditions (including, among others, those set forth
under "The Exchange Offer -- Conditions to the Exchange Offer.") If the
conditions of the Exchange Offer are satisfied or waived and the shares of
Common Stock are accepted by the Company for exchange, the Notes will be
exchanged on or promptly after the date on which the shares of Common Stock are
accepted for exchange (the "Exchange Offer Acceptance Date"). Under no
circumstances will any interest be payable because of any delay in the
transmission of Notes or funds to holders of shares of Common Stock. Subject to
applicable securities laws and the terms set forth in this Offering Circular,
the Company reserves the right (i) to waive any and all conditions to the
Exchange Offer, (ii) to extend the Exchange Offer or (iii) otherwise to amend
the Exchange Offer in any respect.
An application Form T-3 will be filed with the Securities and Exchange
Commission (the "SEC") on or about the date of this Offering Circular for
qualification under the Trust Indenture Act of 1939 of the Indenture under which
the Notes will be issued. Until such application becomes effective, the Company
will not issue any Notes in exchange for shares or accept shares properly
tendered.
The terms of the Exchange Offer equate to $15 principal amount of Notes for
each share of Common Stock received in the Exchange Offer. The Common Stock is
traded in the Nasdaq National Market System under the symbol "CLRP". On October
14, 1998, the last reported sales price of the Common Stock on the Nasdaq
National Market was $9.00 per share.
See "Risk Factors" on page 13 for a discussion of certain factors that
should be carefully considered in connection with the exchange offered hereby.
IMPORTANT
Any beneficial holder of shares of Common Stock desiring to tender all or
any portion of his shares should either (i) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in the
Letter of Transmittal and mail or deliver it, together with the certificates
representing tendered shares of Common Stock and any other required documents,
to Continental Stock Transfer & Trust Company (the "Exchange Agent") or tender
such shares of Common Stock pursuant to the procedure for book-entry transfer
set forth in "The Exchange Offer -- Procedures for Tendering" or (2) request his
broker, dealer, commercial bank, trust company or nominee to effect the
transaction for him. BENEFICIAL HOLDERS WHOSE SHARES OF COMMON STOCK ARE
REGISTERED IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR
OTHER NOMINEE MUST CONTACT SUCH PERSON IF THEY DESIRE TO TENDER THEIR SHARES OF
COMMON STOCK. Holders who wish to tender shares of Common Stock and whose
certificates representing such shares of Common Stock are not immediately
available or who cannot comply with the procedures for book entry transfer on a
timely basis may tender such shares of Common Stock by following the procedures
for guaranteed delivery set forth in "The Exchange Offer -- Procedures for
Tendering."
------------------------
The date of this Offering Circular is October 15, 1998.
The Exchange Offer will expire at 5:00 p.m., New York City time, on
November 12, 1998 (such time and date, the "Expiration Date"), unless the
Company, in its sole discretion, extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date at which the Exchange Offer, as so extended by the Company, shall
expire. See "The Exchange Offer -- Expiration; Extension; Termination;
Amendment." Shares of Common Stock may be tendered and will be accepted in
exchange for Notes in denominations of $15.00 principal amount and integral
multiples thereof.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER ANY HOLDER OF SHARES OF COMMON STOCK SHOULD TENDER SHARES
OF COMMON STOCK PURSUANT TO THE EXCHANGE OFFER. NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
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REPRESENTATIONS, OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN
THIS OFFERING CIRCULAR OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH
RECOMMENDATIONS, INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR
NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
This Offering Circular does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities covered
by this Offering Circular, nor does it constitute an offer to sell or a
solicitation of an offer to buy any such securities by any person in any
jurisdiction in which such offer or solicitation would be unlawful.
The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act afforded by
Section 3(a)(9) thereof. The Company therefore will not pay any commission or
other remuneration to any broker, dealer, salesman or other person for
soliciting tenders of Shares of Common Stock. Officers, directors and regular
employees of the Company may solicit tenders of Shares of Common Stock but they
will not receive additional compensation therefor.
IN DECIDING WHETHER TO ACCEPT THE EXCHANGE OFFER, HOLDERS OF SHARES OF
COMMON STOCK MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF
THE EXCHANGE OFFER, INCLUDING THE MERITS AND RISKS INVOLVED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT PASSED UPON THE FAIRNESS OF SUCH TRANSACTION NOR CONFIRMED
THE ACCURACY OR DETERMINED THE ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Offering Circular:
1. CCPR's Annual Report on Form 10-K for the year ended December 31,
1997, dated March 30, 1998;
2. CCPR's Current Reports on Form 8-K, dated March 23, 1998, June 10,
1998, September 1, 1998, and October 13, 1998.
3. CCPR's Quarterly Reports on Form 10-Q for the quarter ended June
30, 1998, dated August 13, 1998 and the quarter ended March 31, 1998, dated
May 11, 1998.
The Company also incorporates herein by reference all documents and reports
subsequently filed by the Company with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Offering Circular
and prior to termination of this offering. Such documents and reports shall be
deemed to be incorporated by reference in this Offering Circular and to be a
part hereof from the date of filing of such documents or reports. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Offering Circular to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded, except as so modified or superseded, shall not be deemed
to constitute a part of this Offering Circular.
The Company will provide without charge to each person whom a copy of this
Offering Circular has been delivered, on the written or oral request of such
person, a copy of any or all of the documents incorporated herein by reference,
other than exhibits to such documents unless they are specifically incorporated
by reference into such documents. Requests for such copies should be directed
to: Secretary, Cellular Communications of Puerto Rico, Inc., 110 East 59th
Street, New York, New York 10022, telephone (212) 355-3466.
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION....................................... 6
OFFERING SUMMARY............................................ 7
SUMMARIZED FINANCIAL INFORMATION............................ 10
CAPITALIZATION.............................................. 12
RISK FACTORS................................................ 13
THE EXCHANGE OFFER.......................................... 22
THE COMPANY................................................. 31
DESCRIPTION OF THE NOTES.................................... 33
DESCRIPTION OF CAPITAL STOCK................................ 37
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS.............. 44
INTEREST IN SHARES OF COMMON STOCK.......................... 46
CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO THE SHARES OF COMMON STOCK................ 47
</TABLE>
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Schedule 13E-4, which shall encompass any amendments thereto,
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
respect to the Exchange Offer. This Offering Circular does not contain all the
information set forth in the Schedule 13E-4 and the exhibits thereto, to which
reference is hereby made for further information about the Company and the
Exchange Offer.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy and information
statements, and other information with the Commission. The Schedule 13E-4 and
all reports, proxy and information statements, and other information filed by
the Company with the Commission may be inspected at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048, and Suite 1400, Citicorp Center, 700
West Madison Street, Chicago, Illinois 60661-2511. Copies of such material may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Additionally, the
Commission maintains an electronic Web Site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, the address of such Web Site being
(http://www.sec.gov).
The Company will provide without charge to each person to whom a copy of
this Offering Circular has been delivered, on the written and oral request of
such person, a copy of the Schedule 13E-4. Requests for such copies should be
directed to: Secretary, Cellular Communications of Puerto Rico, Inc., 110 East
59th Street, New York, New York 10022, telephone (212) 355-3466.
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OFFERING SUMMARY
The following is a summary of certain information included in this Offering
Circular or in documents incorporated by reference herein. It is not intended to
be complete and is qualified in its entirety by the more detailed information
found elsewhere in this Offering Circular or in such documents, which should be
read with care. As used herein, unless the context otherwise requires, the
"Company" refers to Cellular Communications of Puerto Rico, Inc. and its
consolidated shareholders. As used herein, the term "Offering Circular" shall
mean this Offering Circular and all Appendixes and Exhibits hereto, as the same
may be amended, supplemented, restated or otherwise modified from time to time.
The term "Exchange Offer" shall mean the offering contemplated hereby.
References to the Company's fiscal year shall refer to the calendar year in
which the Company's fiscal year ends (e.g., fiscal year 1997).
THE COMPANY
The Company, through wholly and majority owned entities, owns, operates and
markets cellular and paging systems in the Commonwealth of Puerto Rico and the
U.S. Virgin Islands and conducts other cellular, paging and communications
related operations described below. From time to time the Company reviews
opportunities in other telecommunications related industries both inside and
outside of Puerto Rico and the U.S. Virgin Islands.
The Company has retained an investment banking firm to act as financial
advisor to CCPR in reviewing strategic alternatives to enhance shareholder value
including the exploration of partnering opportunities in the region through a
business combination, an appropriate acquisition, the sale of the Company, or
similar transactions. As of the date of this Offering Circular, the Company is
not presently engaged in substantive discussions with other parties regarding
such a potential transaction. However, there can be no assurance that such
substantive discussions or such a transaction might not be pursued or
consummated after the date hereof, or that such a development would not be seen
by the Company as a basis for terminating the Exchange Offer. See "RISK
FACTORS -- Exchange Offer Subject to Certain Contingencies," "-- Review of
Strategic Alternatives".
Investors are encouraged to read the Company's annual report on Form 10-K,
dated December 31, 1997, for a detailed description of the Company's business.
The Company's executive offices are located at 110 East 59th Street, New
York, New York 10022 and its telephone number is (212) 355-3466.
Effect of Hurricane Georges
Management does not believe the Company will experience substantial long
term damage from the recent hurricane (Hurricane Georges) which struck Puerto
Rico and the U.S. Virgin Islands in September 1998. The Company's insurance is
expected to cover nearly all of the expenses associated with restoring its
service, and approximately 90% of the cost of repairing and replacing damaged
equipment and facilities. In addition, the Company has business interruption
insurance so that it is not expected to incur an uninsured material loss from
the Company's cell sites that were out of service. The Company has not, however,
completed discussions with its insurance carriers and their adjusters.
RECENT DEVELOPMENTS
Prior to September 2, 1998 (the "Distribution Date") Cellular
Communications of Puerto Rico, Inc. ("CCPR" or the "Company") was known as
CoreComm Incorporated. On the September 2, 1998 the Company effected a
distribution (the "Distribution") whereby shareholders of CCPR received on a
one-for-one basis shares of CoreComm Limited ("Newco"), a Bermuda corporation,
which until the Distribution Date had been a wholly owned subsidiary of CCPR.
Newco was formed by CCPR in March 1998 in order to succeed to the business and
assets that were operated by OCOM Corporation, which had been acquired by CCPR
in June 1998, and to pursue telecommunications opportunities outside Puerto Rico
and the U.S. Virgin Islands in an entrepreneurial corporate environment. See
"Business -- Recent Developments -- Newco Distribution".
7
<PAGE> 8
THE EXCHANGE OFFER
The Offering................. The Company is making an exchange offer to each
shareholder of the Company under which such
shareholders will receive $15.00 principal amount
of the Notes for each share of Common Stock
tendered (the "Exchange Offer Consideration").
The notes will be issued in denominations of
$15.00 and multiples thereof. Although the
Company has no current intention to do so, if it
should modify the Exchange Offer Consideration,
the modified consideration would be applicable
with regard to all shares of Common Stock
accepted in the Exchange Offer, including those
tendered before the announcement of the
modification. If the Exchange Offer consideration
is modified, or the number of shares to be
accepted is increased or decreased (except for an
increase of less than 264,080 shares) the
Exchange Offer will remain open at least ten
business days from the date the Company gives
notice by public announcement or otherwise, of
such. See "The Exchange Offer -- Terms of the
Exchange Offer."
Purpose of Offering.......... The purpose of the Company's offer to issue Notes
in exchange for Shares is to give Shareholders
who prefer not to continue in an equity position
as holders of common stock in the Company an
opportunity to obtain an alternative return on
their investment in the Company through the
exchange of their Shares for Notes and to reduce
the equity capitalization of the Company.
Expiration Date.............. 5:00 p.m., New York City time, on, November 12,
1998, unless extended or terminated by the
Company. See "The Exchange Offer -- Expiration;
Extensions; Termination; Amendment."
Withdrawal of Tenders........ Tenders of shares of Common Stock may be
withdrawn at any time prior to the expiration of
the Exchange Offer. Thereafter, such tenders are
irrevocable, except that they may be withdrawn
after the expiration of 40 business days from the
commencement of the Exchange Offer, unless
accepted for exchange prior to that date. See
"The Exchange Offer -- Withdrawal Rights."
Acceptance of Common Stock
and Delivery of Notes........ The Company will accept for exchange any and all
shares of Common Stock that are properly tendered
prior to the Expiration Date subject to the
conditions set forth in the section entitled "The
Exchange Offer -- Acceptance of Shares; Delivery
of Notes." The Notes to be issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. The Exchange Agent
(as defined herein) will act as agent for
tendering holders for the purpose of issuing
Notes to such holders. See "The Exchange
Offer -- Acceptance of Shares; Delivery of
Notes."
Conditions to the Tender
Offer........................ The obligation of the Company to consummate the
Exchange Offer is subject to certain conditions
and the Company reserves the right to amend the
Exchange Offer at any time for any reason. See
"The Exchange Offer -- Conditions to the Exchange
Offer."
Procedures for Tendering
Shares....................... Each holder of shares of Common Stock wishing to
accept the Exchange Offer must complete and sign
the Letter of Transmittal, in
8
<PAGE> 9
accordance with the instructions contained herein
and therein, and forward or hand deliver such
Letter of Transmittal, together with any
signature guarantees and any other documents
required by the Letter of Transmittal, including
certificates representing the tendered shares of
Common Stock or confirmations of, or an Agent's
Message (as defined) with respect to, book entry
transfers of such shares of Common Stock, to the
Exchange Agent at its address set forth on the
back cover page of this Offering Circular. Any
beneficial owner of shares of Common Stock whose
securities are registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee is urged to contact the registered
holder(s) of such securities promptly to instruct
the registered holder(s) whether to tender such
beneficial owner's securities. Beneficial Holders
whose certificates representing their shares of
Common Stock are not immediately available or who
cannot deliver their certificates or any other
required documents to the Exchange Agent prior to
the Expiration Date may tender their shares of
Common Stock pursuant to the guaranteed delivery
procedure set forth herein. See "The Exchange
Offer -- Procedures for Tendering -- Guaranteed
Delivery."
Certain Federal Income Tax
Considerations............. For a discussion of certain federal income tax
consequences of the Exchange Offer to holders of
shares of Common Stock, see "Certain Federal
Income Tax Considerations."
The Notes and the Common
Stock...................... As of October 12, 1998, there were approximately
13,204,000 shares (exclusive of 383,000 treasury
shares) of Common Stock issued and outstanding.
Assuming that holders of 3,500,000 outstanding
shares of Common Stock accept the Exchange Offer,
there would be 3,500,000 fewer shares of Common
Stock outstanding upon consummation of the
Exchange Offer, or such other number of shares
ultimately determined by the Company to be
accepted if it modifies the terms of the Exchange
Offer in accordance with the provisions for
modifying the Exchange Offer and in compliance
with applicable law, including Rule
13e-4(f)(1)(ii) of the Exchange Act. See
"Description of the Notes" and "Description of
Capital Stock."
Trading...................... The Common Stock is traded on the Nasdaq National
Market under the symbol "CLRP." For further
information, see "Description of Capital
Stock -- Market Price of Common Stock." At
present the Company does not intend to apply for
listing of the Notes for trading on any exchange
or automated quotation system. See "Risk
Factors -- Possible Lack of Trading Market for
Notes."
Exchange Agent............... Continental Stock Transfer & Trust Company. See
"The Exchange Offer -- Exchange Agent."
Information Agent............ D.F. King & Co., Inc. See "The Exchange
Offer -- Information Agent."
Risk Factors................. See "Risk Factors" beginning on page 13 for
discussion of certain factors that should be
carefully considered in connection with deciding
whether to tender shares of Common Stock in the
Exchange Offer.
9
<PAGE> 10
SUMMARIZED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following historical information has been derived from the financial
statements of the Company incorporated by reference herein. The pro forma
financial data gives effect to the spin-off of CoreComm Limited and related
financing as more fully described in the Pro Forma Financial Statements
incorporated herein by reference. The pro forma as adjusted data gives further
effect to the Exchange Offer.
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, 1997
---------------------------------- PRO FORMA AS ADJUSTED
1996 1997 1997 FOR THE ISSUANCE OF
HISTORICAL HISTORICAL PROFORMA 3,500,000 SHARES
---------- ---------- -------- ---------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues................................... $133,818 $148,494 $148,494 $148,494
Costs and Expenses......................... 115,817 130,969 131,403 131,403
Operating Income........................... 18,001 17,525 17,091 17,091
Interest Expense........................... 8,181 19,400 31,088 38,963
Other Expense (Income) net................. 4,706 139 139 139
Extraordinary Item......................... -- (3,326) (3,326) (3,326)
-------- -------- -------- --------
Net Income (Loss).......................... $ 5,114 $ (5,340) $(17,462) $(25,337)
======== ======== ======== ========
Net Income (Loss) per Share Basic.......... $ 0.39 $ (0.40) $ (1.31) $ (2.65)
======== ======== ======== ========
Weighted Average Shares.................... 13,196 13,075 13,075 9,575
======== ======== ======== ========
Net Income (Loss) per Share Assuming
Dilution................................. $ 0.36 $ (0.40) $ (1.31) $ (2.65)
======== ======== ======== ========
Weighted Average Shares.................... 14,027 13,075 13,075 9,575
======== ======== ======== ========
Ratio of Earnings to Fixed Charges......... 2.0 1.0 -- --
BALANCE SHEET DATA
Working Capital............................ $ 11,078 $ 72,562 $ 49,022 $ 49,022
Total Assets............................... 300,722 397,276 373,736 373,736
Long-Term Debt............................. 115,000 209,456 364,456 416,956
Stockholders Equity (Deficiency)........... 162,608 156,861 (21,679) (74,179)
Book Value Per Share....................... 12.32 11.90 (1.64) (7.66)
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
SIX MONTHS
SIX MONTHS ENDED JUNE 30 ENDED JUNE 30
---------------------------------- PRO FORMA AS ADJUSTED
1997 1998 1998 FOR THE ISSUANCE OF
HISTORICAL HISTORICAL PROFORMA 3,500,000 SHARES
---------- ---------- -------- ---------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues................................... $ 75,709 $ 83,280 $ 82,019 $ 82,019
Costs and Expenses......................... 65,357 70,859 68,434 68,434
Operating Income........................... 10,352 12,421 13,585 13,585
Interest Expense........................... 9,061 10,760 16,604 20,541
Other Expense (Income) net................. (640) (344) (344) (344)
Extraordinary Item......................... (3,842) -- -- --
-------- -------- -------- --------
Net income................................. $ (1,911) $ 2,005 $ (2,675) $ (6,612)
======== ======== ======== ========
Net Income Per Share Basic................. $ (0.14) $ 0.15 $ (0.20) $ (0.68)
======== ======== ======== ========
Weighted Average Shares.................... 13,072 13,183 13,183 9,683
======== ======== ======== ========
Net income per share assuming dilution..... $ (0.14) $ 0.14 $ (0.20) $ (0.68)
======== ======== ======== ========
Weighted Average Shares.................... 13,297 13,955 13,183 9,683
======== ======== ======== ========
Ratio of Earnings to Fixed Charges(1)...... 1.3 1.2 1.2 1.2
BALANCE SHEET DATA
Working Capital............................ $ 40,599 $ 34,674 $ 34,674
Total Assets............................... 413,237 377,758 377,758
Long-Term Debt............................. 218,210 364,310 416,810
Stockholders Equity (deficit).............. 158,896 (19,644) (72,144)
Book Value per Share....................... 12.05 (1.49) (4.32)
</TABLE>
- ---------------
(1) Fixed charges consist of interest expense, including capitalized interest,
amortization of fees related to debt financing and rent expense deemed to be
interest. The fixed charges coverage deficiency amounted to $21,166,000,
$11,977,000 and $19,852,000 for the year ended December 31, 1997 historical,
proforma and proforma as adjusted, respectively.
(2) Pursuant to the Company's Stock Option Plan and the related option
agreements, an equitable adjustment was made to reduce the exercise price of
each such option to reflect the change in the book value of the Company's
common stock resulting from the Distribution. The Company had a measurement
date as defined in APB Opinion No. 25, "Accounting for Stock Issued to
Employees" due to this change in the exercise price. Accordingly, the
Company recorded compensation expense of approximately $21.8 million and
deferred compensation of approximately $26.3 million. The deferred
compensation will be amortized to compensation expense over the remaining
vesting period of the options (approximately $7.4 million on January 1,
1999, 2000 and 2001, and approximately $4.1 million on January 1, 2002).
11
<PAGE> 12
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company (ii) the pro forma capitalization of the Company after giving effect to
the spin off of CoreComm Limited and the related financing (see
"Business -- Recent Developments -- The Newco Distribution.") and (iii) as
adjusted to give further effect to the Exchange Offer.
<TABLE>
<CAPTION>
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
-------------------------------------------
PRO FORMA AS
ADJUSTED
ASSUMING 3,500,000
HISTORICAL PROFORMA SHARES EXCHANGED
---------- --------- ------------------
<S> <C> <C> <C>
Cash and cash equivalents, including $24.7 million at
the Company......................................... $ 43,624 $ 36,523 $ 36,523
======== ========= ========
Bank Loans............................................ $ -- $ 155,000 $155,000
10% Senior Subordinated Notes......................... 200,000 200,000 200,000
Other................................................. 18,210 9,310 9,310
15% Subordinated Notes................................ -- -- 52,500
-------- --------- --------
LONG TERM DEBT.............................. 218,210 364,310 416,810
Series Preferred Stock -- $.01 par value;
authorized 2,500,000 shares; issued and outstanding
none
Common Stock -- $.01 par value; authorized 30,000,000
shares; issued 13,567,000 shares (1)................ 136 136 136
Additional Paid in Capital............................ 226,520 226,520 226,520
Deficit............................................... (58,698) (237,238) (237,238)
Treasury Stock, at cost 383,000 shares (historical and
proforma; 3,883,000 shares proforma as adjusted).... (9,062) (9,062) (61,562)
-------- --------- --------
STOCKHOLDERS EQUITY (DEFICIENCY)............ 158,896 (19,644) (72,144)
-------- --------- --------
TOTAL CAPITALIZATION........................ $377,106 $ 344,666 $344,666
======== ========= ========
</TABLE>
- ------------------------
(1) Does not include an aggregate of approximately 4.3 million shares of Common
Stock issuable upon exercise of options.
12
<PAGE> 13
RISK FACTORS
Investment in the Notes is subject to certain risks and other factors,
including but not limited to those set forth below. In considering the Exchange
Offer, an investor should carefully consider the following risk factors, as well
as the risk factors appearing in the Company's filings with the Commission and
incorporated herein by reference and all other information appearing in this
Offering Circular, as well as his or her particular financial circumstances,
investment objectives and tax situation.
INCREASED LEVERAGE AND DEBT SERVICE OBLIGATIONS
Following the Exchange Offer, the Company will be more leveraged and will
have incurred substantial additional debt service in addition to operating
expenses and planned capital expenditures. At June 30, 1998, as adjusted to give
effect to the issuance of the maximum $52.5 million principal amount of the
Notes, the total long-term debt of the Company would have been approximately
$416.8 million. In addition, assuming the issuance of the maximum $52.5 million
principal amount of the Notes pursuant to the Exchange Offer, the Company would
incur additional debt service of approximately $7.9 million annually.
The Company's level of indebtedness may have several important effects on
its future operations, including, without limitation, (i) a substantial portion
of the Company's cash flow operations must be dedicated to the payment of
interest and principal on its indebtedness, reducing the funds available for
operations and for capital expenditures, including acquisitions, (ii)
restrictions in future agreements may limit the Company's ability to borrow
additional funds or to dispose of assets, and may affect the Company's
flexibility in planning for, and reacting to, changes in its business, (iii) the
Company's leveraged position will increase its vulnerability to adverse changes
in general economic, industry and competitive conditions, (iv) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate and other purposes may be limited,
and (v) the Company's leveraged position may place the Company at a relative
competitive disadvantage as compared with certain of its competitors. The
Company's ability to meet its debt service obligations and to reduce its total
indebtedness will be dependent upon the Company's future performance, which will
be subject to general economic, industry and competitive conditions and to
financial business and other factors affecting the operations of the Company,
many of which are beyond its control, or its ability to raise additional equity.
There can be no assurance that the Company's business will be able to generate
sufficient cash flow from operations in the future to service its debt; it may
be required, among other things, to seek additional financing in the debt or
equity markets, to refinance or restructure all or a portion of the its
indebtedness, including the Notes, to sell selected assets, or to reduce or
delay planned capital expenditures and growth or business strategies. There can
be no assurance that any such measures would be sufficient to enable the Company
to service its debt, or that any of these measures could be effected on
satisfactory terms, if at all.
If the Company fails to pay any required payment of interest or principal
with respect to the Notes on a timely basis, such failure will constitute a
default under the terms of the Indenture. An event of default under the
Indenture also may trigger an event of default under certain other existing
obligations of the Company. As a result, the incurrence of additional debt
resulting from the Exchange Offer will increase the risk of possible default by
the Company with respect to its current and future obligations.
Management does not anticipate that CCPR and its subsidiaries will generate
sufficient cash flow from operations to repay at maturity the entire principal
amount of the outstanding indebtedness of CCPR and its subsidiaries.
Accordingly, CCPR will be required to consider a number of measures, including
(i) refinancing all or a portion of such indebtedness, (ii) seeking
modifications of the terms of such indebtedness, (iii) seeking additional debt
financing, which would be subject to obtaining necessary lender consents, (iv)
seeking additional equity financing or (v) a combination of the foregoing. The
particular measures CCPR may undertake and the ability of CCPR to accomplish
those measures will depend on the financial condition of CCPR and its
subsidiaries at the time, as well as a number of factors beyond the control of
CCPR and its subsidiaries, including prevailing economic and market conditions
and financial, business and other factors. No assurance can be given that any of
the foregoing measures can be accomplished, or can be accomplished in sufficient
time to make timely payments with respect to CCPR's indebtedness. In addition,
there can be no
13
<PAGE> 14
assurance that any such measures can be accomplished on terms which are
favorable to CCPR and its subsidiaries.
HOLDING COMPANY STRUCTURE; DEPENDENCE ON CASH FLOWS FROM SUBSIDIARIES; EXISTING
SUBSIDIARY INDEBTEDNESS
The Notes will be unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of the Company. The Notes will also be structurally subordinated to
all indebtedness and other liabilities of the Company's subsidiaries.
Substantially all of the Company's operating income is generated by its
subsidiaries, and the Company from time to time will not hold assets other than
the stock of its subsidiaries. As a result, other than for cash and cash
equivalents held by the Company (which as at September 30, 1998, was $24.4
million), the Company will need to rely on dividends and other payments received
from its subsidiaries to provide substantially all of the funds necessary to
meet its debt service obligations, including the payment of principal of and
interest on the Notes.
However, in connection with the Newco Distribution, CCPR Services, Inc.
("Services"), an indirect wholly owned subsidiary of CCPR, entered into a credit
agreement dated August 11, 1998 with The Chase Manhattan Bank and other lenders,
for senior secured credit facilities (the "Credit Facility") in an aggregate
amount of up to $170 million, of which $155 million has been drawn. $150 million
of the $155 million was transferred to CCPR, and CCPR subsequently transferred
that amount to CoreComm Limited as a capital contribution prior to the Newco
Distribution. See "Business -- Recent Developments -- the Newco Distribution."
Additionally, Services currently has outstanding $200 million principal amount
of 10% Senior Subordinated Notes due 2007, which is guaranteed by CCPR, Inc., a
wholly owned subsidiary of the Company. The indenture and agreements governing
the existing indebtedness of Services permits Services and CCPR, Inc. to incur
substantial additional indebtedness.
The Credit Facility contains restrictive covenants that, among other
things, restrict CCPR, Inc., Services and other of the Company's subsidiaries
from paying dividends or other distributions (whether in cash, securities or
other property) with respect to any shares of any class of capital stock of
CCPR, Inc. or any of its subsidiaries. These restrictions affect the ability
CCPR, Inc. to make payments to CCPR. CCPR, Inc. is a directly, wholly owned
subsidiary of the Company, which holds all of the capital stock of the Company's
operating subsidiaries or their parent companies, which own all of the Company's
assets. Moreover, substantial assets of the Company's subsidiaries were pledged
to secure the Credit Agreement. In the event of a default under the Credit
Agreement, the lenders thereunder would be entitled to a claim on the assets
securing the Credit Facility. Similarly, under the indenture relating to
Service's 10% Senior Subordinated Notes due 2007 (the "Services Indenture"),
there are substantial limitations regarding payment of dividends and the
disposition of several of the Company's subsidiaries' assets which, among other
things, could render proceeds from a sale of such assets effectively unavailable
to the Company to pay amounts due under the Notes.
In addition, it should also be noted that each of CCPR's subsidiaries that
is a Delaware corporation may pay dividends, under the Delaware General
Corporation Law (the "DGCL"), only out of its surplus, or, in the event that it
has no surplus, out of its net profits for the fiscal year in which the dividend
is declared or for the immediately preceding fiscal year. Moreover, Puerto Rico
may impose a tax upon the payment of any such dividends. Other statutory
obligations also affect the ability of directors of CCPR's subsidiaries to
declare dividends and the ability of CCPR's subsidiaries to make payments to
CCPR on account of intercompany loans. Additionally, certain agreements of the
Company may now or in the future limit the ability of its subsidiaries in
certain situations to pay dividends to the Company or to repay intercompany
debt. The Notes are not guaranteed by any of the subsidiaries of the Company,
and therefore, should the Company fail to satisfy any payment obligation under
the Notes, the holders would not have a direct claim therefor against the
subsidiaries. Any indebtedness incurred directly by the subsidiaries of the
Company, including guarantees, will be senior in right of a payment to the
common stock of such subsidiaries. This means that in the event of any
liquidation or bankruptcy of a subsidiary, all debt of such subsidiary would be
entitled to be paid before any amounts would be available to the Company by
virtue of ownership of the common stock.
14
<PAGE> 15
The ability of CCPR and its subsidiaries to make scheduled payments under
present and future indebtedness will depend upon, among other things, CCPR's
ability to access the earnings of its subsidiaries (which may be subject to
significant contractual and legal limitations), the future operating performance
of CCPR and its subsidiaries and CCPR's ability to refinance its indebtedness
when necessary. Each of these factors is to a large extent subject to economic,
financial, competitive, regulatory and other factors that are beyond CCPR's and
its subsidiaries' control. The Indenture will not limit the ability of the
Company and its subsidiaries to incur additional indebtedness, including Senior
Indebtedness. Moreover, certain Senior Indebtedness of the Company is now and
may in the future be guaranteed by, and secured by the assets of, the Company's
subsidiaries. In the event of a default under any such Senior Indebtedness, the
lenders thereunder would be entitled to a claim on the assets securing such
indebtedness. Accordingly, because of any or all of the above, the Company may
not have sufficient monies available from its subsidiaries or from other means,
or assets remaining after payment of prior claims from time to time, to pay
amounts due on the Notes.
SUBORDINATION
The Notes will be unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future "Senior
Indebtedness" which includes all indebtedness of the Company, whether existing
on or created or incurred after the date of issuance of the Notes, that is not
made subordinate to or pari passu with the Notes by the instrument creating the
indebtedness, excluding trade payables. The Notes will rank senior only to other
indebtedness of the Company that expressly provides that it is subordinated in
right of payment to the Notes, if any. In the event of bankruptcy, liquidation,
insolvency, reorganization or similar proceeding relating to the Company, the
assets of the Company will be available to pay obligations on the Notes only
after all Senior Indebtedness has been paid in full, and there may be
insufficient assets remaining to pay amounts due on any or all of the Notes
outstanding. In addition, in an insolvency, bankruptcy or liquidation scenario,
there is always the risk that senior creditors would seek to recover any monies
paid on the Notes. There are no restrictions in the Indenture on the ability of
the Company to increase its indebtedness. Moreover, under the Indenture,
payments due under the Notes may not be made at any time when: (i) Senior
Indebtedness is not paid when due; any applicable grace period with respect to
such default has ended and such default has not been cured; (ii) or the maturity
of any Senior Indebtedness has been accelerated because of a default. As of June
30, 1998, including the $155 million outstanding under the Credit Facility, and
without including any indebtedness under the Notes, the Company had
approximately $364 million of indebtedness outstanding, all of which would be
Senior Indebtedness. Additional Senior Indebtedness may be incurred by the
Company and its subsidiaries from time to time, subject only to certain
restrictions imposed by other agreements of the Company. See "Description of the
Notes -- Subordination" and "Certain Covenants."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under applicable provisions of the Bankruptcy Code or comparable provisions
of fraudulent transfer law, if CCPR, at the time it incurred its indebtedness in
connection with the Exchange Offer, (i) incurred such indebtedness with the
intent to hinder, delay or defraud a present or future creditor or (ii)(a)
received or receives less than reasonably equivalent fair value or fair
consideration and (b)(1) was or is insolvent or rendered insolvent by reason of
such incurrence or (2) was or is engaged in a business or transaction for which
the assets remaining with it constituted unreasonably small capital or (3)
intended or intends to incur, or believed or believes that it would incur, debts
beyond its ability to pay such debts as they mature or (4) was a defendant in an
action for money damages docketed against it (if, in either case, after final
judgment the judgement is unsatisfied), the Notes could be voided, or claims in
respect of the Notes could be subordinated to all other debts of the Company. In
addition, the payment of principal by the Company pursuant to the Notes could be
voided and be required to be returned to any such present or future creditor, or
to a fund for the benefit of the creditors of the Company or to any judgment
creditor referred to in clause (4) above.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company would be considered insolvent if the
sum of its debts, including contingent liabilities, were greater than the fair
saleable
15
<PAGE> 16
value of all of its assets at a fair valuation or if the present fair saleable
value of its assets were less than the amount that would be required to pay its
probable liability on its existing debts, including contingent liabilities, as
they become absolute and mature. There can be no assurance, however, as to what
standard a court would apply in making such determination.
DETERMINATION OF TERMS OF NOTES; LACK OF RESTRICTIVE COVENANTS IN INDENTURE
The Company has determined the terms of the Notes without formally
retaining any independent financial advisor or investment banking firm.
Accordingly, there can be no assurance that the terms of the Notes are fair from
a financial point of view to tendering stockholders. In this regard, there can
be no assurance that if the Company were to issue subordinated debt in the
capital markets, the interest rate on such debt would not be higher than 15% per
annum, or that the financial and other covenants would not be more restrictive.
For example, companies that issue unsecured, non-investment grade subordinated
debt similar to the Notes typically are subject to more restrictions than those
imposed by the Indenture with respect to the Notes, including restrictions on
incurring additional indebtedness above a specified amount or in violation of a
specified formula, paying dividends or making certain other distributions,
payments and investments, creating liens, and engaging in transactions with
affiliates or in unrelated businesses, among others. In addition, the terms of
such securities typically include a change of control provision, which typically
provides a right to debt holders to force a company to redeem their debt in the
event of a change of control of that company's voting securities whereas the
Indenture under which the Notes will be issued contains no such provision. This
means that the Notes would remain outstanding even in the event the Company were
subject to a change in control of its voting securities. As a result of the lack
of restrictive covenants, stockholders who tender their Shares in exchange for
Notes would not receive the same level of protection that typically would be
afforded to holders of unsecured, non-investment grade subordinated debt issued
by other similarly situated companies. Moreover, because the Notes contain terms
that may be less attractive than other similar types of securities issued in the
market, there can be no assurance the Company will not record the Notes at a
discount from their principal amount. In addition, the relative lack of standard
restrictive covenants may adversely affect the liquidity of the Notes.
EXCHANGE OFFER SUBJECT TO CERTAIN CONTINGENCIES
The Exchange Offer is subject to certain contingencies that are not within
the control of the Company. First, the Company will accept no more than
3,500,000 Shares in the Exchange Offer unless the Company modifies the number of
Shares it will accept in accordance with the provisions for modifying the
Exchange Offer, and in accordance with applicable law, including Rule
13e-4(f)(1)(ii) of the Exchange Act, in which case the Company will accept no
more than such designated number of Shares, whether that number is less than or
greater than 3,500,000. If more than 3,500,000 Shares are validly tendered, the
Company will allocate Notes among the tendering stockholders on a pro-rata basis
based on the number of Shares tendered. Similarly, if the Company increases or
decreases the number of Shares it will accept, and more than such designated
number of Shares are tendered, the Company will accept Shares and allocate
Notes, among the tendering Stockholders on a pro-rata basis based on the number
of Shares tendered. In addition, the Exchange Offer requires qualification of
the Indenture under the Trust Indenture Act of 1939 and may require certain
approvals or consents from government regulatory agencies, self regulatory
organizations, and other third parties. There can be no assurance that all
required conditions, consents, or regulatory approvals will be obtained or
achieved in a timely manner. Moreover, the Exchange Offer may be modified or
withdrawn in certain circumstances subject to the discretion of the Company's
Board of Directors. See "The Exchange Offer -- Conditions to and Amendment of
the Exchange Offer".
REVIEW OF STRATEGIC ALTERNATIVES
The Company has retained an investment banking firm to act as financial
adviser to CCPR in reviewing strategic alternatives to enhance shareholder
value, including the exploration of partnering opportunities in the region
through a business combination, an appropriate acquisition, the sale of the
Company, or similar transactions. As of the date of this Offering Circular, the
Company is not presently engaged in any substantive
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discussions with other parties regarding such a potential transaction. However,
there can be no assurance that such substantive discussions or such a
transaction might not be pursued or consummated after the date hereof, or that
such a development would not be seen by the Company as a basis for terminating
the Exchange Offer.
LOSS OF RIGHTS ASSOCIATED WITH COMMON STOCK
To the extent stockholders exchange their Shares for Notes, they will be
relinquishing certain rights available to holders of Common Stock in exchange
for acquiring rights as holders of debt. Stockholders whose Shares are validly
tendered and accepted for exchange will lose the right to share in any capital
appreciation of the Company's Common Stock, will not be entitled to vote upon
any matters submitted to the Company's stockholders, and will no longer be
entitled to dividends paid, if any, on the Company's Common Stock, although to
date the Company has never paid a cash dividend and has no present intention to
do so. In addition, because there is an established trading market for the
Shares and no established trading market for the Notes, the liquidity of a
tendering stockholder's investment in the Company will likely be reduced.
MARKET ISSUES
If successful, the Exchange Offer will reduce the Company's stockholders'
equity and increase its indebtedness, thereby increasing the Company's debt to
equity ratio and its debt service obligations. There can be no assurance that
the market will not regard these results unfavorably and that the price of the
Company's Common Stock will not be adversely affected. To the extent the market
does not regard the Exchange Offer as favorable, the market price of the Notes
also could be adversely affected. In addition, although the Company believes the
Exchange Offer complies with all applicable listing and maintenance requirements
imposed by the Nasdaq National Market, there can be no assurance that issues
regarding the Common Stock's listing status will not arise.
LACK OF PUBLIC MARKET FOR THE NOTES; VOLATILITY; RESTRICTIONS ON RESALE
There is no existing market for the Notes, and there can be no assurance
regarding the future development of a market for the Notes or the ability of the
holders of the Notes, or the price at which such holders may be able, to sell
their Notes. If such a market were to develop, the Notes could trade at prices
that may be higher or lower than the $15.00 principal amount per share of Common
Stock being offered. Prevailing market prices from time to time will depend on
many factors, including then existing interest rates, operating results and cash
flow of the Company and the market for similar securities. Moreover, even if a
trading market for the Notes does develop, there can be no assurance as to the
liquidity of that market. The Company does not intend to apply for listing or
quotation of the Notes on any securities exchange or stock market.
In addition, the liquidity of, and trading markets for, the Notes may be
adversely affected by declines in the market for high-yield securities
generally, such as the recent decline in that market. Such a decline may
adversely affect liquidity and trading markets independent of the financial
performance of, and prospects for, the Company.
INCREASED PERCENTAGE OF SHARES HELD BY MANAGEMENT
As of October 15, 1998, the Company's officers and directors beneficially
owned approximately 7.07% of the outstanding Shares of the Company's Common
Stock. Assuming the maximum number of Shares is exchanged in the Exchange Offer,
and that no executive officers or directors tender shares, the Company's
officers and directors will beneficially own approximately 9.63% of the
Company's outstanding Shares of Common Stock. However, the Company's directors
and officers may participate in the Exchange Offer on the same terms as any
other stockholders.
RISK OF PREPAYMENT
The Notes are subject to redemption at the option of the Company in whole,
at a rate of 102% of principal, at any time after November 15, 1999 or in part
from time to time without penalty upon notice to the holders of the Notes. As a
result, the holders of the Notes will be subject to a risk of prepayment at a
time
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when interest rates may be generally declining. In such case, holders of Notes
that are redeemed who tendered their Shares to acquire an interest-bearing
security will no longer have the right to receive interest and may only be able
to reinvest the redemption proceeds in securities with a lower rate of interest,
depending upon prevailing conditions.
COMPETITION
The sale of cellular and paging services in each of the Company's markets
is becoming increasingly competitive. In Puerto Rico and the USVI, where the
Company previously had one cellular competitor in each market, the Company in
the near future may face many wireless competitors due to the introduction of
broadband personal communications services ("PCS") on frequencies recently
auctioned by the FCC and specialized mobile radio ("SMR") services on existing
SMR frequencies. At least one competitor is offering PCS services with
comparable voice quality, system reliability, system coverage, product
offerings, marketing techniques and pricing in several of the Company's markets.
Additional services may also in the future be competitive with the Company's
cellular service as they develop. The Telecommunications Act of 1996 removed
certain restrictions on the ability of the Company's competitors to offer as a
single package a variety of services, such as wireless voice and data, paging,
long-distance, local landline and cable services, some of which the Company does
not currently provide. Increased competition could result in pricing pressure,
which could contribute to lower revenues per customer, and higher customer
acquisition costs resulting in lower profit margins. Continuing technological
advances in the communications industry make it impossible to predict the extent
of future competition for the Company. See "Business -- Competition."
The Company's significant competitor is the Puerto Rico Telephone Company
(the "PRTC"), which is the other cellular licensee and the landline telephone
service provider in Puerto Rico. The PRTC is owned by the government of Puerto
Rico. The PRTC is significantly larger and better capitalized than the Company
and is being acquired by GTE, which is even larger than PRTC and substantially
larger than the Company. The Company believes the PRTC currently provides
service to approximately 35% of the subscribers to cellular service in Puerto
Rico.
POTENTIAL NEED FOR ADDITIONAL CAPITAL
The acquisition, development, ownership and operation of wireless
communications networks require substantial capital investment. The Company
believes that, after giving effect to the Exchange Offer, it will have adequate
internal resources to meet its capital requirements. If required, sources of
additional capital could include debt and equity financing by CCPR or
subsidiaries of CCPR. While the Company has been successful in obtaining
financing for investment and capital contribution requirements to date, there
can be no assurance they will be able to do so in the future. If such financing
is unavailable, the Company may not be able to develop further its existing
projects, and the number of projects in which the Company participates may be
limited. See "-- Increased Leverage and Debt Service Obligation."
HISTORY OF LOSSES; NEGATIVE NET WORTH
Although the Company generated net earnings for the six month period ending
June 30, 1998, the Company has never generated earnings on an annual basis other
than in 1996. Although the Company generated approximately $2.0 million in net
income for the six month period ended June 30, 1998, giving effect to interest
requirements on the Credit Facility and the Notes, the Company believes that it
may not generate substantial net income for fiscal year 1998. The Company has
incurred aggregate net losses of approximately $58.7 million from March 8, 1989,
(i.e., date operations commenced) through June 30, 1998. There can be no
assurances that the Company will achieve profitability in the near future. This
may be significant to investors in that such lack of profitability could, among
other things, adversely affect the Company's ability to finance its operations
and meet its debt service obligations.
Assuming that all 3,500,000 Shares being sought are tendered by
stockholders and accepted by the Company, this will immediately change the
Company's capitalization to one that is more highly leveraged. In this regard,
the following discussion compares the pro forma book effect of the Exchange
Offer on long-term
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debt, stockholder's equity and income/loss from continuing operations with
recent historical financial information of the Company. On a pro forma book
basis at June 30, 1998, giving effect to the Exchange Offer, the Company would
have had approximately $416.8 million of long-term debt and a deficit of
approximately $72.1 million of stockholders' equity, as compared to the
approximately $364.3 million of long-term debt and a deficit of approximately
$19.6 million of stockholders' equity that was shown on the Company's balance
sheet on such date (after giving effect to the Newco distribution). In addition,
if the Exchange Offer had occurred as of January 1, 1997, the Company would have
reported, on a pro forma basis, a loss from continuing operations of
approximately $22 million for the year ended December 31, 1997 and a loss from
continuing operations of approximately $6.6 million for the six months ended
June 30, 1998 as compared to losses from continuing operations of $2.0 million
for the year ended December 31, 1997 and income of $2.0 million for the six
months ended June 30, 1998 that were reported for each period. See "SUMMARIZED
FINANCIAL INFORMATION" and "CAPITALIZATION."
REGULATION
The Company is subject to significant government regulation at the Federal
level by the FCC and, to some extent, the Federal Aviation Administration (the
"FAA"). In Puerto Rico, the Company is subject to regulation by the Puerto Rico
Planning Board (the "Planning Board"), the Administration of Regulations and
Permits ("ARPE") and the newly-created Telecommunications Regulations Board (the
"Board").
The Company's wireless licenses are granted for specific periods of time.
The most significant cellular and paging licenses are granted for a period of
ten years. The Company believes that each of its expiring licenses will be
renewed based upon its prior experience with expired licenses and upon FCC rules
establishing a presumption in favor of licensees that have substantially
complied with their regulatory obligations during the initial license period.
However, there can be no assurance that any license will be renewed.
Wireless communications operations are subject to governmental regulation,
which may change from time to time. There can be no assurance that material and
adverse changes in the regulation of the Company's existing operating systems
will not occur in the future and will not have an adverse effect on the
Company's business. For a general description of the regulatory environment
facing the Company, investors are encouraged to read the Company's 1997 10-K.
LACK OF GEOGRAPHIC DIVERSIFICATION
The Company's business at present principally is confined to the operation
of a cellular telephone system and paging operations in Puerto Rico and the U.S.
Virgin Islands. As such, it is highly dependent on trends in the use of cellular
telephone and paging services and is subject to economic, social, political and
governmental conditions in Puerto Rico and the U.S. Virgin Islands. Moreover,
Puerto Rico and the U.S. Virgin Islands are located in the Carribean Sea, and
are prone to severe weather -- particularly hurricanes -- that can seriously
impact the types of services offered by the Company. Recently, Hurricane Georges
inflicted great damage on Puerto Rico and the U.S. Virgin Islands. Although the
damage done to the Company's facilities was minimal, there can be no assurance
that a future storm might not be more devastating. See "The Company -- Recent
Developments -- Hurricane Georges."
TECHNOLOGY
The operations of the Company and its ventures depend in part upon the
successful deployment of continuously evolving wireless communications
technologies. There can be no assurance that such technologies will be developed
according to anticipated schedules, that they will perform according to
expectations or that they will achieve commercial acceptance. The Company may be
required to make more capital expenditures than is currently expected if a
technology's performance falls short of expectations or if commercial acceptance
is not achieved. Thus, there can be no assurance that technological developments
will not have a material adverse effect on the Company.
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VALUE OF FCC LICENSES
A substantial portion of the Company's assets consist of intangible assets
in the form of investments in cellular licenses, the value of which will depend
upon the success of the operations of such entities and the growth and future
direction of the cellular industry generally. Values of licenses also have been
affected by fluctuations in the level of supply and demand for such licenses. In
addition, the infrequency with which licenses are traded or sold may increase
the difficulty of establishing values for the Company's license interests. Any
transfer of control of an entity holding a domestic license is subject to prior
FCC (and possibly state or Commonwealth of Puerto Rico regulatory) approval and
the future value of such interests will depend significantly upon future
regulatory actions affecting the Company or its market and the success of the
Company's businesses. While the Company believes that there is currently a
market for such assets, such market may not exist in the future or the values
obtainable may be significantly lower than at present. As a consequence, there
can be no assurance that the proceeds from the liquidation or sale of the
Company's assets would be sufficient to pay the Company's obligations and a
significant reduction in the value of the licenses could require a charge to the
Company's results of operations. Finally, under FCC rules, a license is subject
to renewal. There may be competition for licenses upon the expiration of their
initial ten-year terms. The Company's San Juan/Caguas license expires in 1998
and its other licenses expire in 1998 through 2002. There can be no assurance
that any such licenses will be renewed.
RELIANCE ON USE OF THIRD-PARTY SERVICE MARK
The Company currently uses the registered service mark CELLULARONE(R) to
market the services of its non-wireline systems. The Company's use of this
service mark is governed by five-year contracts between the Company and Cellular
One Group, the owner of the service mark. Such contracts expire on various dates
and each is renewable at the option of the Company for three additional
five-year terms, subject to the attainment of certain customer satisfaction
ratings. Under these agreements, the Company has agreed to meet a consistent set
of operating and service quality standards for its cellular service areas. If
these agreements were not renewed upon expiration or if the Company were to fail
to meet the applicable operating or service quality standards, and therefore was
no longer permitted to use the CELLULARONE(R) service mark, the Company's
ability both to attract new subscribers and retain existing subscribers could be
materially impaired. In addition, if for some reason beyond the Company's
control, 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. McCaw/AT&T Wireless, which had been
the single largest user of the CELLULARONE(R) brand name, has significantly
reduced its use of the brand name as a primary service mark. There can be no
assurance that such reduction in use by McCaw/AT&T Wireless will not have an
adverse effect on the marketing appeal of the brand name.
RADIO FREQUENCY EMISSIONS CONCERNS
Media reports have suggested that certain radio frequency ("RF") emissions
from portable cellular telephones might be linked to cancer. The Company has
collected and reviewed relevant scientific information and, based on such
information, is not aware of any credible evidence linking the usage of portable
cellular telephones with cancer. The FCC recently updated the guidelines and
methods it uses for evaluating RF emissions in radio equipment, including
cellular telephones. While the new rules impose more restrictive standards on RF
emissions from low-power devices such as portable cellular telephones, the
Company believes that all cellular telephones currently marketed and in use
comply with those standards. Additional concerns have been expressed about the
safety of emissions from cellular facilities which transmit calls to customers'
telephone handsets. The Company's facilities are licensed by the FCC and comply
with the prior exposure levels set by the FCC, and the Company believes that
they comply with the new levels. The Telecommunications Act of 1996 provides
that state and local governments may not regulate the placement, construction or
modification of personal wireless service facilities on the basis of the
environmental effects of RF emissions as long as such facilities comply with the
FCC's regulations concerning such emissions. However, local authorities still
have jurisdiction over zoning and permitting of such facilities.
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FRAUD
The cellular industry continues to be subject to fraudulent activity.
Cloning, which is one form of such fraud, results from the use of scanners and
other electronic devices to illegally obtain telephone numbers and electronic
serial numbers during cellular transmission. These stolen telephone and serial
number combinations can be programmed into a cellular phone and used to obtain
fraudulent access to cellular networks. Roaming fraud occurs when a phone
programmed with a number stolen from the Company's customer is used to place
fraudulent calls from another carrier's market, resulting in a roaming fee
charged to the Company that cannot be collected from the customer. The Company
is working to reduce the negative impacts of fraud through investment in new
technologies and the deployment of other measures. In its own markets, the
Company has had significant success in detecting and reducing fraudulent usage
of numbers stolen from the Company's customers. However, the Company continues
to experience average levels of roaming fraud. The cost of cellular fraud could
have a significant impact on the Company's operating results for the foreseeable
future.
DEPENDENCE UPON KEY PERSONNEL OF CCPR
CCPR's businesses are managed by a small number of key executive officers,
the loss of one or more of whom could have a material adverse effect on CCPR.
CCPR believes that its future success will depend in large part on its continued
ability to attract and retain highly skilled and qualified personnel. CCPR has
not entered into written employment contracts or non-compete agreements with,
nor has it obtained life insurance policies covering, such key executive
officers. Certain senior managers of CCPR also serve as members of senior
management of other companies in the telecommunications business.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This Offering Circular, including the information incorporated by
reference, contains forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, certain of which are
beyond the Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described in "Risk
Factors." In light of these risks and uncertainties, there can be no assurance
that the forward-looking information contained in this Offering Circular will in
fact transpire. Actual results may differ materially from those contemplated in
such projections and forward-looking statements. Important assumptions and
factors that could cause actual results to differ materially from those
contemplated or projected, forecast, estimated or budgeted in or expressed or
implied by such projections and forward-looking statements include: (i) those
specified in the "RISK FACTORS" section; (ii) industry trends; (iii) the ability
of CCPR to continue to obtain and maintain any required government licenses or
approvals and finance construction and development, in a timely manner, at
reasonable costs and on satisfactory terms and conditions; (iv) assumptions
about customer acceptance, churn rates, overall market penetration and
competition from providers of alternative services, and availability, terms and
deployment of capital; and (v) general economic and business conditions in the
United States, Puerto Rico and the U.S. Virgin Islands. Other factors and
assumptions not identified above were also involved in the derivation of these
forward-looking statements, and the failure of such other assumptions to be
realized, as well as other factors, may also cause actual results to differ
materially from those projected. CCPR does not assume any obligation to update
such forward-looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
statements.
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Offering Circular and in the accompanying Letter of Transmittal,
to exchange up to 3,500,000 shares of Common Stock ("Shares"), each for $15.00
principal amount of 15% Subordinated Notes due 2008 (the "Notes"). The Company
expressly reserves the right to alter or modify any of the terms of this
Exchange Offer, including increasing or decreasing the number of Shares it will
accept in accordance with the provisions for modifying the Exchange Offer and in
compliance with applicable law, including Rule 13e-4(f)(1)(ii) of the Exchange
Act. The Company proposes to consummate the Exchange Offer promptly after
October 15, 1998.
The purpose of the Exchange Offer is to give shareholders who prefer not to
continue in an equity position as holders of Common Stock the opportunity to
obtain an alternative return on their investment in the Company though the
exchange of their shares of Common Stock for Notes, and to reduce the equity
capitalization of the Company.
TERMS OF THE EXCHANGE OFFER
Shares may be tendered and will be accepted for exchange only for Notes in
denominations of $15.00 principal amount and integral multiples thereof.
Interest on the Notes will accrue from November 15, 1998, and be payable May 15
and November 15. After the second semi-annual interest payment on November 15,
1999, interest may, at the option of CCPR, be paid in whole or in part, in cash
or through the issuance of additional Notes. The Notes are redeemable at the
Company's option at any time at 102% of principal amount plus accrued interest
to the redemption date. See "Description of the Notes -- Principal, Maturity and
Interest".
Although the Company has no present intention to do so, if it should modify
the Exchange Offer Consideration offered for the Shares in the Exchange Offer,
that modified consideration would be provided with regard to all Shares accepted
in the Exchange Offer. If the Company modifies the Exchange Offer Consideration,
the Exchange Offer will remain open at least 10 business days from the date the
Company first publishes, sends or gives notice, by public announcement or
otherwise, of such modification to the holders of Shares.
Tendering holders of Shares will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Shares pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
certain applicable taxes, in connection with the Exchange Offer.
CONDITIONS TO THE EXCHANGE OFFER
The Company may accept up to 3,500,000 Shares validly tendered
(representing approximately 26% of the outstanding Shares of the Company's
Common Stock as of October 12, 1998), or such greater or lesser amount as the
Company shall determine in accordance with the provisions for modifying the
terms of the Exchange Offer and in compliance with applicable law, including
Rule 13e-4(f)(1)(ii) of the Exchange Act. If more than 3,500,000 Shares are
tendered, the Company will accept no more than 3,500,000 Shares of Common Stock,
to be allocated among the tendering stockholders on a pro rata basis as
described under " -- Proration if Shares Tendered Exceed Maximum." If the
Company modifies the number of Shares that it will accept, and more than that
number designated by the Company are tendered, the Company may accept for
exchange such designated number of Shares on a pro-rata basis.
An application will be filed with the Commission for qualification of the
Indenture under which the Notes will be issued under the Trust Indenture Act of
1939 (the "Trust Indenture Act"). The Exchange Offer is conditioned upon the
Indenture being qualified under the Trust Indenture Act.
Notwithstanding any other provision of the Exchange Offer, the Company will
not be required to accept for exchange or subject to any applicable rules or
regulations of the Commission, any Shares tendered for
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exchange and may postpone the exchange of any Shares tendered and to be
exchanged by it, and may terminate or amend the Exchange Offer as provided
herein if any of the following conditions exist:
(1) there shall have been instituted or threatened or be pending any
action or proceeding before or by any court or governmental, regulatory or
administrative agency or instrumentality, or by any other person, (a) that
challenges the making of the Exchange Offer, or might, directly or
indirectly, prohibit, prevent, restrict, or delay consummation of the
Exchange Offer or otherwise adversely affect, in any material manner the
Exchange Offer or which requires the Company to file a registration
statement pursuant to the Securities Act of 1933, as amended (the "1933
Act") in respect of the Notes being offered as consideration in the
Exchange Offer, or (b) that is, or is reasonably likely to be, in the sole
judgment of the Company, materially adverse to the business, operations,
properties, condition (financial or otherwise), assets, liabilities or
prospects of the Company;
(2) there shall have occurred any material adverse development, in the
sole judgment of the Company, with respect to any action or proceeding
concerning the Company.
(3) an order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction shall have been proposed, enacted, entered,
issued, promulgated, enforced or deemed applicable by any court or
governmental, regulatory or administrative agency or instrumentality that,
in the sole judgment of the Company, would or might prohibit, prevent,
restrict or delay consummation of the Exchange Offer or that is, or is
reasonably likely to be, materially adverse to the business, operations,
properties, condition (financial or otherwise), assets, liabilities or
prospects of the Company;
(4) there shall have occurred or be likely to occur any event
affecting the business or financial affairs of the Company or which, in the
sole judgment of the Company, would or might prohibit, prevent, restrict or
delay consummation of the Exchange Offer, or that will, or is reasonably
likely to, materially impair the contemplated benefits to the Company of
the Exchange Offer, or otherwise result in the consummation of the Exchange
Offer not being or not at the time likely to be in the best interests of
the Company;
(5) the Trustee shall have objected in any respect to, or taken any
action that could, in the sole judgment of the Company, adversely affect
the consummation of the Exchange Offer, or shall have taken any action that
challenges the validity or effectiveness of the procedures used by the
Company in the making of the Exchange Offer or the offering of any of the
Notes;
(6) the Company shall not have received from any federal, state or
local governmental, regulatory or administrative agency or instrumentality,
any approval, authorization or consent that, in the sole judgment of the
Company, is necessary to effect the Exchange Offer; and
(7) there shall have occurred (a) any general suspension of, or
limitation on prices for, trading in securities in the United States
securities or financial markets, (b) any significant adverse change in the
price of the Common Stock in the United States securities or financial
markets, (c) a material impairment in the trading market for debt or equity
securities, (d) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, (e) any limitation
(whether or not mandatory) by any government or governmental,
administrative or regulatory authority or agency, domestic or foreign, on,
or other event that, in the reasonable judgment of the Company, might
affect, the extension of credit by banks or other lending institutions, (f)
a commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United States,
(g) any imposition of a general suspension of trading or limitation of
prices on the New York Stock Exchange or the Nasdaq, or (h) in the case of
any of the foregoing existing on the date hereof, a material acceleration
or worsening thereof.
All of the foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company at any time regardless of the circumstances
giving rise to such conditions and may be waived by the Company, in whole or in
part, at any time and from time to time, in the sole discretion of the Company.
The failure by the Company at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right, and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
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If any of the conditions set forth in this section shall not be satisfied,
the Company may, subject to applicable law, (i) terminate the Exchange Offer and
return all Shares tendered pursuant to the Exchange Offer to tendering holders;
(ii) extend the Exchange Offer and retain all tendered Shares until the
Expiration Date for the extended Exchange Offer; (iii) amend the terms of the
Exchange Offer or modify the consideration to be provided by the Company
pursuant to the Exchange Offer; or (iv) waive the unsatisfied conditions with
respect to the Exchange Offer and accept all Shares tendered pursuant to the
Exchange Offer.
PRORATION IF SHARES TENDERED EXCEED MAXIMUM
If stockholders tendering Shares validly tender more than 3,500,000 shares,
the Company will accept for exchange no more than 3,500,000 Shares (or such
greater or lesser number of Shares that the Company shall determine to accept in
accordance with the provisions for modifying the terms of the Exchange Offer and
in compliance with applicable law, including Rule 13e-4(f)(1)(ii) of the
Exchange Act). In such event, Shares will be accepted and Notes will be
allocated to tendering stockholders on a pro rata basis based on the number of
Shares tendered by each tendering stockholder. The Company will accept from each
tendering stockholder that number Shares equal to 3,500,000 (or such greater or
lesser number of Shares that the Company shall determine to accept) multiplied
by a fraction, the numerator of which is the total number of Shares validly
tendered by such tendering stockholder and the denominator of which is the total
number of the Shares validly tendered by all tendering stockholders. The number
of Shares will be rounded up or down as nearly as practicable to result in the
tender of whole Shares rather than fractional Shares. Any Shares not accepted by
the Company as a result of the allocation described above will be returned
promptly to the tendering stockholder.
EXPIRATION; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer is scheduled to expire at 5:00 PM, New York City time,
on November 12, 1998. The Company expressly reserves the right, in its sole
discretion, at any time or from time to time, to extend the period of time
during which the Exchange Offer is open by giving oral or written notice of such
extension to the Exchange Agent and making a public announcement thereof as
described in the second succeeding paragraph. There can be no assurance that the
Company will exercise its right to extend the Exchange Offer. During any
extension of the Exchange Offer, all Shares previously tendered pursuant thereto
and not exchanged or withdrawn will remain subject to the Exchange Offer and may
be accepted for exchange by the Company at the expiration of the Exchange Offer
subject to the right of a tendering holder to withdraw his Shares. See "The
Exchange Offer -- Withdrawal of Tenders." Under no circumstances will interest
on the Exchange Offer Consideration be paid by the Company by reason of any such
extension.
The Company also expressly reserves the right, subject to applicable law,
(i) to delay acceptance for exchange of any Shares or, regardless of whether
such Shares were theretofore accepted for exchange, to delay the exchange of any
shares pursuant to the Exchange Offer or to terminate the Exchange Offer and not
accept for exchange any Shares, if any of the conditions to the Exchange Offer
specified herein fail to be satisfied, by giving oral or written notice of such
delay or termination to the Exchange Agent; (ii) to waive any condition to the
Exchange Offer and accept all the shares tendered; and (iii) at any time, or
from time to time, to amend the terms of Exchange Offer in any respect,
including but not limited to altering the Exchange Offer Consideration or
increasing or decreasing the number of Shares the Company will accept. The
reservation by the Company of the right to delay exchange or acceptance for
exchange of Convertible Notes is subject to the provisions of Rule 13e-4(f)(5)
under the Exchange Act, which requires that the Company pay the consideration
offered or return the Shares deposited by or on behalf of holders thereof
promptly after the termination or withdrawal of the Exchange Offer.
Any extension, delay, termination or amendment of the Exchange Offer will
be followed as promptly as practicable by a public announcement thereof. Without
limiting the manner in which the Company may choose to make a public
announcement of any extension, delay, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by issuing a release to the
Dow Jones News Service, except in the case of an announcement of an extension of
the Exchange Offer, in which case the Company shall have no obligation to
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publish, advertise or otherwise communicate such announcement other than by
issuing a notice of such extension by press release or other public
announcement, which notice shall be issued no later than 9:00 A.M., New York
City time, on the next business day after the previously scheduled Expiration
Date.
If the Company makes a material change in the terms of the Exchange Offer
or the information concerning the Exchange Offer, or if the Company waives any
condition of the Exchange Offer that results in a material change to the
circumstances of the Exchange Offer, the Company will disseminate additional
Exchange Offer materials in a manner reasonably calculated to inform holders of
Shares of such change, and will provide holders of Shares adequate time to
consider such materials and their participation in the Exchange Offer. The
minimum period during which the Exchange Offer must remain open following a
material change in the terms of the Exchange Offer or the information concerning
the Exchange Offer, other than a change in the Exchange Offer Consideration or
the percentage of the Shares sought in the Exchange Offer, will depend upon the
facts and circumstances, including the relative materiality, of the changed
terms or information.
If the Company increases or decreases the Exchange Offer Consideration or
the amount of Shares sought in the Exchange Offer, the Exchange Offer will
remain open at least ten business days from the date that the Company first
publishes, sends or gives notice, by public announcement or otherwise, of such
increase or decrease. The Company has no current intention to increase or
decrease the Exchange Offer Consideration currently offered or the amount of
Shares sought to be purchased.
DIVIDENDS AND DISTRIBUTION
If, on or after October 15, 1998, the Company should split, combine or
otherwise change the Common Stock or its capitalization, then, without prejudice
to the Company's rights under "the Exchange Offer -- Conditions of the Exchange
Offer," the Company, in its discretion, may make such adjustments in the
Exchange Offer Consideration and other terms of the Exchange Offer as it deems
appropriate to reflect such split, combination or other change.
Although the Company does not intend to pay a stock dividend in the near
future, if, on or after October 15, 1998, should the Company declare any cash or
stock dividend, stock split or other distribution on, or issue any rights with
respect to the Common Stock, payable or distributable to shareholders of record
on a date occurring on or after October 15, 1998, and prior to the transfer to
the name of the Company or its nominee or transferee on the Company's stock
transfer records of the Shares tendered pursuant to the Exchange Offer, then,
without prejudice to the Company's rights under "The Exchange
Offer -- Conditions of Exchange Offer," (i) the principal amount of Notes to be
exchanged per share of Common Stock pursuant to the Exchange Offer shall be
reduced by the amount of any such cash dividend or distribution; or (ii) the
whole of any noncash dividend or distribution (including additional shares or
rights as aforesaid) received by a tendering shareholder shall be required to be
promptly remitted and transferred by the tendering shareholder to the Exchange
Agent for the account of the Company, accompanied by appropriate documentation
of transfer. Pending such remittance or appropriate documentation, the Company
shall be, subject to applicable law, entitled to all rights and privileges as
owners of such noncash dividend, distribution or right and may deduct from the
principal amount Notes to be exchanged per share of Common Stock the amount or
value thereof, as determined by the Company in its discretion.
PROCEDURES FOR TENDERING
Tenders of Securities. For a Registered Holder validly to tender Shares
pursuant to the Exchange Offer, a properly completed and validly executed Letter
of Transmittal (or a facsimile thereof), together with any signature guarantees
or, in the case of a Book-Entry Transfer (as defined below), an Agent's Message
(as defined below), and any other documents required by the instructions to the
Letter of Transmittal, must be received by the Exchange Agent prior to the
Expiration Date at one of its addresses set forth on the back cover page of this
Offering Circular. In addition, the Exchange Agent must receive either
certificates for tendered Shares at any of such addresses or such Shares must be
transferred pursuant to the procedures for book-entry
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<PAGE> 26
transfer described below and a confirmation of, or an Agent's Message with
respect to, such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date. A Registered Holder who desires to tender Shares
and who cannot comply with the procedures set forth herein for tender on a
timely basis or whose Shares are not immediately available must comply with the
procedures for guaranteed delivery set forth below. Letters of Transmittal,
certificates representing Shares and confirmations of, or an Agent's Message
with respect to, book-entry transfer should be sent only to the Exchange Agent,
and not to the Company or the Trustee.
The term "Agent's Message" means a message transmitted by a Book-Entry
Facility to, and received by, the Exchange Agent and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility, tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Company may enforce such agreement against the participant.
Delivery of Letters of Transmittal. If the certificates for Shares are
registered in the name of a person other than a signer of the Letter of
Transmittal relating thereto, then, in order to tender such Shares pursuant to
the Exchange Offer, the certificates evidencing such Shares must be endorsed or
accompanied by appropriate stock powers signed exactly as the name or names of
the registered owner or owners appear on the certificates, with the signatures
on the certificates or stock powers guaranteed as provided below.
ANY BENEFICIAL OWNER WHOSE SHARES ARE REGISTERED IN THE NAME OF A BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE AND WHO WISHES TO TENDER
SHARES IN THE EXCHANGE OFFER SHOULD CONTACT SUCH REGISTERED HOLDER TO TENDER THE
SHARES ON SUCH BENEFICIAL OWNER'S BEHALF. IF ANY BENEFICIAL OWNER WISHES TO
TENDER SHARES HIMSELF, THAT BENEFICIAL OWNER MUST, PRIOR TO COMPLETING AND
EXECUTING THE LETTER OF TRANSMITTAL AND, WHERE APPLICABLE, DELIVERING HIS
SHARES, EITHER MAKE APPROPRIATE ARRANGEMENTS TO REGISTER OWNERSHIP OF THE SHARES
IN SUCH BENEFICIAL OWNER'S NAME OR FOLLOW THE PROCEDURES DESCRIBED IN THE
IMMEDIATELY PRECEDING PARAGRAPH. THE TRANSFER OF RECORD OWNERSHIP MAY TAKE A
CONSIDERABLE AMOUNT OF TIME.
The method of delivery of Shares, Letters of Transmittal and all other
required documents to the Exchange Agent is at the election and risk of the
holder tendering the Shares. If delivery is to be made by mail, it is suggested
that the holder use properly insured, registered mail with return receipt
requested, and that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent prior to that date and
time.
Book-Entry Transfer. Promptly after the commencement of the Exchange
Offer, the Exchange Agent and the Company will seek to establish a new account
or utilize an existing account with respect to the Shares at The Depository
Trust Company (a "Book-Entry Transfer Facility"). Any financial institution that
is a participant in the Book-Entry Transfer Facility system and whose name
appears on a security position listing as the owner of Shares may make
book-entry delivery of such Shares by causing the Book-Entry Transfer Facility
to transfer such Shares into the Exchange Agent's account in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. However, although
delivery of Shares may be effected through book-entry transfer at a Book-Entry
Transfer Facility, the applicable Letter of Transmittal (or a facsimile or
electronic copy thereof or an electronic agreement to comply with the terms
thereof), properly completed and validity executed, with any required signature
guarantees, an Agent's Message and any other required documents, must, in any
case, be received by the Exchange Agent at one of its addresses set forth on the
back cover page of this Offering Circular on or prior to the Expiration Date, or
the tendering holder must comply with the guaranteed delivery procedures
described below. The Company may elect to waive receipt of a written Letter of
Transmittal if delivery is properly effected through the Book-Entry Transfer
Facility.
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IN ORDER TO BE ASSURED OF PARTICIPATING IN THE EXCHANGE OFFER, ANY
BENEFICIAL OWNER WHOSE SHARES ARE REGISTERED IN THE NAME OF A BROKER, DEALER,
COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE OR WHO WISHES TO TENDER SHARES
SHOULD CONTACT SUCH REGISTERED HOLDER PROMPTLY (LEAVING SUCH REGISTERED HOLDER
WITH SUFFICIENT TIME TO TENDER THE SHARES ON THE BENEFICIAL HOLDERS BEHALF) AND
INSTRUCT SUCH REGISTERED HOLDER TO TENDER THE SHARES ON SUCH BENEFICIAL OWNER'S
BEHALF.
Signature Guarantees. Signatures on the Letter of Transmittal must be
guaranteed by a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or by a
commercial bank or trust company having an office or correspondent in the United
States or by any other "eligible guarantor institution" as defined in Rule
17Ad-15 under the Exchange Act (each of the foregoing being an "Eligible
Institution") unless (a) the Letter of Transmittal is signed by the registered
holder of the Shares tendered therewith (or by a participant in one of the
Book-Entry Transfer Facilities whose name appears on a security position listing
as the owner of such Shares) and neither the "Special Payment Instructions" box
nor the "Special Delivery Instructions" box of the Letter of Transmittal is
completed, or (b) such Shares are tendered for the account of an Eligible
Institution.
Guaranteed Delivery. If a holder desires to tender Shares pursuant to the
Exchange Offer and (a) certificates representing such Shares are not immediately
available, (b) time will not permit such holder's Letter of Transmittal,
certificates evidencing such Shares or other required documents to reach the
Exchange Agent prior to the Expiration Date or (c) such holder cannot complete
the procedures for book-entry transfer prior to the Expiration Date, a tender
may be effected if all the following are complied with:
(a) such tender is made by or through an Eligible Institution;
(b) on or prior to the Expiration Date, the Exchange Agent has
received from such Eligible Institution, at one of the addresses of the
Exchange Agent set forth on the back cover page of this Offering Circular,
a properly completed and validly executed Notice of Guaranteed Delivery (by
telegram, telex, facsimile transmission, mail or hand delivery) in
substantially the form accompanying this Offering Circular, setting forth
the name and address of the registered holder and the principal amount or
number of Shares being tendered and stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange trading
days after the date of the Notice of Guaranteed Delivery, the Letter of
Transmittal validly executed (or a facsimile thereof), together with
certificates evidencing the Shares (or confirmation of, or an Agent's
Message with respect to, book-entry transfer of such Shares into the
Exchange Agent's account with a Book-Entry Transfer Facility), and any
other documents required by the Letter of Transmittal and the instructions
thereto, will be deposited by such Eligible Institution with the Exchange
Agent; and
(c) such Letter of Transmittal (or a facsimile thereof), properly
completed and validly executed, together with certificates evidencing all
physically delivered Shares in proper form for transfer (or confirmation
of, or an Agent's Message with respect to, book-entry transfer of such
Shares into the Exchange Agent's account with a Book-Entry Transfer
Facility) and any other required documents are received by the Exchange
Agent within three New York Stock Exchange trading days after the date of
such Notice of Guaranteed Delivery.
Tender Constitutes an Agreement. The tender of Shares pursuant to the
Exchange Offer pursuant to any of the procedures described above, including
tendering through a book-entry delivery, will constitute a binding agreement
between the tendering holder and the Company upon the terms and conditions of
the Exchange Offer, and a representation that (i) such holder owns the Shares
being tendered and is entitled to tender such Shares as contemplated by the
Exchange Offer all within the meaning of Rule 14e-4 under the Exchange Act, and
(ii) the tender of such Shares complies with Rule 14e-4.
Further, by executing or transmitting a Letter of Transmittal (as set forth
above, including book-entry transfer, and subject to and effective upon
acceptance for exchange for the Shares tendered therewith or
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effectively agreeing to the terms of the Letter of Transmittal pursuant to a
book-entry delivery), a tendering holder irrevocable sells, assigns and
transfers to or upon the order of the Company or its assignee all right, title
and interest in and to all such Shares tendered thereby, waives any and all
rights with respect to the Shares, and each such holder irrevocably selects and
appoints the Exchange Agent the true and lawful agent and attorney-in-fact of
such holder (with full knowledge that the Exchange Agent also acts as agent of
the Company and as the Trustee under the Indenture) with respect to such Shares,
with full power of substitution and resubstitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest) to (a) deliver
certificates representing such Shares, or transfer ownership of such Shares on
the account books maintained by a Book-Entry Transfer Facility, together, in
each case, with all accompanying evidences of transfer and authenticity, to or
upon the order of the Company, (b) present such Shares for transfer on the
relevant security register and (c) receive all benefits or otherwise exercise
all rights of beneficial ownership of such Shares (except that the Depositary
will have no rights to or control over funds from the Company).
Other Matters. Notwithstanding any other provision of the Exchange Offer,
delivery of the Notes for Shares tendered and accepted pursuant to the Exchange
Offer will occur only after timely receipt by the Exchange Agent of such Shares
(or confirmation of, or an Agent's Message with respect to, book-entry transfer
of such Shares into the Exchange Agent's account with a Book-Entry Transfer
Facility), together with properly completed and validly executed Letters of
Transmittal (or a facsimile or electronic copy thereof or an electronic
agreement to comply with the terms thereof) and any other required documents.
All questions as to the form of all documents, the validity (including time
of receipt) and acceptance of tenders of the Shares will be determined by the
Company, in its sole discretion, the determination of which shall be final and
binding. Alternative, conditional or contingent tenders of Shares will not be
considered valid. The Company reserves the absolute right to reject any or all
tenders of Shares that are not in proper form or the acceptance of which, in the
Company's opinion, would be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular
Shares. If the Company waives its right to reject a defective tender of Shares,
the holder will be entitled to the Exchange Offer Consideration. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding. Any defect
or irregularity in connection with tenders of Shares must be cured within such
time as the Company determines, unless waived by the Company. Tenders of Shares
shall not be deemed to have been made until all defects and irregularities have
been waived by the Company or cured. None of the Company, the Exchange Agent,
the Trustee or any other person will be under any duty to give notice of any
defects or irregularities in tenders of Shares, or will incur any liability to
holder for failure to give any such notice.
WITHDRAWAL OF TENDERS
Tenders of Shares may be withdrawn at any time until the Expiration Date as
such date may be extended. Thereafter, such tenders are irrevocable, except that
they may be withdrawn after the expiration of 40 business days from the
commencement of the Exchange Offer unless accepted for exchange prior to that
date.
Holders who wish to exercise their right of withdrawal with respect to a
Exchange Offer must give written notice of withdrawal, delivered by mail or hand
delivery or facsimile transmission, to the Exchange Agent at its address set
forth on the back cover page of this Offering Circular prior to the Expiration
Date or at such other time as otherwise provided for herein. In order to be
effective, a notice of withdrawal must specify the name of the person who
deposited the Shares to be withdrawn (the "Depositor"), the name in which the
Shares are registered, if different from that of the Depositor, and the number
of the Shares to be withdrawn prior to the physical release of the certificates
to be withdrawn. If tendered Shares to be withdrawn have been delivered or
identified through confirmation of book-entry transfer to the Exchange Agent,
the notice of withdrawal also must specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with withdrawn Shares. The
notice of withdrawal must be signed by the registered holder of such Shares in
the same manner as the applicable Letter of Transmittal (including any required
signature guarantees), or be accompanied by evidence satisfactory to the Company
that the person withdrawing the tender has succeeded to the beneficial ownership
of such Shares. Withdrawals of tenders of shares may not be
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rescinded, and any shares withdrawn will be deemed not validly tendered
thereafter for purposes of the Exchange Offer. However, properly withdrawn
shares may be tendered again at any time prior to the Expiration Date by
following the procedures for tendering not previously tendered shares described
elsewhere herein.
All questions as to the form, validity and eligibility (including time of
receipt) of any withdrawal of tendered Shares will be determined by the Company,
in its sole discretion, which determination shall be final and binding. None of
the Company, the Exchange Agent, the Trustee or any other person will be under
any duty to give notification of any defect or irregularity in any withdrawal of
tendered Shares, or will incur any liability for failure to give any such
notification.
If the Company is delayed in its acceptance for conversion and payment for
any Shares or is unable to accept for conversion or convert any Shares pursuant
to the Exchange Offer for any reason, then, without prejudice to the Company's
rights hereunder, tendered Shares may be retained by the Exchange Agent on
behalf of the Company and may not be withdrawn (subject to Rule 13e-14(f)(5)
under the Exchange Act, which requires that the issuer making the tender offer
pay the consideration offered, or return the tendered securities, promptly after
the termination or withdrawal of a tender offer), except as otherwise permitted
hereby.
ACCEPTANCE OF SHARES; DELIVERY OF NOTES
The acceptance of the Shares validly tendered for exchange and not
withdrawn will be made as promptly as practicable after the Expiration Date.
Acceptance will not take place until the Indenture pursuant to which the Notes
are to be issued is qualified under the Trust Indenture Act of 1939. An
application on Form T-3 has been filed with the Securities and Exchange
Commission seeking such qualifications. For purposes of the Exchange Offer, the
Company will be deemed to have accepted for exchange validly tendered Shares if,
as and when the Company gives oral or written notice thereof to the Exchange
Agent. Such notice of acceptance shall constitute a binding contract between the
Company and the tendering holder pursuant to which the Company will be obligated
to provide the Exchange Offer Consideration therefor. Subject to the terms and
conditions of the Exchange Offer, delivery of Notes in respect of Shares
accepted and exchanged pursuant to the Exchange Offer will be made by the
Exchange Agent as soon as practicable after receipt of such notice. The Exchange
Agent will act as agent for the tendering holders of Shares for the purposes of
receiving Shares and transmitting the Notes (through Book-Entry Transfer or
otherwise). Stockholders who are entitled to receive Notes will receive Notes
through Book Entry Transfer by crediting the stockholder's DTC (as defined)
account, unless stockholders choose to receive Notes in registered form in
accordance with the instructions in the Letter of Transmittal. Stockholders who
receive Notes through Book Entry Transfer will not be the registered holder of
the Notes. Notes received in this manner will be registered in the name of Cede
& Co., the nominee of DTC, but will be beneficially owned by the stockholder
entitled to such Notes. Tendered Shares not accepted for conversion by the
Company, if any, will be returned without expense to the tendering holder of
such Shares (or, in the case of Shares tendered by book-entry transfer into the
Exchange Agent's account at a Book-Entry Transfer Facility, such Shares will be
credited to an account maintained at a Book-Entry Transfer Facility) as promptly
as practicable following the Expiration Date.
EXCHANGE AGENT
Continental Stock Transfer & Trust Company has been appointed Exchange
Agent for the Exchange Offer. All deliveries and correspondence sent to the
Exchange Agent should be directed to its address set forth on the back cover
page of this Offering Circular. The Company has agreed to pay the Exchange Agent
customary fees for its services and to reimburse the Exchange Agent for its
reasonable out-of-pocket expenses in connection therewith. The Company also has
agreed to indemnify the Exchange Agent for certain liabilities, including
liabilities under the federal securities laws.
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INFORMATION AGENT
D.F. King & Co., Inc. has been appointed Information Agent for the Exchange
Offer. All questions in connection with the Exchange Offer and the Letter of
Transmittal, as well as requests for information or additional copies of the
Offering Circular or Letter of Transmittal should be directed to the address of
the Information Agent set forth on the back cover page of this Offering
Circular.
MISCELLANEOUS
The Company has not retained any dealer manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting tenders of Shares. However, directors, officers
and employees of the Company (who will not be separately compensated for such
services) may solicit exchanges by use of the mails, personally or by telephone,
facsimile or similar means of electronic transmission. The Company also will pay
brokerage houses and other custodians, nominees and fiduciaries their reasonable
out-of-pocket expenses incurred in forwarding copies of this Offering Circular
and related documents to the beneficial owners of the Shares and in handling or
forwarding tenders of Shares by their customers.
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THE COMPANY
The Company, through wholly and majority owned entities, owns, operates and
markets cellular, paging and other communications systems in the Commonwealth of
Puerto Rico and the U.S. Virgin Islands and conducts other cellular and paging
related operations described below. From time to time the Company reviews
opportunities in other telecommunications related industries both inside and
outside of Puerto Rico and the U.S. Virgin Islands.
Investors are encouraged to read the Company's annual report on Form 10-K,
dated December 31, 1997, for a detailed description of the Company's business.
Review of Strategic Alternatives
The Company has retained an investment banking firm to act as financial
advisor to CCPR in reviewing strategic alternatives to enhance shareholder value
including the exploration of partnering opportunities in the region through a
business combination, an appropriate acquisition, the sale of the Company, or
similar transactions. As of the date of this Offering Circular, the Company is
not presently engaged in substantive discussions with other parties regarding
such a potential transaction. However, there can be no assurance that such
substantive discussions, or such a transaction might not be pursued or
consummated after the date hereof, or that such a development would not be seen
by the Company as a basis for terminating the Exchange Offer.
The Company's executive offices are located at 110 East 59th Street, New
York, New York 10022 and its telephone number is (212) 355-3466.
RECENT DEVELOPMENTS
The Newco Distribution. Prior to September 2, 1998 (the "Distribution
Date") Cellular Communications of Puerto Rico, Inc. ("CCPR" or the "Company")
was known as CoreComm Incorporated. On the Distribution Date CCPR effected a
distribution (the "Newco Distribution") whereby shareholders of CCPR received on
a one-for-one basis shares of CoreComm Limited ("Newco"), a Bermuda corporation,
which until the Distribution Date had been a wholly owned subsidiary of CCPR.
Newco was formed by CCPR in March, 1998 in order to succeed to the business and
assets that were operated by OCOM Corporation, which had been acquired by CCPR
in June, 1998, and to pursue telecommunications opportunities outside Puerto
Rico and the U.S. Virgin Islands in an entrepreneurial corporate environment.
Transactions Related to the Newco Distribution. CCPR contributed all of
its non-Puerto Rico and U.S. Virgin Islands businesses to Newco, as described in
the following sections. Additionally, prior to the Distribution, CCPR
contributed to Newco $150 million in cash, which was obtained through a credit
agreement entered into by CCPR Services, Inc. (Delaware) ("Services"), an
indirect wholly owned subsidiary of CCPR, with The Chase Manhattan Bank and
other lenders on August 11, 1998. On August 11 and 12, 1998 Services drew down
under the credit agreement an aggregate of $155 million of which $150 million
was transferred to CCPR. See "-- CCPR Funding of Newco."
The following sections detail the transactions that resulted in CCPR's
owning the businesses contributed to Newco (the "Newco Businesses") and the
transactions between CCPR and Newco that resulted in Newco owning the Newco
Businesses.
In planning the Newco Distribution, CCPR undertook to acquire the operating
assets of OCOM Corporation ("OCOM") and various complementary lines of business
in the communications industry that were contributed to Newco. CCPR's
subsidiaries that carried on CCPR's principal lines of business and the Newco
Businesses, including the transactions through which such businesses were
acquired, are as follows:
- CCPR, Inc. (Delaware), through wholly owned subsidiaries, carries on
telecommunications businesses in Puerto Rico and the U.S. Virgin Islands,
including cellular telephone service, cellular long distance service and
paging service (collectively the "Puerto Rico and U.S. Virgin Islands
Telecommunications Businesses"). This is CCPR's sole line of business
since the Newco Distribution.
- On June 1, 1998 CoreComm Newco, Inc. (Delaware) ("CNI"), a wholly owned
direct subsidiary of CCPR, purchased substantially all of the assets and
related liabilities of OCOM Corporation, a subsidiary of NTL Incorporated
(Delaware), for a cash purchase price of $1,312,069. CNI's businesses
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include Competitive Local Exchange Corner ("CLEC") service, cellular long
distance, landline long distance and cellular resale service, primarily
in the State of Ohio.
- CoreComm Telco, Inc. (Delaware) owns 28 subsidiaries (Delaware) (the
"Telco Group"), each of which has applied or will apply in a single state
for certification to offer CLEC service (the "28 CLEC Subsidiaries").
Thus far, certification has been granted in Ohio and New York.
- All of the capital stock of Digicom, Inc. (Ohio) ("Digicom") was acquired
by CCPR through an agreement dated as of February 11, 1998, for a cash
purchase price of $2 million. Digicom is in the business of centralized
telecommunications services.
- CCPR purchased all of the operating assets of JeffRand Corp. ("Wireless
Outlet") pursuant to an agreement dated as of February 12, 1998, for a
cash purchase price of $400,000. Wireless Outlet consists of a paging
business and a prepaid cellular business. CoreComm subsequently
transferred these assets to Prepaid Communications Corp. (Delaware), an
indirect wholly owned subsidiary of CCPR, that is now an indirect wholly
owned subsidiary of Newco.
- CCPR formed Newco on March 18, 1998, in order to effect the Newco
Distribution. Newco's original name was Cortelyou Communications Ltd.,
which subsequently was changed to CoreComm Limited. Newco formerly was a
wholly owned direct subsidiary of CoreComm.
- Cortelyou Communications Corp. (Delaware) ("Cortelyou") owns 15 LMDS
licenses that were obtained through an FCC auction. The licenses were
granted on June 8, 1998. CCPR made the final payment to the FCC on June
22, 1998, for a total of $25.2 million paid for the LMDS licenses.
Contribution of the Newco Businesses. On August 18, 1998 CoreComm
contributed to Newco all of the above business except for the Puerto Rico and
U.S. Virgin Islands Telecommunications Businesses (the "Contributions"). The
Contributions consisted of the capital stock of the Telco Group, Digicom,
Wireless Outlet, CNI and Cortelyou. The Contributions and Newco Distribution
resulted in CoreComm Limited having a holding company structure.
- CCPR retained and continues to carry on all of the Puerto Rico and U.S.
Virgin Islands Telecommunications Businesses.
Manner of Effecting the Newco Distribution. The general terms and
conditions relating to the Newco Distribution are set forth in a Distribution
Agreement, dated as of August 18, 1998 (the "Distribution Agreement"), between
CCPR and Newco. The Newco Distribution was made on the basis of one share of
Newco Common Stock for each share of CCPR Common Stock held on the Record Date.
The actual total number of shares of Newco Common Stock distributed was
13,198,000.
No holder of CCPR Common Stock was required to pay any cash or other
consideration for the shares of Newco Common Stock received in the Newco
Distribution or to surrender or exchange shares of CCPR Common Stock in order to
receive shares of Newco Common Stock.
Description of CCPR Funding of Newco. Prior to the Newco Distribution,
CCPR contributed to Newco $150 million in cash. CCPR funded the capital
contribution with the proceeds of a bank loan to Services. Services entered into
a credit agreement dated August 11, 1998, with The Chase Manhattan Bank and the
other lenders party thereto, for senior secured credit facilities in an
aggregate amount of up to $170 million. On August 11 and 12, 1998, Services drew
down under the credit agreement an aggregate of $155 million of which $150
million was transferred to CCPR. See "RISK FACTORS -- Holding Company Structure;
Dependence On Cash Flow From Subsidiaries".
Effect of Hurricane Georges
Management does not believe the Company will experience substantial long
term damage from the recent hurricane (Hurricane Georges) which struck Puerto
Rico and the U.S. Virgin Islands in September 1998. The Company's insurance is
expected to cover nearly all of the expenses associated with restoring its
service, and approximately 90% of the cost of repairing and replacing damaged
equipment and facilities. In addition, the Company has business interruption
insurance so that it is not expected to incur an uninsured material loss from
the Company's cell sites that were out of service. The Company has not, however,
completed discussions with its insurance carriers and their adjusters.
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DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to an Indenture (the "Indenture"),
between the Company and The Chase Manhattan Bank, as trustee (the "Trustee"). A
copy of the form of Indenture has been filed as an exhibit to the Schedule 13E-4
of which this Offering Circular is a part. The following summary of certain
provisions of the Notes, and the Indenture does not purport to be complete and
is qualified in its entirety by reference to the provisions of the Notes, and
the Indenture, including the definitions therein of certain terms used below.
The definitions of certain terms used in the following summary are set forth
below under "-- Certain Definitions."
The Notes are unsecured obligations of the Company, subordinated in right
of payment to all existing and future Senior Indebtedness of the Company as
described under "-- Subordination of Notes." The Indenture does not contain any
financial covenants or restrictions on the payment of dividends, the incurrence
of Senior Indebtedness or issuance or repurchase of securities of the Company.
The Indenture contains no covenants or other provisions to afford protection to
holders of the Notes in the event of a highly leveraged transaction or a change
in control of the Company.
The operations of the Company are conducted through its subsidiaries,
partnerships and joint ventures and, therefore, the Company is dependent upon
the cash flow of its subsidiaries, partnerships and joint ventures to meet its
obligations, including its obligations under the Notes. As a result, the Notes
are effectively subordinated to all existing and future indebtedness and other
liabilities and commitments of such Subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited by the Indenture to that principal amount
sufficient for consummation of the Exchange Offer, as it may be amended or
supplemented, and such amount necessary to pay interest in the form of
additional notes, as provided for in the indenture. The Notes bear interest from
November 15, 1998, at the rate per annum set forth on the cover page of this
Offering Circular and will mature on November 15, 2008.
Interest on the Notes is payable semiannually on May 15 and November 15 of
each year (each an "Interest Payment Date"), commencing on May 15, 1999, to
holders of record at the close of business on May 1 or November 1 (each a
"Regular Record Date") immediately preceding such Interest Payment Date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. After the second semiannual interest payment, on November 15,
1999, interest may, at the option of CCPR, be paid in whole or in part, in cash
or through the issuance of additional Notes.
Interest on the Notes accrues from the most recent date to which interest
has been paid or, if no interest has been paid, from November 15, 1998.
The Notes are payable as to principal and interest at the office or agency
of the Company maintained for such purposes within the City and State of New
York or, at the option of the Company, payment of interest may be made by check
mailed to the holders of the Notes at their respective addresses set forth in
the register of holders of Notes, provided that a holder of Notes with an
aggregate principal amount in excess of $5,000,000 will be paid by wire transfer
in immediately available funds at the election of such holder if such holder
provides the Company with wire transfer instructions in writing. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes will be issued
in registered form or through Book Entry Transfer, without coupons, and in
denominations of $15.00 and integral multiples thereof. See "The EXCHANGE
OFFER -- Acceptance of Shares, Delivery of Notes"
OPTIONAL REDEMPTION
The Company shall not have the right to redeem any Securities prior to
November 15, 1999. On or after November 15, 1999, the Company will have the
right to redeem all or any part of the Securities in cash at
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102% of aggregate principal amount, in each case plus accrued and unpaid
interest, if any, to the applicable redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on an
Interest Payment Date that is prior to the redemption date).
Selection of Securities for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the notes are listed or, if the Securities are not so listed,
on a pro rata basis, by lot or by such other method as the Trustee deems fair
and appropriate, provided that no securities with a principal amount of $15.00
or less shall be redeemed or purchased in part. Notice of redemption will be
mailed by first class mail at least 30 days but not more than 60 days before the
redemption date to each Holder of Securities to be redeemed. Securities and
portions thereof selected by the Trustee shall be in amounts of $15.00 or whole
multiples of $15.00. On and after the redemption date, interest shall cease to
accrue on Securities or portions thereof called for redemption.
CERTAIN COVENANTS
Successor Corporation. The Company shall not consolidate with or merge
into any other corporation or transfer its properties and assets substantially
as an entirety to any person, unless: (i) either the Company shall be the
continuing corporation, or the corporation (if other than the Company) formed by
such consolidation or into which the Company is merged or to which the
properties and assets of the Company substantially as an entirety are
transferred shall expressly assume, by an indenture supplemental to the
Indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Securities and the
Indenture; (ii) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both would become
an Event of Default, shall have happened and be continuing; and (iii) the
Company has delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture comply with the Indenture.
The successor corporation formed by such consolidation or into which the
Company is merged or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such successor corporation had been
named as the Company therein, and thereafter the predecessor corporation shall
be relieved of all obligations and covenants under the Indenture and the
Securities, and in the event of such conveyance or transfer any such predecessor
corporation may be dissolved and liquidated.
EVENTS OF DEFAULT AND NOTICE THEREOF
The term "Event of Default," when used in the indenture, means any one of
the following: failure of the Company to pay interest for thirty days on any of
the Notes when due; defaults in the payment of principal or premium, if any, of
the Notes when due at maturity or upon redemption or otherwise; failure to
perform any other covenant contained in the indenture for forty-five days after
notice; the default under any instrument governing other Indebtedness of the
Company which shall happen and entitle the holder thereof to declare an
aggregate principal amount of at least $25,000,000 of such Indebtedness to
become due prior to its stated maturity, or such Indebtedness that shall not
have been discharged within a period of thirty days after there shall have been
given to the Company a written notice specifying such events of default; and
certain events of bankruptcy, insolvency or reorganization.
The Indenture provides that the Trustee will give, within ninety days after
the occurrence of a default, the Noteholders notice of all uncured defaults
known to it, provided that, except in the case of default in the payment of
principal of or interest on any of the Notes, the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interest of the Noteholders.
In case any Event of Default occurs and is continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company (and to the Trustee if given by
the Noteholders) may declare the principal of all accrued interest on all the
Notes to be due and payable immediately. Such declaration may be rescinded by
holders of a majority in principal amount
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of the Notes, if all existing Events of Default have been cured or waived and if
the recission would not conflict with any judgement or decree.
Defaults (except, unless theretofore cured, a default in payment of
principal or interest on the Notes, failure to make any redemption payment or a
default with respect to a provision which cannot be modified under the terms of
the Indenture without the consent of each Noteholder affected) may be waived by
the holders of a majority in principal amount of the Notes, upon the conditions
provided in the Indenture.
The Indenture will include a covenant that the Company will file annually
with the Trustee a statement regarding compliance by the Company with the terms
thereof and specifying any defaults of which the signers may have knowledge.
MODIFICATION OF THE INDENTURE
Under the Indenture, the rights and obligations of the Company and the
rights of Noteholders may be modified by the Company and the Trustee only with
the consent of the holders of not less than a majority in principal amount of
the Notes then outstanding; but no reduction in the principal of or extension of
the maturity of any Notes, or reduction in the interest rate or extension of the
time of payment of interest, or any other modification in the terms of payment
of the principal of or premium, if any, or interest on the Notes, or reducing
the percentage required for modification, will be effective against any
Noteholder without their consent.
SATISFACTION AND DISCHARGE OF INDENTURE
The Company may satisfy and discharge its obligation under the Indenture by
delivering to the Trustee for cancellation all outstanding Notes, theretofore
authenticated, and paying or causing to be paid all other sums payable
thereunder by the Company; and may discharge substantially all of its
obligations (including the negative covenants described herein, but excluding
its obligations to pay the principal of and interest on the Notes) by depositing
with the Trustee or Paying Agent(s), other than the Company or any Subsidiary of
the Company, United States Legal Tender or United States Government Obligations,
sufficient to pay all remaining principal of and interest on the Notes to be
discharged as and when due and complying with the certain other conditions
relating to discharge. "U.S. Government Obligations" are direct, noncallable
obligations of, or noncallable obligations guaranteed by, the United States of
America for the payment of which guarantee or obligation the full faith and
credit of the United States is pledged.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict or resign.
The holders of a majority in principal amount of all outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercise of any remedy available to the Trustee, provided that such
direction would not conflict with any rule of law or with the Indenture, would
not be unduly prejudicial to the rights of another Noteholder, and would not
involve the Trustee in personal liability. The Indenture will provide that in
case an Event of Default shall occur and be known to the Trustee (and not be
cured) the Trustee will be required to use the degree of care of a prudent man
in the conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Noteholders,
unless they shall have offered to the Trustee security and indemnity
satisfactory to it.
REPORTS TO NOTEHOLDERS
The Company will furnish each Noteholder annual and quarterly reports
containing specified financial statements and certain other information
concerning the business and affairs of the Company.
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SUBORDINATION OF NOTES
The Notes are subordinate in right of payment to all existing and future
Senior Indebtedness. The Indenture does not restrict the amount of Senior
Indebtedness of the Company or any Subsidiary of the Company. On June 30, 1998,
the Company and its subsidiaries had approximately $388.7 million of Senior
Indebtedness outstanding.
The payment of the principal of, interest on or any other amounts due on
the Notes are subordinated in right of payment to the prior payment in full of
all Senior Indebtedness of the Company. No payments due on the Notes may be made
if (i) any Senior Indebtedness has not been paid when due; (ii) any applicable
grace period with respect to such default has ended and such default has not
been cured; or (iii) the maturity of any Senior Indebtedness has been
accelerated because of a default.
Upon any distribution of its assets in connection with any dissolution,
winding-up, liquidation or reorganization of the Company or acceleration of the
principal amount due on the Notes because of an Event of Default, all Senior
Indebtedness must be paid in full before the holders of the Notes are entitled
to any payments whatsoever.
As a result of these subordination provisions, in the event of the
Company's insolvency, holders of the Notes may recover ratably less than general
creditors of the Company.
The Notes are obligations exclusively of the Company. Since the operations
of the Company are conducted through Subsidiaries, the cash flow and the
consequent ability to service debt, including the Notes, of the Company, are
dependent upon the earnings of its Subsidiaries and the distribution of those
earnings to, or upon loans or other payments of funds by those Subsidiaries to,
the Company. The payment of dividends and the making of loans and advances to
the Company by its Subsidiaries may be subject to statutory or contractual
restrictions, are dependent upon the earnings of those Subsidiaries and are
subject to various business considerations. See "RISK FACTORS -- Holding Company
Structure; Dependence on Cash Flows from Subsidiaries; Existing Subsidiary
Indebtedness."
Any right of the Company to receive assets of any of its Subsidiaries upon
their liquidation or reorganization (and the consequent right of the holders of
the Notes to participate in those assets) will be effectively subordinated to
the claims of that Subsidiary's creditors (excluding trade creditors), except to
the extent that the Company is itself recognized as a creditor of such
Subsidiary, in which case the claims of the Company would still be subordinate
to any security interests in the assets of such Subsidiary and any indebtedness
of such Subsidiary senior to that held by the Company.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the terms of the Indenture, whether in cash,
property or securities, including, without limitation by way of set-off or
otherwise, in respect of the Notes before all Senior Indebtedness is paid in
full, then such payment or distribution will be held by the recipient in trust
for the benefit of holders of Senior Indebtedness, and will be immediately paid
over or delivered to the holders of Senior Indebtedness or their representative
or representatives to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of Senior
Indebtedness.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar (initially, the Trustee) and the Trustee may require a holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a holder to pay any taxes and fees required by law
or permitted by the Indenture.
ADDITIONAL INFORMATION
Anyone who receives this Offering Circular may obtain a copy of the
Indenture without charge by writing to the Company, 110 East 59th Street, New
York, New York 10022, Attention: Richard J. Lubasch, Esq., Senior Vice
President, General Counsel.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock. On October 12, 1998, there were approximately 13,204,000 shares
(exclusive of 383,000 treasury shares) of Common Stock outstanding. The
following description is qualified in all respects by reference to the
Certificate of Incorporation (the "Certificate") and the By-laws, copies of
which will be available upon request.
COMMON STOCK
All shares of Common Stock participate equally in dividends payable to
holders of Common stock when and as declared by the Board of Directors and in
net assets available for distribution to holders of Common Stock on liquidation
or dissolution, have one vote per share on all matters submitted to a vote of
the Company stockholders and do not have cumulative rights in the decision of
directors. All issued and outstanding shares of Common Stock are fully paid and
nonassessable, and the holders thereof do not have pre-emptive rights.
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance of shares
of Preferred Stock in one or more series, and to fix for each such series such
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as are stated in a
Certificate of Designation adopted by the Board of Directors providing for the
issue of such series and as are permitted by the Delaware General Corporation
Law (the "DGCL").
TRANSFER AGENT
Continental Stock Transfer & Trust Company is the transfer agent and
registrar for the Company's Common Stock.
CERTAIN SPECIAL PROVISIONS
Certain Provisions contained in the Certificate, the By-laws and the Rights
Agreement, dated as of January 24, 1992, between the Company and Continental
Stock Transfer & Trust Company (the "Rights Agreement"), could make the
acquisition of control of the Company by means of a tender offer, open market
purchases, a proxy contest or otherwise more difficult. Set forth below is a
description of such provisions in the Certificate, the By-laws and the Rights
Agreement. Such description is intended as a summary only and is qualified in
its entirety by reference to the Certificate, By-laws and the Rights Agreement,
copies of which will be available upon request.
CLASSIFIED BOARD OF DIRECTORS
The Certificate and the By-laws provide that the Board of Directors is
divided into three classes of directors, with the classes as nearly equal in
number as possible. At each annual meeting of stockholders, one class of
directors is elected, each year for a three-year term.
The Company believes that the classified board provision of the By-laws is
advantageous to the Company and its stockholders because, by providing that
directors serve three-year terms rather than one-year terms, it enhances the
likelihood of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors. The Company
believes that this, in turn, permits the board to represent more effectively the
interests of all stockholders.
With a classified Board of Directors, it generally takes a majority
stockholder two annual meetings of stockholders to elect a majority of the Board
of Directors. As a result, a classified board may discourage proxy contests for
the election of directors or purchases of a substantial block of stock because
its provisions could
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operate to prevent obtaining control of the board in a relatively short period
of time. The classification provisions could also have the effect of
discouraging a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. In addition, because under the Certificate
directors may be removed only for cause, a classified board would delay
stockholders who do not agree with the policies of the Board of Directors from
replacing a majority of the Board of Directors for two years, unless they can
demonstrate the directors should be removed for cause and obtain the requisite
vote.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate and the By-laws provide that the number of directors is
fixed from time to time exclusively by the Board of Directors, but shall consist
of not more than fifteen nor less than three directors. In addition, the
Certificate and the By-laws provide that, subject to any rights of holders of
any shares of Preferred Stock, if any, a majority of the Board of Directors then
in office may fill any vacancies on the Board of Directors. Accordingly, the
Board of Directors could temporarily Prevent any stockholder from obtaining
majority representation on the board by enlarging the size of the board and
filling the new directorships with its own nominees.
Under the DGCL and the Certificate, a director serving on a classified
board may be removed by the stockholders only for cause. Moreover, the
Certificate provides that directors may be removed only by the affirmative vote
of holders of a least a majority of the voting power of all the then outstanding
shares of stock entitled to vote generally in the election of directors (the
"Voting Stock"), voting together as a single class.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT SPECIAL MEETINGS
The Certificate provides that stockholder action can be taken only at an
annual or special meeting of stockholders and prohibits stockholder action by
written consent in lieu of a meeting. The Certificate and the By-laws provide
that, subject to the rights of holders of any series of Preferred Stock, special
meetings of stockholders can be called only by the Board of Directors, the
Chairman of the Board of Directors or the President. Stockholders are not
permitted to call a special meeting or to require that the Board of Directors
call a special meeting of stockholders. Moreover, the business permitted to be
conducted at any special meeting of stockholders is limited to the purpose or
purposes specified in the written notice of such meeting.
The provisions of the Certificate prohibiting stockholder action by written
consent may have the effect of delaying consideration of a stockholder proposal
until the next annual meeting unless a special meeting is called by the Board of
Directors, the Chairman of the Board of Directors or the President. These
provisions would also prevent the holders of a majority of the voting power of
the Voting Stock from using the written consent procedure to take stockholder
action and from taking action by consent without giving all the stockholders of
the Company entitled to vote on a proposed action the opportunity to participate
in determining such proposed action. Moreover, a stockholder could not force
stockholder consideration of a proposal over the opposition of the Board of
Directors, the Chairman of the Board of Directors or the President by calling a
special meeting of stockholders prior to the time the Board of Directors, the
Chairman of the Board of Directors or the President believes such consideration
to be appropriate.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
The By-laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors (the "Nomination Procedure") and with
regard to business to be brought before an annual or special meeting of
stockholders, of the Company (the "Business Procedure").
The Nomination Procedure provides that, subject to the rights of holders of
any series of Preferred Stock, if any, only persons who are nominated by or at
the direction of the Board of Directors or by a stockholder who has given timely
written notice to the Secretary prior to the meeting at which directors are to
be elected, will be eligible for election as directors of the Company. The
Business Procedure provides that at an annual or special meeting only such
business may be conducted as has been specified in the notice of meeting,
brought
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before the meeting by or at the direction of the Board of Directors or by a
stockholder who has given timely written notice to the Secretary of such
stockholder's intention to bring such business before the meeting. Under the
Nomination Procedure or the Business Procedure, to be timely, notice must be
received by the Company not less than 75 days nor more than 90 days prior to the
annual or special meeting of stockholders, provided, however, that in the event
that less than 90 days' notice or prior public disclosure of the meeting date is
given or made to stockholders, notice by the stockholder to be timely must be
received not later than the fifteenth day following the day on which such notice
of the date of the meeting was mailed or such public disclosure was made,
whichever first occurs.
Under the Nomination Procedure, a stockholder's notice to the Company
proposing to nominate a person for election as a director must contain certain
information (i) about each proposed nominee, including, without limitation, (a)
the name, age, business address and residence address of the nominee, (b) the
principal occupation or employment of the nominee, (c) the class, series and
number of shares of capital stock of the Company which are beneficially owned by
the nominee, and (d) any other information relating to the nominee that is
required to be disclosed in solicitations of proxies for election of directors
pursuant to the Rules and Regulations of the Commission under the Exchange Act
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as director if elected) and (ii) about the
stockholder proposing to nominate such person, including, without limitation,
the name and record address of the stockholder and the class, series and number
of shares of capital stock of the Company which are beneficially owned by the
stockholder. The Company may require any proposed nominee to furnish such other
information as may reasonably be required by the Company to determine the
eligibility of such proposed nominee to serve as a director of the Company.
Under the Business Procedure, a stockholder's notice relating to the conduct of
business other than the nomination of directors at an annual meeting must
contain certain information about such business and about the proposing
stockholder including, without limitation, a brief description of the business
desired to be brought before the meeting, the name and record address of the
proposing stockholder, the class, series and number of shares of capital stock
of the Company owned by the proposing stockholder and a description of any
material interest of the stockholder in such business. If the officer presiding
at a meeting determines that a person was not nominated in accordance with the
Nomination Procedure, such person will not be eligible for election as a
director and such nomination shall be disregarded. If such presiding officer
determines that business was not properly brought before such meeting in
accordance with the Business Procedure, such business will not be transacted at
such meeting.
By requiring advance notice of nominations by stockholders, the Nomination
Procedure affords the Board of Directors a meaningful opportunity to consider
the qualifications of the Proposed nominees and, to the extent deemed necessary
or desirable by the Board of Directors, to inform stockholders about such
qualification. By requiring advance notice of proposed business, the Business
Procedure provides a more orderly procedure for conducting annual meetings of
stockholders and, to the extent deemed necessary or desirable by the Board of
Directors, provides the Board of Directors with a meaningful opportunity to
inform stockholders, prior to such meetings, of any business proposed to be
conducted at such meetings, together with any recommendation of the Board of
Directors' position as to action to be taken with respect to such business, so
as to enable stockholders better to determine whether they desire to attend such
a meeting or grant a proxy to the Board of Directors as to the disposition of
any such business. Although the Certificate and the By-laws do not give the
Board of Directors any power to approve or disapprove stockholder nominations
for the election of directors or proposals for action, they may have the effect
of precluding a contest for the election of directors or the consideration of
stockholder proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
procedures to elect its own slate of directors or to approve its proposal
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to the Company and its stockholders.
PREFERRED STOCK
The Certificate authorizes the Board of Directors to issue one or more
series of Preferred Stock and to determine, with respect to any series of
Preferred Stock, the powers, designations, preferences, optional or other
rights, if any, and the qualifications, limitations or restrictions thereof.
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The Company believes that the ability of the Board of Directors to issue
one or more series of Preferred Stock provides increased flexibility in
structuring possible future financings and acquisitions and in meeting other
corporate needs which might arise. The authorized shares of Preferred Stock, as
well as shares of the Common Stock, are available for issuance without further
action by the Company's stockholders, unless such action is required by
applicable law or the rules of any stock exchange on which the Company's
securities may be listed or applicable rules of any self-regulatory
organization. If the approval of the Company's stockholders is not required for
the issuance of shares of Preferred Stock or the Company Common Stock, the Board
of Directors does not intend to seek stockholder approval. The Board of
Directors will make any determination to issue such shares based on its judgment
as to the best interests of the Company and its stockholders. The Board of
Directors, in so acting, could issue Preferred Stock having terms that could
discourage an acquisition attempt or other transaction that some or a majority
of the stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
AMENDMENT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
Under the DGCL, the stockholders have the right to adopt, amend or repeal
the By-laws of a corporation. In addition, if the certificate of incorporation
so provides, the By-laws may be amended by the board of directors. The By-laws
provide that they may be amended by the Board of Directors or stockholders,
provided that if the amendment is to be adopted by the stockholders, the
affirmative vote of the holders of at least 66 2/3% of the Voting Stock, voting
together as a single class, is required. Similarly, provisions set forth in the
Certificate relating to the election and term of directors, the prohibition of
stockholder action without a meeting, calling a stockholders' meeting, the
elimination of personal liability of directors and the amendment of the By-laws
may be amended only by the affirmative vote of the holders of at least 66 2/3%
of the Voting Stock, voting together as a single class.
ANTI-TAKEOVER STATUTE
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder," which is defined therein as a
person who, together with any affiliates and/or associates of such person,
beneficially owns, directly or indirectly, 15% or more of the outstanding voting
shares of a Delaware corporation. This provision prohibits certain business
combinations (defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation) between an interested stockholder and a corporation for a period of
three years after the date the interested stockholder acquired its stock unless
(i) the business combination is approved by the corporation's Board of Directors
prior to the date the interested stockholder acquired shares, (ii) the
interested stockholder acquired at least 85% of the voting stock of the
corporation in the transaction in which it becomes an interested stockholder or
(iii) the business combination is approved by a majority of the Board of
Directors and by the affirmative vote of 66 2/3% of the votes entitled to be
cast by disinterested stockholders at an annual or special meeting. The Restated
Certificate and By-laws do not exclude the Company from the restrictions imposed
under Section 203 of the DGCL.
STOCKHOLDER RIGHTS PLAN
The following description of the Rights Agreement is qualified in its
entirety by reference to the Rights Agreement, copies of which are available
upon request.
The Rights Agreement provides that one Right will be issued with each share
of the Common Stock issued (whether originally issued or from the Company's
treasury) on or after the date of the Distribution and prior to the Rights
Distribution Date (as hereinafter defined). The Rights are not exercisable until
the Rights Distribution Date and will expire at the close of business on the
date which is ten years from the date of the Stock Distribution unless
previously redeemed by the Company as described below. When exercisable, each
Right entitles the owner to purchase from the Company one one-hundredth of a
share of Series A Junior Participating Preferred Stock at a purchase price as
provided in the Rights Agreement.
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<PAGE> 41
Except as described below, the Rights will be evidenced by all the Common
Stock certificates and will be transferred with the Common Stock certificates,
and no separate Rights certificates will be distributed. The Rights will
separate from the Common Stock and a "Rights Distribution Date" will occur upon
the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired,
or obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of the Common Stock (the "Stock Acquisition Date") or (ii) 10
business days (or such later date as is determined by the Company's Board of
Directors) following the commencement of a tender offer or exchange offer that
would result in a person or group becoming an Acquiring Person, except that any
person or group of affiliated or associated persons who acquire or obtain the
right to acquire beneficial ownership of 15% or more of the outstanding shares
of Common Stock solely as a result of the Exchange Offer described in this
Offering Circular will not be deemed acquiring persons, and any person who, as
of October 15, 1998 had publically disclosed beneficial ownership of the Common
Stock pursuant to Regulation 13D-G under the Exchange Act shall be permitted to
acquire up to the number of additional Shares which, prior to the Exchange
Offer, would have resulted in such person being the beneficial owner of 14.9%.
After the Rights Distribution Date, Rights certificates will be mailed to
holders of record of the Common Stock as of the Rights Distribution Date and,
thereafter the separate Rights certificates alone will represent the Rights.
The Series A Junior Participating Preferred Stock issuable upon exercise of
the Rights will be entitled to a minimum preferential quarterly dividend payment
of $0.01 per share and will be entitled to an aggregate dividend of 100 times
the dividend, if any, declared per share of Common Stock. In the event of
liquidation, the holders of the Series A Junior Participating Preferred Stock
will be entitled to a minimum preferential liquidation payment of $1 per share
and will be entitled to an aggregate payment of 100 times the payment made per
share of the Common Stock. Each share of Series A Junior Participating Preferred
Stock will have 100 votes and will vote together with the Common Stock. In the
event of any merger, consolidation or other transaction in which shares of the
Common Stock are changed or exchanged, each share of Series A Junior
Participating Preferred Stock will be entitled to receive 100 times the amount
received per share of the Common Stock. These rights are protected by customary
antidilution provisions. Because of the nature of the Series A Junior
Participating Preferred Stock's dividend, liquidation and voting rights, the
value of one one-hundredth of a share of Series A Junior Participating Preferred
Stock purchasable upon exercise of each Right should approximate the value of
one share of the Common Stock.
In the event that a person becomes an Acquiring Person, each holder of a
Right will thereafter have the right to receive, upon the exercise thereof at
the then current exercise price, the Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value equal to two
times the exercise price of the Right. Notwithstanding any of the foregoing,
following the occurrence of any such event, all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were beneficially owned
by any Acquiring Person (or certain related parties) will be null and void.
However, Rights are not exercisable following the occurrence of the event set
forth above until such time as the Rights are no longer redeemable by the
Company as set forth below.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation or the Common Stock is
changed or exchanged (other than a merger which follows a Qualifying Offer and
satisfies certain other requirements) or (ii) 50% or more of the Company's
assets or earning power is sold or transferred, each holder of a Right (except
Rights which previously have been voided as set forth above) shall thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price, Common Stock of the acquiring company having a value equal to
two times the exercise price of the Right.
At any time prior to the earlier of (i) until 10 days following the Stock
Acquisition Date, or (ii) the Final Expiration Date, the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right. Immediately upon
the action of the Board of Directors ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of the Rights will be to
receive the $.01 redemption price.
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<PAGE> 42
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for the CoreComm Common Stock (or other consideration) or for Common
Stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors prior to the Rights Distribution Date. After the Rights
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board of Directors in order to cure any ambiguity, to make changes which do not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person) or to shorten or lengthen any time period under the Rights
Agreement, provided that no amendment to adjust the time period governing
redemption shall be made at such time as the Rights are not redeemable.
The Rights have certain anti-takeover effects as they will cause
substantial dilution to a person or group that acquires a substantial interest
in the Company without the prior approval of the Board of Directors. Among the
effects is that the Rights could discourage a takeover attempt that might
otherwise allow the holders of Common Stock to sell such Common Stock at a
premium to the then current market price or which might otherwise be beneficial
to stockholders.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate provides that to the fullest extent provided by law a
director will not be personally liable for monetary damages to the Company or
its stockholders for, or with respect to, any acts or omissions in the
performance of his or her duties, except for liability, (i) for any breach of
the director's duty of loyalty to such corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemption as provided in Section 174 of the DGCL or (iv)
for any transaction from which the director derived an improper personal
benefit.
This provision is intended to afford directors additional protection and
limit their potential liability from suits alleging a breach of the duty of care
by a director. As a result of the inclusion of such a provision, stockholders
may be unable to recover monetary damages against directors for actions taken by
them that constitute negligence or gross negligence or that are otherwise in
violation of their fiduciary duty of care, although it may be possible to obtain
injunctive or other equitable relief with respect to such actions. If equitable
remedies are found not to be available to stockholders in any particular
situation, stockholders may not have an effective remedy against a director in
connection with such conduct.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The By-laws provide that directors and officers of the Company shall be
indemnified against liabilities arising from their service as directors and
officers to the full extent permitted by law. Section 145 of the DGCL empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 also empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with
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<PAGE> 43
the defense or settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless, and only to the extent that, the Court of Chancery or
the court in which such action was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent that a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation is empowered to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
There has not been in the past and there is not presently pending any
litigation or proceeding involving a director, officer, employee or agent of the
Company which could give rise to an indemnification obligation on the part of
the Company. In addition, except as described herein, the Board of Directors is
not aware of any threatened litigation or proceeding which may result in a claim
for indemnification.
MARKET PRICE OF COMMON STOCK
The Common Stock is listed on the Nasdaq National Market under the symbol
"CLRP." The following table sets forth the high and low sales price for the
Common Stock during the periods indicated as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
FISCAL PERIODS HIGH LOW
- -------------- ------ ------
<S> <C> <C>
1996
First Quarter.............................................. $17.34* $15.75
Second Quarter............................................. 19.78 15.83
Third Quarter.............................................. 19.86 15.06
Fourth Quarter............................................. 15.98 11.72
1997
First Quarter.............................................. 13.09 8.83
Second Quarter............................................. 11.27 8.52
Third Quarter.............................................. 10.20 8.52
Fourth Quarter............................................. 10.05 6.09
1998
First Quarter.............................................. 10.27 6.39
Second Quarter............................................. 16.28 10.27
Third Quarter.............................................. 20.84 10.44
Fourth Quarter (through October 14)........................ 11.13 8.13
</TABLE>
The closing price per share of Common Stock on October 14, 1998 was $9.00.
*The historical price per share of Common Stock has been adjusted to give effect
to the Newco Distribution. See "Business -- The Newco Distribution."
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<PAGE> 44
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
consequences to a U.S. person (as defined below) associated with the exchange of
the Common Stock for the Notes pursuant to the Exchange Offer and the ownership
and disposition of the Notes. This discussion is based on provisions of the
Internal Revenue Code (the "Code"), Treasury regulations promulgated thereunder,
and administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect. This discussion does not address the tax consequences to subsequent
purchasers of the Notes and is limited to investors who hold the Common Stock
and Notes as capital assets. Furthermore, this discussion does not address U.S.
federal alternative minimum tax consequences and does not address all aspects of
U.S. federal income taxation that may be applicable to investors in light of
their particular circumstances, or to investors subject to special treatment
under U.S. federal income tax law (including, without limitation, certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities or persons who have acquired Common Stock or Notes as part of a
straddle, hedge, conversion transaction or other integrated investment).
As used herein, the term "U.S. person" means a holder of Common Stock or
Notes that is, for U.S. federal income tax purposes, (i) a citizen or resident
of the U.S., (ii) a corporation or partnership created or organized in or under
the laws of the U.S. or of any political subdivision thereof, (iii) an estate
the income of which is subject to U.S. federal income taxation regardless of its
source or (iv) a trust if a U.S. court is able to exercise primary supervision
over the administration of such trust and one or more U.S. persons have the
authority to control all substantial decisions of such trust.
EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO SUCH HOLDER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF
COMMON STOCK AND NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR
GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES IN APPLICABLE
TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
EXCHANGE OF COMMON STOCK FOR NOTES
The exchange of Common Stock for Notes will be a taxable transaction for
federal income tax purposes, generally treated as a "sale or exchange." Under
Section 302(b) of the Code, the exchange of Common Stock generally will be
treated as a "sale or exchange" if the receipt of Notes: (a) results in a
"complete termination" of the holder's interest in the Company, (b) is
"substantially disproportionate" with respect to the holder, or (c) is "not
essentially equivalent to a dividend" with respect to the holder. With respect
to this last test, the Internal Revenue Service has indicated in a published
ruling that, in the case of a minority holder of a publicly held corporation who
exercised no control over corporate affairs, a reduction in the holder's
proportionate interest in the corporation from .0001118% to .0001081% was "not
essentially equivalent" to a dividend. In determining whether any of these tests
has been met, Common Stock actually owned, as well as Common Stock considered to
be owned by the holder by reason of certain constructive ownership rules set
forth in Section 318 of the Code, generally must be taken into account. If any
of these three tests for "sale or exchange" treatment is met, a holder will
recognize gain or loss equal to the difference between the "issue price" of the
Notes (defined below) and the tax basis of the Common Stock exchanged. If such
Common Stock is held as a capital asset, the gain or loss will be a capital gain
or loss and will be long-term if such Common Stock has been held for more than
one year.
If none of the tests set forth in Section 302(b) of the Code is met,
amounts received by a holder who exchanges Common Stock will be taxable to the
holder as a "dividend" to the extent of such holder's allocable share of the
Company's current or accumulated earnings and profits, and the excess of such
amounts received over the portion that is taxable as a dividend would constitute
a non-taxable return of capital (to the extent of the holder's tax basis in the
Common Stock exchanged) and any amounts in excess of the holder's tax basis
would constitute taxable gain. Any remaining tax basis in the Common Stock
exchanged would be transferred to any remaining stockholdings of the holder in
the Company.
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<PAGE> 45
The "issue price" of the Notes is expected to be the fair market value of
the Common Stock exchanged therefor. However, it is possible that the Notes will
be traded (for example, on a quotation medium) within the meaning of the
applicable Treasury regulations at some time during the 60-day period ending 30
days after the Notes' issue date. If the Notes are so tradeable, their "issue
price" should be the fair market value of the Notes on the issue date.
THE NOTES
Original Issue Discount ("OID")
Since the terms of the Notes permit the Company to issue additional Notes
in lieu of paying cash interest (which generally is the case after November 15,
1999) the Notes will be deemed to have been issued with OID for U.S. federal
income tax purposes. Consequently, holders will be required to include OID in
ordinary income over the period that they hold the Notes in advance of the
receipt of cash attributable thereto under a constant yield method. If the
issuance of additional Notes would not reduce the yield to maturity on the Notes
(which generally should be the case if the issue price of the Notes is at least
equal to their stated principal amount) and the Company does not elect to issue
additional Notes, the amount of OID includible in ordinary income over the term
of the Notes will be equal to the excess of (i) the sum of the stated principal
amount of the Notes plus all cash payments of stated interest over (ii) the
issue price of the Notes. The amount of OID includible in a holder's income
during a calendar year should generally equal the sum of the product of the
yield to maturity of the Notes times their adjusted issue price (as defined
below) for each accrual period.
If the issuance of additional Notes would not reduce the yield to maturity
on the Notes, and the Company elects to issue additional Notes, the issuance of
additional Notes would not be treated as a payment of interest and the Notes
would be deemed to be "reissued" on each date that additional Notes are issued
solely for purposes of computing the amount of OID includible in income during
the then remaining term of the Notes. Under these rules, the Notes would be
deemed to be reissued at their then adjusted issue price (i.e., their original
issue price plus accrued OID less previous payments of interest in cash) and any
additional Notes would be treated as part of the original Notes to which such
additional Notes relate. The amount of OID includible in a holder's income over
the remaining term of a Note, determined under the constant yield method
referred to above, would be equal to (i) the stated principal amount due at
maturity (including the stated principal amount of any additional Notes treated
as part of such Note) plus all remaining cash payments of stated interest over
(ii) the adjusted issue price of the Notes.
If the issuance of additional Notes would reduce the yield to maturity on
the Notes (which generally should be the case if the issue price of the Notes is
less than their stated principal amount) and the Company elects to issue
additional Notes in lieu of paying cash interest, the amount of OID includible
in income in respect of a Note should generally be equal to (i) the stated
principal amount due at maturity (including the stated principal amount of the
additional Notes, assuming the Company issued Notes in lieu of paying cash
interest on all interest payment dates after November 15, 1999) plus all
remaining cash payments of stated interest on such Note over (ii) the issue
price of the Note.
Bond Premium
If the issue price of a Note exceeds its stated principal amount, the Note
may be treated as having been issued with amortizable bond premium, in which
case a holder may be entitled to amortize the bond premium over the life of the
Note.
Sale, Exchange or Redemption of Notes
A holder generally will recognize taxable gain or loss upon the sale,
exchange or redemption of Notes equal to the difference between the amount of
cash or the fair market value of property received (except to the extent that
such cash or property is attributable to accrued, but previously untaxed,
interest) and the holder's adjusted tax basis in the Notes. A holder which
receives Notes in exchange for Common Stock generally should have an adjusted
tax basis in the Notes equal to the "issue price" of the Notes, increased by any
accrued OID thereon included in the holder's income prior to such sale, exchange
or redemption, and
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<PAGE> 46
generally reduced by (i) any cash payments of interest and (ii) the amount of
any previously amortized bond premium, as discussed above. Such gain or loss
will be long-term capital gain or loss if the holder's holding period for the
Notes exceeds one year immediately prior to such sale, exchange or redemption.
Application of AHYDO Rules
The applicable high yield discount obligation ("AHYDO") rules may affect
the Company's ability to deduct interest payments made on the Notes. Under those
rules, the Company would not be entitled to deduct a portion of the OID accruing
on the Notes and would be allowed to deduct the remainder of the OID only when
paid. The AHYDO rules apply to debt instruments that have a term of more than
five years, have a yield to maturity that equals or exceeds five percentage
points over the "applicable federal rate" (the "AFR") and that have "significant
OID." In such event, the Company will not be entitled to deduct OID that accrues
with respect to such Notes until the amounts attributable to the OID are paid.
In addition, if any Notes are AHYDOs and such Note's yield to maturity exceeds
the relevant AFR plus six percentage points (the "Excess Yield"), the Company's
deduction for the "disqualified portion" of the OID for any accrual period will
equal the product of (i) the Excess Yield divided by the yield to maturity on
the Notes, and (ii) the OID for the accrual period. If the Excess Yield
provisions of the AHYDO rules applied to a Note, a corporate holder may be
treated as receiving dividend income (to the extent of the Company's current and
accumulated earnings and profits) solely for purposes of the dividends received
deduction, with respect to that portion of the OID for which the Company is
denied a deduction. If the disqualified portion exceeds the Company's current
and accumulated earnings and profits, the excess will continue to be taxed as
OID.
Backup Withholding
A holder of Common Stock or Notes may be subject to backup withholding at
the rate of 31% with respect to amounts paid on or with respect to the Common
Stock or Notes, unless the holder (i) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact or (ii)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with the applicable
requirements of the backup withholding rules. Holders exchanging Common Stock
should consult their tax advisors as to their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption. Any amount
paid as backup withholding will be creditable against the holder's federal
income tax liability.
Holders of Shares of Common Stock Who Do Not Participate in the Exchange Offer
Holders of Shares who elect not to participate in the Exchange Offer and
who consequently do not exchange their Shares for Notes will not recognize gain
or loss as a consequence of the Exchange Offer.
THE FOREGOING IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL INCOME TAX
ASPECTS OF THE EXCHANGE OFFER AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING
AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER OF SHARES OF
COMMON STOCK. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
CONSEQUENCES TO THEM OF THE EXCHANGE.
INTEREST IN SHARES OF COMMON STOCK
Based upon the Company's records and upon information provided to the
Company by its directors, executive officers and affiliates, except as provided
below, neither the Company nor any of its subsidiaries or affiliates nor any of
the directors or executive officers of the Company, nor any associates of any of
the foregoing, including the directors or executive officers of its
subsidiaries, has effected any transactions in the Shares during the forty
business day period prior to the date hereof. Any Shares owned directly or
indirectly by officers/directors at the time of the Exchange Offer are eligible
for exchange if properly tendered pursuant to the Exchange Offer on the same
basis as all other Shares.
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<PAGE> 47
CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO THE SHARES OF COMMON STOCK
None of the Company nor any of its affiliates, directors or executive
officers, or any of the executive officers or directors of its subsidiaries, is
a party to any contract, arrangement, understanding or relationship with any
other person relating, directly or indirectly, to the Exchange Offer with
respect to any securities of the Company (including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer or
the voting of any such securities, joint ventures, loans or option arrangements,
puts or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies, consents or authorizations).
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<PAGE> 48
Facsimile copies of the Letter of Transmittal will be accepted. Letters of
Transmittal, certificates for the Shares and any other required documents should
be sent by each Stockholder or his broker, dealer, commercial bank, trust
company or other nominee to the Exchange Agent at one of the addresses set forth
below:
THE EXCHANGE AGENT:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
2 Broadway
New York, New York 10004
(212) 509-4000 (ext. 535)
(212) 509-5150 (fax)
THE INFORMATION AGENT:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Banks and Brokers call Collect: (212) 269-5550
All others call Toll Free: (888) 414-5566
Any questions or requests for assistance or additional copies of this
Offering Circular, the Letter of Transmittal and/or the Notice of Guaranteed
Delivery may be directed to the Exchange Agent or the Information Agent at their
respective telephone numbers and addresses set forth above. You may also contact
your broker, dealer, commercial bank or trust company or other nominee for
assistance concerning the Exchange Offer.
<PAGE> 1
Exhibit 99(a)(ii)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
NOVEMBER 12, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE OR,
UNLESS THERETOFORE ACCEPTED FOR EXCHANGE, AFTER 5:00 P.M., NEW YORK CITY TIME,
ON THE 40TH BUSINESS DAY AFTER OCTOBER 15, 1998.
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE
THE EXCHANGE AGENT FOR THE OFFER IS:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C>
BY MAIL: BY HAND:
2 BROADWAY 2 BROADWAY
NEW YORK, NEW YORK 10004 19TH FLOOR
(212) 509-4000 NEW YORK, NEW YORK 10004
(212) 509-4000
</TABLE>
The undersigned acknowledges that he or she has received and reviewed the
Offering Circular dated October 15, 1998 (the "Offering Circular") of Cellular
Communications of Puerto Rico, Inc. (the "Company" or "CCPR"), and this Letter
of Transmittal (the "Letter"), which together constitute the Company's offer
(the "Exchange Offer" or the "Offer") to exchange $15.00 principal amount of a
new issue of 15% Subordinated Notes Due 2008 (the "Notes") in exchange for each
share of its Common Stock, par value $.01 per share (the "Common Stock" or
"Shares"), up to 3,500,000 Shares (or such greater or lesser amount that the
Company may determine to accept in accordance with the provisions for modifying
the Exchange Offer set forth in the Offering Circular.)
The Company will accept for exchange up to an aggregate of 3,500,000 shares
of Common Stock which are properly tendered in the Exchange Offer prior to 5:00
P.M., New York City time, on November 12, 1998, unless extended (the "Expiration
Date"). If more than 3,500,000 shares of Common Stock (or such greater or lesser
number of Shares as the Company may determine to exchange pursuant to the Offer
and in compliance with applicable law, including Rule 13e-4(f)(1)(ii) of the
Securities Exchange Act of 1934, as amended) are validly tendered and not
properly withdrawn prior to the Expiration Date, Notes will be allocated to
tendering stockholders on a pro rata basis based on the number of Shares equal
to 3,500,000 (or such greater or lesser number of Shares as the Company may
determine to exchange) multiplied by a fraction, the numerator of which is the
total number of shares validly tendered by such tendering stockholders and the
denominator of which is the total number of the Shares validly tendered by all
tendering stockholders. The number of Shares will be rounded up or down as
nearly as practicable to result in the tender of whole Shares rather than
fractional Shares. Any Shares not accepted by the Company as a result of the
allocation described above will be returned promptly to the tendering
stockholder. The Company reserves the right to accept all or any portion of the
number of shares of Common Stock in excess of 3,500,000 tendered pursuant to the
Exchange Offer.
Notes will be issued in denominations of $15.00 and multiples thereof.
The Company reserves the right to extend the Exchange Offer at its
discretion, in which event the term "Expiration Date" shall mean 5:00 P.M., New
York City time, on the date on which the Exchange Offer as so extended shall
expire. The Company shall notify the Exchange Agent of any extension by oral or
written notice and shall make a public announcement thereof prior to 9:00 A.M.,
New York City time, on the next business day after the previously scheduled
Expiration Date.
If the Company increases or decreases the Exchange Offer Consideration or
the amount of Shares sought in the Exchange Offer (except for in an increase in
the number of Shares to be accepted of less than 264,080), the Offer will remain
open at least ten business days from the date that the Company first publishes,
sends or gives notice, by public announcement or otherwise, of such increase or
decrease. The Company has no current intention to increase or decrease the
Exchange Offer Consideration currently offered or the amount of Shares sought to
be purchased.
The undersigned has checked the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the number of shares of Common Stock
indicated below. Subject to and effective upon the acceptance for exchange of
the Common Stock tendered hereby, the undersigned hereby sells, assigns and
transfers to or upon the order of the Company all right, title and interest in
and to such shares of Common Stock as are being tendered hereby. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent the true and
lawful agent and attorney-in-fact of the undersigned (with full knowledge that
said Exchange Agent also acts as agent of the Company) with respect to such
Common Stock with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest) to: (a) deliver such
Common Stock or transfer ownership of such Common Stock on the account books
maintained by The Depository Trust Company ("DTC") and deliver, in any such
case, all accompanying evidences of transfer and authenticity to or upon the
order of the Company upon receipt by the Exchange Agent, as the undersigned's
agent, of the Notes to which the undersigned is entitled upon the acceptance by
the Company of such Common Stock under the Exchange Offer, and (b) receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Common Stock, all in accordance with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the shares of
Common Stock tendered hereby and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be necessary
or desirable to complete the sale, assignment and transfer of the Common Stock
tendered hereby. All authority conferred or agreed to be conferred in this
Letter and every obligation of the undersigned hereunder shall be binding upon
the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned. This
tender may be withdrawn only in accordance with the procedures set forth in the
Instructions contained in this Letter.
Unless otherwise indicated herein under "Special Issuance and Delivery
Instructions" below, please deliver Notes (and, if applicable, substitute
certificates for any Common Stock not exchanged) through book entry transfer by
causing DTC to transfer such Notes into the DTC account of the undersigned in
accordance with DTC's procedures for such transfer. If indicated under "Special
Issuance and Delivery Instructions" below, please send Notes in registered form
(and, if applicable, substitute certificates for any Common Stock not exchanged)
to the undersigned at the address set forth in Special Issuance and Delivery
Instructions. The undersigned understands that stockholders who tender Common
Stock by book-entry transfer ("Book-Entry Stockholders") may request that any
Common Stock not exchanged be returned by crediting such account maintained at
the DTC as such Book-Entry Stockholder may designate by making an appropriate
entry under "Special Issuance and Delivery Instructions." The undersigned
recognizes that the Company has no obligation pursuant to the "Special Issuance
and Delivery Instructions" to transfer any Common Stock from the name of the
registered holder thereof if the Company does not accept for exchange any of the
shares of such Common Stock.
2
<PAGE> 3
THE UNDERSIGNED, BY COMPLETING THE BOX BELOW AND SIGNING THIS LETTER, WILL
BE DEEMED TO HAVE TENDERED THE COMMON STOCK AS SET FORTH IN THE BOX BELOW.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS)
(SEE INSTRUCTIONS 1 AND 3)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
Signature(s) of Owner(s)
Dated:
- ---------------------------------
Area Code and Tel. No.:
- --------------------------------------------------------------------------------
Must be signed by registered holder(s) as the name(s) appear(s) on
certificate(s) for Common Stock or on a security position listing or by
person(s) authorized to become registered holder(s) by endorsements and
documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 3.
Name(s):------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity:
------------------------------------------------------------------------
Address:
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
DTC Account Number:-------------------------------------------------------------
IMPORTANT: STOCKHOLDERS WHO HOLD THEIR SHARES IN REGISTERED FORM AND NOT IN
A BROKERAGE ACCOUNT NORMALLY WILL NOT HAVE A DTC ACCOUNT NUMBER. STOCKHOLDERS
WHO DO NOT HAVE A DTC ACCOUNT NUMBER MAY REQUEST THAT NOTES BE ISSUED AND SENT
IN REGISTERED FORM BY FILLING OUT THE INFORMATION UNDER "SPECIAL ISSUANCE AND
DELIVERY INSTRUCTIONS" BELOW.
SIGNATURE GUARANTEE
Signature(s) Guaranteed by an Eligible Institution:
- ----------------------------------------------------------------
(If required by Instruction 3) (Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
Dated:
- ---------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR COMMON STOCK OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL
OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
3
<PAGE> 4
This Letter may be used either if certificates for Common Stock are to be
forwarded herewith or if tenders are to be made by book-entry transfer to the
account maintained by the Exchange Agent at DTC. Delivery of documents to DTC
does not constitute delivery to the Exchange Agent.
Your bank or broker can assist you in completing this form. The
Instructions included with this Letter must be followed. Questions and requests
for assistance or for additional copies of the Offering Circular and this Letter
may be directed to the Exchange Agent or the Company.
List below the Common Stock to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and share amounts should
be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF COMMON STOCK
NUMBER OF
NAME(S) AND ADDRESS(ES) SHARES NUMBER OF
OF REGISTERED HOLDER(S) CERTIFICATE REPRESENTED BY SHARES
(PLEASE FILL IN, IF BLANK) NUMBER(S)* CERTIFICATE(S)* TENDERED**
<S> <C> <C> <C>
TOTAL
* Need not be completed by Book-Entry stockholders (see below).
** Unless otherwise indicated in this column, a holder will be deemed to have tendered the entire number of
shares represented by the Common Stock indicated in the third column.
SEE INSTRUCTION 2.
</TABLE>
[ ] CHECK HERE IF TENDERED SHARES OF COMMON STOCK ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED SHARES OF COMMON STOCK ARE BEING DELIVERED BY BOOK-
ENTRY TRANSFER TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:
DTC Account Number:
Transaction Code Number:
[ ] CHECK HERE IF TENDERED SHARES OF COMMON STOCK ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING (SEE
INSTRUCTION 1):
Name of Registered Owner(s):
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which guaranteed delivery:
DTC Account Number (if delivered by book-entry transfer):
4
<PAGE> 5
------------------------------------------------------------
SPECIAL ISSUANCE AND
DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for shares of Common Stock not
exchanged and/or Notes are to be registered in the name of and sent to
someone other than the person whose signature appears on the face of this
Letter; if shares of Common Stock tendered by book-entry transfer which
are not exchanged are to be returned by credit to an account maintained at
DTC or if Notes are to be issued in registered form instead of through
Book Entry Transfer.
Issue and mail:
(check appropriate box(es)):
[ ] Notes to:
[ ] Common Stock to:
Name(s)
-------------------------------------------------
(PLEASE PRINT)
------------------------------------------------------------
(PLEASE PRINT)
Address:
--------------------------------------------------
------------------------------------------------------------
(ZIP CODE)
Credit unexchanged Common Stock tendered by book-entry transfer to
the DTC account set forth below.
------------------------------------------------------------
(DTC ACCOUNT NUMBER)
------------------------------------------------------------
EMPLOYER IDENTIFICATION OR
SOCIAL SECURITY NO.
------------------------------------------------------------
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for shares of Common Stock not
exchanged and/or Notes registered in the name of the person whose
signature appears on the face of this Letter are to be sent to someone
other than such person or to such person at an address other than that
shown in the box entitled "Description of Common Stock" on the face of
this Letter.
Mail or deliver:
(check appropriate box(es)):
[ ] Notes to:
[ ] Common Stock to:
Name(s)
-------------------------------------------------
(PLEASE PRINT)
------------------------------------------------------------
(PLEASE PRINT)
Address:
--------------------------------------------------
------------------------------------------------------------
(ZIP CODE)
------------------------------------------------------------
EMPLOYER IDENTIFICATION OR
SOCIAL SECURITY NO.
------------------------------------------------------------
TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS
(SEE INSTRUCTION 5)
5
<PAGE> 6
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SUBSTITUTE PART I -- Please provide your TIN in the box at -------------------------------
FORM W-9 right and certify by signing and dating below. Social Security Number
DEPARTMENT OF THE OR
TREASURY
INTERNAL REVENUE SERVICE
-------------------------------
PAYER'S REQUEST FOR TAXPAYER Employer Identification Number
IDENTIFICATION NUMBER ("TIN") (If awaiting TIN write "Applied For")
----------------------------------------------------------------------------------------
PART II -- For payees NOT subject to backup withholding, see the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 and complete as
instructed therein.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued
to me), and
(2) I am not subject to backup withholding because either (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of failure to
report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATE INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are subject
to backup withholding because of underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you
are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATES
REQUIRED TO AVOID BACKUP WITHHOLDING.
- -------------------------------------------------------------------------------------------------------------------------
Signature _____________________________________________________________________________________________
Date ________________
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND IN BACKUP WITHHOLDING OF 31%
OF ANY CASH PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN
PART I OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (A) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(B) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number.
--------------------------------------------------------------------------
--------------------------------------------------
Signatures Date
- --------------------------------------------------------------------------------
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES.
This Letter of Transmittal is to be used either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
book-entry transfer set forth in the Offering Circular under "The Exchange
Offer." Certificates for Common Stock, or any book-entry transfer into the
Exchange Agent's account at the DTC of Common Stock tendered electronically, as
well as a properly completed and duly executed copy of this Letter or a
facsimile thereof, an Agent's Message and any other documents required by this
Letter, must be received by the Exchange Agent at its address set forth below or
(in the case of tenders by book-entry transfer) confirmed to the Exchange Agent
on or prior to the Expiration Date. The method of delivery of this Letter, the
Common Stock and any other required documents is at the election and risk of the
stockholder, but, except as otherwise provided below, the delivery will be
deemed made only when actually received or confirmed by the Exchange Agent. If
certificates for Common Stock are sent by mail, it is suggested that the mailing
be made sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent on or before the Expiration Date.
Stockholders whose shares of Common Stock are not immediately available or
who cannot deliver their shares of Common Stock and all other required documents
to the Exchange Agent or who cannot complete the procedures for book-entry
transfer on or prior to the Expiration Date may tender their shares of Common
Stock pursuant to the guaranteed delivery procedure set forth in the Offering
Circular. Pursuant to such procedure: (i) such tender must be made by or through
a firm that is a member of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc. or by a commercial bank
or trust company having an office in the United States (an "Eligible
Institution"); (ii) prior to the Expiration Date the Exchange Agent must have
received from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission, mail
or hand delivery) setting forth the name and address of the holder of the Common
Stock and the number of shares of Common Stock tendered, stating that the tender
is being made thereby and guaranteeing that, within three Nasdaq National Market
("Nasdaq") trading days after the Expiration Date, this Letter together with the
Common Stock and any other documents required by this Letter will be deposited
by the Eligible Institution with the Exchange Agent; and (iii) the certificates
for all tendered Common Stock, or a confirmation of a book-entry transfer of
such Common Stock into the Exchange Agent's account at a DTC as described above,
and this Letter as well as all other documents required by this Letter, must be
received by the Exchange Agent within three Nasdaq trading days after the
Expiration Date, all as provided in the Offering Circular under "The Exchange
Offer -- Guaranteed Delivery."
See "The Exchange Offer" section of the Offering Circular.
2. PARTIAL TENDERS AND WITHDRAWALS.
If less than the number of shares of any Common Stock evidenced by a
submitted certificate is to be tendered, the tendering stockholder should fill
in the number of shares to be tendered in the box entitled "Number of Shares
Tendered." A reissued certificate representing such Common Stock for the number
of shares not tendered will be sent to such stockholder, unless otherwise
provided in the appropriate box on this Letter, as soon as practicable after the
Expiration Date. The entire number of shares of all Common Stock delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
Any holder of shares of Common Stock who has tendered such Common Stock may
withdraw the tender by delivering written notice of withdrawal to the Exchange
Agent prior to 5:00 P.M., New York City time, on November 12, 1998, or, unless
such tenders have previously been accepted for exchange, after 5:00 P.M., New
York City time, on December 14, 1998. To be effective, a notice of withdrawal
must indicate the certificate number or numbers of the shares of Common Stock to
which it relates (or, if the tender was by book-entry delivery, information
sufficient to enable the Exchange Agent to identify the Common Stock so
tendered) and the number of shares represented by such Common Stock and (a) be
signed by the holder in the same manner as the original signature in this Letter
or (b) be accompanied by evidence satisfactory to the Company that the holder
revoking such tender has succeeded to beneficial ownership of such Common Stock.
Withdrawals of tenders of shares may not be rescinded, and any shares withdrawn
will be deemed
7
<PAGE> 8
not validly tendered thereafter for purposes of the Exchange Offer. However,
properly withdrawn shares may be tendered again at any time prior to the
Expiration Date by following the procedures for tendering not previously
tendered shares.
3. SIGNATURES ON THIS LETTER, STOCK POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Common Stock
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any of the shares of Common Stock tendered hereby are owned of record by
two or more joint owners, all such owners must sign this Letter.
If any tendered shares of Common Stock are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder or holders of the
Common Stock listed and tendered hereby, no endorsements of certificates or
separate stock powers are required. If, however, Notes are to be issued, or
certificates for any untendered principal amount of Common Stock are to be
reissued, to a person other than the registered holder, then endorsements of any
certificates transmitted hereby or separated stock powers are required.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) listed, such certificate(s) must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered holder or holders appear on the certificate(s).
ANY BENEFICIAL OWNER WHOSE SHARES ARE REGISTERED IN THE NAME OF A BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE AND WHO WISHES TO TENDER
SHARES IN THE EXCHANGE OFFER SHOULD CONTACT SUCH REGISTERED HOLDER TO TENDER THE
SHARES ON SUCH BENEFICIAL OWNER'S BEHALF. IF ANY BENEFICIAL OWNER WISHES TO
TENDER SHARES HIMSELF, THAT BENEFICIAL OWNER MUST, PRIOR TO COMPLETING AND
EXECUTING THE LETTER OF TRANSMITTAL AND, WHERE APPLICABLE, DELIVERING HIS
SHARES, EITHER MAKE APPROPRIATE ARRANGEMENTS TO REGISTER OWNERSHIP OF THE SHARES
IN SUCH BENEFICIAL OWNER'S NAME OR FOLLOW THE PROCEDURES DESCRIBED IN THE
IMMEDIATELY PRECEDING PARAGRAPH, THE TRANSFER OF RECORD OWNERSHIP MAY TAKE A
CONSIDERABLE AMOUNT OF TIME.
If this Letter or any certificates or stock powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR COMMON STOCK OR SIGNATURES ON STOCK POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE SHARES OF COMMON STOCK ARE TENDERED: (I) BY A
REGISTERED HOLDER OF SUCH COMMON STOCK (WHICH TERM, FOR PURPOSES OF THIS LETTER,
SHALL INCLUDE ANY PARTICIPANT IN DTC WHOSE NAME APPEARS ON A SECURITY POSITION
LISTING AS THE OWNER OF COMMON STOCK) WHO HAS NOT COMPLETED THE BOX ENTITLED
"SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS"
ON THIS LETTER; OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering stockholders should indicate in the applicable box the name and
address to which Notes and/or substitute certificates evidencing Common Stock
for the number of shares not exchanged are to be issued or sent, if different
from the name and address of the person signing this Letter. In the case of
issuance in a different name, the employer identification or social security
number of the person named must also be indicated. If no such instructions are
given, such Common Stock not exchanged will be returned by crediting the account
at DTC as designated below the box entitled "Description of Common Stock." In
addition, stockholders who wish to have their Notes delivered in registered
form,
8
<PAGE> 9
instead of through book entry transfer, should so indicate in the appropriate
box, entitled "Special Issuance and Delivery Instructions."
5. TAX IDENTIFICATION NUMBER; SUBSTITUTE FORM W-9.
Federal income tax law requires that a stockholder whose tendered shares of
Common Stock are accepted for exchange must provide the Exchange Agent with a
correct Taxpayer Identification Number ("TIN"), generally the holder's social
security or federal employer identification number, and with certain other
information, on the Substitute Form W-9, which is provided under "Important Tax
Information" below, and to certify under penalties of perjury, that such number
is correct and that the holder (or other payee) is not subject to backup
withholding. See "Important Tax Information" below. If a holder is subject to
backup withholding, he or she must cross out item (2) of the Certification Box
on the Substitute Form W-9 before signing such Form. Failure to furnish the
correct TIN on the Substitute Form W-9 may subject the holder (or other payee)
to a $50 penalty imposed by the Internal Revenue Service and payments of cash to
the holder (or other payee) may be subject to backup withholding of 31%. If the
holder has not been issued a TIN and Notes and has applied for a number or
intends to apply for a number in the near future, he or she should write
"Applied For" in the space provided for on the TIN in Part I, sign and date the
Substitute Form W-9 and sign and date the Certificate of Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part I and the Exchange
Agent is not provided with a TIN by the time of payment, the Exchange Agent will
withhold 31% of all payments thereafter until a TIN is provided to the Exchange
Agent.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
and sale of Common Stock to it or its order pursuant to the Exchange Offer. If,
however, Notes and/or substitute certificates for shares of Common Stock not
exchanged are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Common Stock tendered
hereby, or if tendered shares of Common Stock are registered in the name of any
person other than the person signing this Letter, or if a transfer tax is
imposed for any reason other than the transfer and sale of Common Stock to the
Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering stockholder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering
stockholder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any
conditions enumerated in the Offering Circular, other than that the Indenture
pertaining to the Notes be qualified under the Trust Indenture Act of 1939,
which the Company may not waive.
8. NO CONDITIONAL OFFERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering stockholders, by execution of this Letter (or a
facsimile thereof), shall waive any right to receive notice of the acceptance of
their Common Stock for exchange.
The Company, Exchange Agent or any other person is not obligated to give
notice of defects or irregularities in any tender, nor shall any of them incur
any liability for failure to give any such notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES FOR SHARES OF COMMON
STOCK.
Any stockholder whose shares of Common Stock have been mutilated, lost,
stolen or destroyed should contact the Exchange Agent at the address indicated
herein for further instructions.
9
<PAGE> 10
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering and completing this
Letter, as well as requests for assistance or additional copies of the Offering
Circular and this Letter, may be directed to the Exchange Agent at D.F. King &
Co., Inc., 77 Water Street, New York, New York 10005.
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder surrendering certificates must,
unless an exemption applies, provide the Exchange Agent (as payer) with his
correct TIN on Substitute Form W-9 included in this Letter of Transmittal. If
the stockholder is an individual, his TIN is his social security number. If the
correct TIN is not provided, the stockholder may be subject to a $50 penalty
imposed by the Internal Revenue Service and payments of cash to the stockholder
(or other payee) may be subject to backup withholding of 31%.
Certain stockholders (including, among others, all corporations and certain
foreign individuals and entities) are not subject to backup withholding. In
order for an exempt foreign stockholder to avoid backup withholding, that person
should complete, sign and submit a Form W-8, Certificate of Foreign Status,
signed under penalties of perjury, attesting to his exempt status. A Form W-8
can be obtained from the Exchange Agent. Exempt stockholders, other than foreign
stockholders, should furnish their TIN, write "Exempt" on the face of the
Substitute Form W-9 and sign, date and return the Substitute Form W-9 to the
Exchange Agent. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payment made to payee. Backup withholding is not an additional tax.
Rather, the federal income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If backup withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder,
the stockholder is required to notify the Exchange Agent of his correct TIN (or
the TIN of any other payee) by completing the Substitute Form W-9 included in
this Letter of Transmittal certifying (1) that the TIN provided on the
Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN), and
that (2) the stockholder is not subject to backup withholding because (1) the
stockholder has not been notified by the Internal Revenue Service that the
stockholder is subject to backup withholding as a result of a failure to report
all interest and dividends or (ii) the Internal Revenue Service has notified the
stockholder that the stockholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The stockholder is required to give the Exchange Agent the TIN, generally
the social security number or employer identification number, of the record
owner of the certificates. If the certificates are in more than one name or are
not in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W -9 for
additional guidance on which number to report. If the stockholder has not been
issued a TIN and has applied for a number or intends to apply for a number in
the near future, he or she should write "Applied For" in the space provided for
the TIN in Part 1, sign and date the Substitute Form W-9 and sign and date the
Certificate of Awaiting Taxpayer Identification Number, which appears in a
separate box below the Substitute Form W-9. If "Applied For" is written in Part
1 and the Exchange Agent is not provided with a TIN by the time of payment, the
Exchange Agent will withhold 31% of all payments until a TIN is provided to the
Exchange Agent.
10
<PAGE> 11
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<C> <S> <C>
- ------------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
- ------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife (joint account) The actual owner of
the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if
the minor is the
only contributor,
the minor(1)
6. Account in the name of guardian or The ward, minor, or
committee for a designated ward, incompetent
minor, or incompetent person person(3)
7. a. The usual revocable savings The grantor-
trust account (grantor is also trustee(1)
trustee)
b. So-called trust account that is The actual owner(1)
not a legal or valid trust
under State law
8. Sole proprietorship account The owner(4)
- ------------------------------------------------------------
- ------------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- ------------------------------------------------------------
9. A valid trust, estate, or pension The legal entity
trust (Do not furnish the
identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other tax- The organization
exempt organization
14. A broker or registered nominee The broker or
nominee
15. Account with the Department of
Agriculture in the name of a
public entity (such as a State or
local government, school district,
or prison) that receives
agricultural program payments
- ------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 12
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or, an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRON AGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must generally
withhold 20% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 1
Exhibit 99(a)(iii)
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
OFFER TO EXCHANGE 15% SUBORDINATED NOTES DUE 2008
FOR UP TO 3,500,000 SHARES OF ITS
COMMON STOCK, PAR VALUE $.01 PER SHARE
To Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Cellular Communications of Puerto Rico, Inc. (the "Company") is offering
(the "Exchange Offer"), upon the terms and subject to the conditions set forth
in the enclosed Offering Circular dated October 15, 1998 (the "Offering
Circular") and the enclosed Letter of Transmittal (the "Letter of Transmittal"),
to exchange $15.00 principal amount of a new issue of 15% Subordinated Notes due
2008 for each share of its Common Stock, par value $.01 per share (the "Common
Stock" or "Shares"), up to 3,500,000 shares (although the Company may determine
to accept a greater or lesser number of Shares in accordance with the provisions
for modifying the terms of the Exchange Offer set forth in the Offering Circular
and in compliance with applicable law, including Rule 13e-4(f)(1)(ii) of the
Securities Exchange Act of 1934, as amended). Consummation of the Exchange Offer
is subject to a number of conditions described in the Offering Circular.
We are asking you to contact your clients for whom you hold Common Stock
registered in your name or in the name of your nominee or who hold Common Stock
registered in their own names.
The Company will not pay any fees or commissions to any broker or dealer or
other person for soliciting tenders of Common Stock pursuant to the Exchange
Offer. You will be reimbursed for customary mailing and handling expenses
incurred by you in forwarding any of the enclosed materials to your clients. The
Company will pay all transfer taxes, if any, applicable to the transfer and
exchange of Common Stock to it or its order, except as otherwise provided in
Instruction 6 of the Letter of Transmittal.
Enclosed is a copy of the following documents:
1. The Offering Circular.
2. The Letter of Transmittal for your use and for the information of
your clients.
3. A form of letter which may be sent to your clients for whose
account you hold Common Stock registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer.
4. The Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
5. A return envelope addressed to Continental Stock Transfer & Trust
Co., the Exchange Agent.
6. A Notice of Guaranteed Delivery.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON NOVEMBER 12, 1998, UNLESS EXTENDED (THE "EXPIRATION
DATE"). COMMON STOCK MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE
AND, UNLESS THERETOFORE ACCEPTED FOR EXCHANGE, AFTER 5:00 P.M., NEW YORK CITY
TIME, ON THE 40TH BUSINESS DAY AFTER OCTOBER 15, 1998.
To participate in the Exchange Offer, certificates for Common Stock or
confirmation of any book-entry transfer into the Exchange Agent's account at The
Depository Trust Company, and a duly executed and properly completed Letter of
Transmittal or facsimile thereof, together with any other required documents,
must be delivered to the Exchange Agent as indicated in the Letter of
Transmittal and the Offering Circular.
If holders of Common Stock wish to tender, but it is impracticable for them
to forward their Common Stock prior to the expiration of the Exchange Offer, a
tender may be effected by following the guaranteed delivery procedures described
in the Offering Circular under "The Exchange Offer -- Guaranteed Delivery
Procedures."
<PAGE> 2
Additional copies of the enclosed material may be obtained from, and any
other inquiries you may have with respect to the Exchange Offer should be
directed to the Information Agent, D.F. King & Co., Inc. for the Exchange Offer.
Very truly yours,
Cellular Communications of Puerto
Rico, Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE DESIGNATION OF YOU
OR ANY PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU
OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH
RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE
OFFERING CIRCULAR OR THE ACCOMPANYING LETTER OF TRANSMITTAL.
<PAGE> 1
Exhibit 99(a)(iv)
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
OFFER TO EXCHANGE 15% SUBORDINATED NOTES DUE 2008
FOR UP TO 3,500,000 SHARES OF ITS
OUTSTANDING COMMON STOCK, PAR VALUE $.01 PER SHARE
To Our Clients:
Enclosed for your consideration are an Offering Circular dated October 15,
1998 (the "Offering Circular") and a Letter of Transmittal (the "Letter of
Transmittal") relating to the offer (the "Exchange Offer") by Cellular
Communications of Puerto Rico, Inc. (the "Company") to exchange $15.00 principal
amount of its 15% Subordinated Notes due November 15, 2008 for each share of its
Common Stock, par value $.01 per share (the "Common Stock"). Consummation of the
Exchange Offer is subject to a number or conditions described in the Offering
Circular.
This material is being forwarded to you as the beneficial owner of Common
Stock carried by us in your account but not registered in your name. A tender of
such Common Stock may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender
any or all such Common Stock held by us for your account pursuant to the terms
and conditions set forth in the enclosed Offering Circular and Letter of
Transmittal. However, we urge you to read the Offering Circular carefully before
instructing us to tender your Common Stock.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender Common Stock on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 P.M.,
New York City time, on November 12, 1998, unless extended or terminated by the
Company (the "Expiration Date"). Common Stock may be withdrawn at any time prior
to 5:00 P.M., New York City time, on the Expiration Date, and, unless
theretofore accepted for exchange, after 5:00 P.M., New York City time, on the
40th business day after October 15, 1998.
If you wish to have us tender any or all of your Common Stock please so
instruct us by completing, executing, detaching and returning to us the attached
instruction form. The accompanying Letter of Transmittal is furnished to you for
your information only and may not be used by you to tender Common Stock.
<PAGE> 2
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer to acquire the
Common Stock of Cellular Communications of Puerto Rico, Inc.
---------------
This will instruct you to tender the number of shares of Common Stock
indicated below held by you for the account of the undersigned, pursuant to the
terms and conditions set forth in the Offering Circular and the related Letter
of Transmittal.
Box 1 [ ] Please TENDER ______ shares of Common Stock held by you for my
account.
Box 2 [ ] Please DO NOT tender outstanding Common Stock held by you for
my account.
DATE:
--------------------------------------
--------------------------------------
Signature(s)
--------------------------------------
--------------------------------------
Please print name(s) here
Unless a specific contrary instruction is given in the spaces provided, your
signature(s) hereon shall constitute an instruction to us to tender all your
Common Stock pursuant to the terms and conditions set forth in the Offering
Circular and the Letter of Transmittal.
<PAGE> 1
Exhibit 99(a)(v)
NOTICE OF GUARANTEED DELIVERY
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
OFFER TO EXCHANGE
15% SUBORDINATED NOTES DUE 2008
FOR
UP TO 3,500,000 SHARES OF ITS COMMON STOCK
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON NOVEMBER 12, 1998, UNLESS TERMINATED OR EXTENDED.
As set forth in the Offering Circular dated October 15, 1998 (the "Offering
Circular") under "The Exchange Offer -- Procedures for Tendering," this form or
one substantially equivalent hereto must be used to accept the Exchange Offer
(as defined below) of Cellular Communications of Puerto Rico, Inc., a Delaware
corporation (the "Company"), if certificates representing Shares of Common Stock
("Common Stock Certificates") are not immediately available (or the procedures
for book-entry transfer cannot be completed on a timely basis) or the
shareholders cannot deliver their Common Stock Certificates, Letter of
Transmittal and other required documents to the Exchange Agent (as defined in
the Offering Circular) on or prior to 5:00 p.m., New York City time, on November
12, 1998 unless extended or terminated as described in the Offering Circular
(the "Expiration Time"). Such form may be delivered by hand or transmitted by
facsimile transmission or mail to the Exchange Agent prior to the Expiration
Time.
TO: CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(THE "EXCHANGE AGENT")
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY HAND BY FACSIMILE TRANSMISSION: BY MAIL:
OR OVERNIGHT COURIER: CONTINENTAL STOCK TRANSFER & CONTINENTAL STOCK TRANSFER &
CONTINENTAL STOCK TRANSFER & TRUST COMPANY TRUST COMPANY
TRUST COMPANY 212-509-5150 2 BROADWAY
2 BROADWAY CONFIRM RECEIPT OF FACSIMILE 19TH FLOOR
19TH FLOOR BY NEW YORK, NEW YORK 10004
NEW YORK, NEW YORK 10004 TELEPHONE TO 212-509-4000
</TABLE>
- --------------------------------------------------------------------------------
FOR INFORMATION CALL
D.F. KING & CO., INC.
1-888-414-5566
<PAGE> 2
Delivery of this instrument to an address or transmission of instruction
via a facsimile number other than as set forth above will not constitute a valid
delivery.
This form is not to be used to guarantee signatures. The Eligible
Institution (as defined in the Letter of Transmittal) that completes this form
must communicate the guarantee to the Exchange Agent and must deliver the Letter
of Transmittal and Common Stock Certificates to the Exchange Agent within the
time period shown herein. Failure to do so could result in a financial loss to
such Eligible Institution.
The undersigned hereby tenders to the Company, upon the terms and
conditions set forth in the Offering Circular and related Letter of Transmittal
(which together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, Shares of Common Stock pursuant to the guaranteed
delivery procedure described in the Exchange Offer "The Exchange
Offer -- Procedures for Tendering."
(PLEASE TYPE OR PRINT ALL INFORMATION BELOW)
- --------------------------------------------------------------------------------
Signature(s):
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Name(s) of Record Holder(s)
- ------------------------------------------------------
- ------------------------------------------------------
Address(es):
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Zip Code
Area Code and Tel. No(s):
- ------------------------------------------------------
Dated:
- ------------------------------------------------------
Common Stock Certificate No(s)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Total Number of Shares Repres. Certificate(s):
- ------------------------------------------------------
Name of Tendering Institution Account Number:
- ------------------------------------------------------
2
<PAGE> 3
GUARANTEE
(DO NOT USE FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office in the United States, hereby
guarantees (a) that the above named person(s) "own(s)" the Shares tendered
hereby within the meaning of Rule 13e-4 under the Securities Exchange Act of
1934, as amended, and (b) that delivery to the Company of certificates
representing the Shares of Common Stock tendered hereby, together with a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) properly completed and duly executed and any other required
documents will be received by the Exchange Agent no later than three (3) Nasdaq
trading days after the date of execution of this Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
- ----------------------------------------------------------- -----------------------------------------------------------
Name of Firm Authorized Signature
- ----------------------------------------------------------- -----------------------------------------------------------
Address Title
- ----------------------------------------------------------- -----------------------------------------------------------
Zip Code Name: Please Type or Print
Area Code & Tel. No. Dated
------------------------------------------ -------------------------------------------------------
</TABLE>
NOTE: DO NOT SEND COMMON STOCK CERTIFICATES WITH THIS FORM.
CERTIFICATES MUST BE SENT WITH THE LETTER OF TRANSMITTAL.
3
<PAGE> 1
EXHIBIT 99(a)(vi)
Form 10-K - Item 14(a)(1) and (2)
CoreComm Incorporated and Subsidiaries
Index to Consolidated Financial Statements
and Financial Statement Schedule
The following consolidated financial statements and schedule of CoreComm
Incorporated and subsidiaries are included in Item 8:
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets - December 31, 1997 and 1996.................. F-3
Consolidated Statements of Operations - Years Ended
December 31, 1997, 1996 and 1995....................................... F-4
Consolidated Statement of Shareholders' Equity - Years Ended
December 31, 1997, 1996 and 1995....................................... F-5
Consolidated Statements of Cash Flows - Years Ended
December 31, 1997, 1996 and 1995....................................... F-6
Notes to Consolidated Financial Statements................................ F-8
The following consolidated financial statement schedule of CoreComm Incorporated
and subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts......................... F-22
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE> 2
Report of Independent Auditors
Shareholders and Board of Directors
CoreComm Incorporated
We have audited the accompanying consolidated balance sheets of CoreComm
Incorporated and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial position of
CoreComm Incorporated and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
San Juan, Puerto Rico
February 27, 1998, except for the
last two paragraphs of Note 1, as
to which the date is March 25, 1998
F-2
<PAGE> 3
CoreComm Incorporated and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
---------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,783,000 $ 2,307,000
Marketable securities 62,666,000 5,917,000
Accounts receivable - trade, less allowance for doubtful
accounts of $2,106,000 (1997) and $3,767,000 (1996) 19,043,000 20,034,000
Equipment inventory 2,882,000 2,912,000
Prepaid expenses and other current assets 7,147,000 3,022,000
---------------------------------
Total current assets 103,521,000 34,192,000
Property, plant and equipment, net 128,451,000 97,945,000
Unamortized license acquisition costs 157,467,000 162,822,000
Deferred financing costs, less accumulated amortization
of $584,000 (1997) and $1,065,000 (1996) 6,206,000 4,118,000
Other assets, less accumulated amortization of
$1,088,000 (1997) and $723,000 (1996) 1,631,000 1,645,000
---------------------------------
$ 397,276,000 $ 300,722,000
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,873,000 $ 7,364,000
Accrued expenses 11,730,000 10,889,000
Due to NTL Incorporated 71,000 102,000
Interest payable 8,333,000 1,678,000
Deferred revenue 3,952,000 3,081,000
---------------------------------
Total current liabilities 30,959,000 23,114,000
Long-term debt 200,000,000 115,000,000
Obligation under capital lease 9,456,000 -
Commitments and contingent liabilities
Shareholders' equity:
Series preferred stock - $.01 par value; authorized 2,500,000
shares; issued and outstanding none - -
Common stock - $.01 par value; authorized 30,000,000 shares;
issued 13,565,000 (1997) and 13,432,000 (1996) shares 136,000 134,000
Additional paid-in capital 226,490,000 226,160,000
(Deficit) (60,703,000) (55,363,000)
---------------------------------
165,923,000 170,931,000
Treasury stock - at cost, 383,000 (1997)
and 343,000 (1996) shares (9,062,000) (8,323,000)
---------------------------------
156,861,000 162,608,000
---------------------------------
$ 397,276,000 $ 300,722,000
=================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 4
CoreComm Incorporated and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Revenues:
Service revenue $ 131,882,000 $ 119,839,000 $ 94,409,000
Equipment revenue 16,612,000 13,979,000 14,259,000
----------------------------------------------------
148,494,000 133,818,000 108,668,000
----------------------------------------------------
Costs and expenses:
Cost of equipment sold 19,089,000 17,962,000 20,635,000
Operating expenses 14,949,000 15,214,000 10,207,000
Selling, general and administrative expenses 71,271,000 63,223,000 51,148,000
Depreciation of rental equipment 855,000 521,000 225,000
Depreciation expense 18,390,000 12,710,000 9,638,000
Amortization expense 6,415,000 6,187,000 5,794,000
----------------------------------------------------
130,969,000 115,817,000 97,647,000
----------------------------------------------------
Operating income 17,525,000 18,001,000 11,021,000
Other income (expense):
Interest income and other, net 2,020,000 646,000 358,000
Interest expense (19,400,000) (8,181,000) (8,501,000)
----------------------------------------------------
Income before income tax provision,
minority interests and extraordinary item 145,000 10,466,000 2,878,000
Income tax provision (2,159,000) (5,352,000) (4,007,000)
----------------------------------------------------
Income (loss) before minority interests and
extraordinary item (2,014,000) 5,114,000 (1,129,000)
Minority interests - - (322,000)
----------------------------------------------------
Income (loss) before extraordinary item (2,014,000) 5,114,000 (1,451,000)
Loss from early extinguishment of debt, net of
income tax benefit of $741,000 (3,326,000) - -
----------------------------------------------------
Net income (loss) $ (5,340,000) $ 5,114,000 $ (1,451,000)
====================================================
Earnings per common share:
Income (loss) before extraordinary item $(.15) $.39 $(.13)
Extraordinary item (.25) - -
----------------------------------------------------
Net income (loss) $(.40) $.39 $(.13)
====================================================
Earnings per common share-assuming dilution:
Income (loss) before extraordinary item $(.15) $.36 $(.13)
Extraordinary item (.25) - -
----------------------------------------------------
Net income (loss) $(.40) $.36 $(.13)
====================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 5
CoreComm Incorporated and Subsidiaries
Consolidated Statement of Shareholder's Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
---------------------------- PAID-IN ---------------------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 10,000,000 $ 100,000 $ 171,710,000 $ (59,026,000)
Exercise of stock options 25,000 385,000
Conversion of Senior
Subordinated Notes 2,778,000 28,000 38,551,000
Common stock repurchased, at cost (207,000) $(6,145,000)
Net loss for the year ended
December 31, 1995 (1,451,000)
-------------------------------------------------------------------------------------------
Balance, December 31, 1995 12,803,000 128,000 210,646,000 (60,477,000) (207,000) (6,145,000)
Shares issued for interests
in cellular license 820,000 8,000 21,528,000
Exercise of stock options 16,000 129,000
Common stock repurchased, at cost (343,000) (8,323,000)
Retirement of Treasury Stock (207,000) (2,000) (6,143,000) 207,000 6,145,000
Net income for the year ended
December 31, 1996 5,114,000
-------------------------------------------------------------------------------------------
Balance, December 31, 1996 13,432,000 134,000 226,160,000 (55,363,000) (343,000) (8,323,000)
Exercise of stock options 133,000 2,000 330,000
Common stock repurchased, at cost (40,000) (739,000)
Net loss for the year ended
December 31, 1997 (5,340,000)
-------------------------------------------------------------------------------------------
Balance, December 31, 1997 13,565,000 $ 136,000 $ 226,490,000 $ (60,703,000) (383,000) $(9,062,000)
===========================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 6
CoreComm Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (5,340,000) $ 5,114,000 $ (1,451,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 25,660,000 19,418,000 15,657,000
Provision for losses on accounts receivable 7,146,000 7,520,000 6,603,000
Loss on disposal of property, plant and equipment 1,873,000 371,000 416,000
Loss from early extinguishment of debt 4,067,000 - -
Minority interests - - 322,000
Interest paid to Cellular Communications of Ohio, Inc. - - (12,978,000)
Changes in operating assets and liabilities net of
effects from business acquisitions:
Accounts receivable (6,155,000) (9,625,000) (15,000,000)
Equipment inventory 30,000 3,476,000 (4,163,000)
Prepaid expenses and other current assets (4,125,000) (422,000) (1,484,000)
Other assets (265,000) (292,000) (461,000)
Accounts payable (1,008,000) 2,497,000 (2,400,000)
Accrued expenses (380,000) (227,000) 5,004,000
Interest payable 6,655,000 1,063,000 (760,000)
Deferred revenue 871,000 227,000 1,237,000
Due to Cellular Communications of Ohio, Inc. - - 1,683,000
Due to Cellular Communications, Inc. - (310,000) (4,000)
Due to NTL Incorporated (31,000) 102,000 -
--------------------------------------------------------
Net cash provided by (used in) operating activities 28,998,000 28,912,000 (7,779,000)
INVESTING ACTIVITIES
Purchase of marketable securities (132,016,000) (18,653,000) (2,058,000)
Proceeds from maturities of marketable securities 75,267,000 12,736,000 11,057,000
Purchase of property, plant and equipment (40,259,000) (36,564,000) (30,725,000)
Cost of cellular license interests (146,000) (5,811,000) -
--------------------------------------------------------
Net cash (used in) investing activities (97,154,000) (48,292,000) (21,726,000)
FINANCING ACTIVITIES
Proceeds from borrowings, net of financing costs 193,233,000 52,000,000 121,946,000
Principal payments (115,000,000) (28,975,000) (37,000,000)
Principal payments of capital lease obligation (194,000) - -
Additional deferred financing costs - (22,000) -
Repayment of amount due to Cellular Communications of Ohio, Inc. - - (47,942,000)
Proceeds from exercise of stock options 332,000 129,000 385,000
Purchase of treasury stock (739,000) (8,323,000) (6,145,000)
Distribution to minority interests holders - (1,172,000) -
--------------------------------------------------------
Net cash provided by financing activities 77,632,000 13,637,000 31,244,000
--------------------------------------------------------
Increase (decrease) in cash and cash equivalents 9,476,000 (5,743,000) 1,739,000
Cash and cash equivalents at beginning of year 2,307,000 8,050,000 6,311,000
--------------------------------------------------------
Cash and cash equivalents at end of year $ 11,783,000 $ 2,307,000 $ 8,050,000
========================================================
</TABLE>
F-6
<PAGE> 7
CoreComm Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest exclusive
of amounts capitalized $ 12,745,000 $ 7,118,000 $ 20,556,000
Income taxes paid 4,423,000 7,239,000 620,000
Supplemental schedule of noncash investing activities:
Liabilities incurred to acquire property, plant and
equipment $ 3,038,000 $ 1,595,000 $ 2,381,000
Capital lease obligation incurred to acquire
office building 9,922,000 - -
Common stock issued to acquire cellular license interests - 21,536,000 -
Supplemental schedule of noncash financing activities:
Conversion of Senior Subordinated Notes, net of
unamortized deferred financing costs of $1,421,000 $ - $ - $ 38,579,000
</TABLE>
See accompanying notes.
F-7
<PAGE> 8
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
1. ORGANIZATION AND NATURE OF OPERATIONS
In January 1997, CoreComm Incorporated (the "Company") was formed, and a
subsidiary of the Company was merged with and into Cellular Communications of
Puerto Rico, Inc. ("CCPR"). Upon the merger, CCPR became a wholly-owned
subsidiary of the Company and shareholders of CCPR became shareholders of the
Company on a one for one basis.
The Company, through its subsidiaries, owns licenses to operate cellular
telephone and paging systems in Puerto Rico and in the U.S. Virgin Islands.
Based on service revenues, the predominant line of business is cellular
telephone services. The Company's business is currently dependent on the trends
in the use of cellular telephone and paging services and is subject to economic,
social, political and governmental conditions in Puerto Rico and the U.S. Virgin
Islands. The sale of cellular and paging services in each of the Company's
markets is becoming increasingly competitive. The Company previously had one
cellular competitor in each market, but it now has many wireless competitors due
to the introduction of broadband personal communications services ("PCS") on
frequencies auctioned by the Federal Communications Commission ("FCC") and
specialized mobile radio ("SMR") services on existing SMR frequencies. Increased
competition has resulted in pricing pressure, which contributes to lower
revenues per customer and higher customer acquisition costs.
A subsidiary of the Company, Cortelyou Communications Corp. ("Cortelyou"), was
the successful bidder, for an aggregate of approximately $25,200,000, for 15
Block A Local Multipoint Distribution Service ("LMDS") licenses in Ohio. The FCC
has allocated two blocks of frequencies (Block A and Block B) to be licensed in
each of the 493 Basis Trading Areas in the United States and its territories
based on an auction that commenced in February 1998 and ended in March 1998.
LMDS frequencies are expected to be used for the provision of voice, data, video
and Internet services to businesses and homes in competition with incumbent
local exchange telephone companies and/or cable television operators. High
bidders must submit an application demonstrating their qualifications to hold
the licenses they won at auction. The high bids must be paid within ten business
days of the announcement by the FCC that an application was accepted.
In March 1998, the Company entered into an agreement to acquire a reseller of
centrex services in Cleveland, Ohio for an aggregate purchase price of
$2,000,000. This acquisition is subject to regulatory approval.
F-8
<PAGE> 9
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and those entities where the Company's interest is
greater than 50%. Significant intercompany accounts and transactions have been
eliminated in consolidation.
LICENSE ACQUISITION COSTS
The FCC grants the license to operate a cellular telephone system in a
Metropolitan Service Area or a Rural Service Area. Costs incurred to obtain FCC
licenses have been deferred and are being amortized by the straight-line method
over ten years. In connection with the purchase of license interests, the excess
of purchase price paid over the fair value of tangible assets acquired has been
classified as license acquisition costs which are amortized through charges to
operations by the straight-line method over 40 years. License acquisition costs
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS No. 128 requirements.
REVENUE RECOGNITION
Service revenue is recognized at the time services are rendered. Charges for
services that are billed in advance are deferred and recognized when earned.
Equipment sales are recorded when the equipment is shipped to the customer.
Rental revenue is billed and recognized on a monthly basis.
F-9
<PAGE> 10
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale, which are carried at
fair value. Unrealized holding gains and losses on securities, net of tax, are
carried as a separate component of shareholders' equity. The amortized cost of
debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest income.
Realized gains and losses and declines in value judged to be other than
temporary will be included in interest income. The cost of securities sold or
matured is based on the specific identification method. Interest on securities
is included in interest income.
Marketable securities at December 31, 1997 consisted of corporate debt
securities. Marketable securities at December 31, 1996 consisted of U.S.
Treasury securities and obligations of U.S. government agencies. During the
years ended December 31, 1997, 1996 and 1995, there were no realized gains or
losses on sales of securities. As of December 31, 1997 and 1996, there were no
unrealized gains or losses on securities. All of the marketable securities as of
December 31, 1997 had a contractual maturity of less than one year.
EQUIPMENT INVENTORY
Equipment inventory is stated at the lower of cost (first-in, first-out method)
or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives are as follows: office building - 15 years, operating equipment - 7
to 25 years, office furniture and other equipment - 1 to 5 years, and rental
equipment - 2 years.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.
F-10
<PAGE> 11
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED INTEREST
Interest is capitalized as a component of the cost of property, plant and
equipment constructed. In 1997, 1996 and 1995, interest of $415,000, $198,000
and $119,000, respectively, was capitalized.
DEFERRED FINANCING COSTS
Deferred financing costs represent costs incurred relating to the issuance of
debt and are amortized over the term of the related debt.
ADVERTISING
The Company charges the cost of advertising to expense as incurred. Advertising
expense for the years ended December 31, 1997, 1996 and 1995 was $3,667,000,
$3,025,000, and $2,808,000 respectively.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its plans.
3. RECENT ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. The Company will adopt SFAS No. 130 in the first interim
period for its fiscal year ending December 31, 1998.
SEGMENT DISCLOSURES
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and
F-11
<PAGE> 12
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
3. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
services, geographic areas, and major customers. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. The Company
will adopt SFAS No. 131 for its fiscal year ending December 31, 1998.
4. UNAMORTIZED LICENSE ACQUISITION COSTS
Unamortized license acquisition costs consist of:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
----------------------------------
<S> <C> <C>
Deferred cellular license costs $ 5,935,000 $ 5,935,000
Excess of purchase price paid over
the fair market value of tangible
assets acquired 189,466,000 189,320,000
----------------------------------
195,401,000 195,255,000
Accumulated amortization 37,934,000 32,433,000
----------------------------------
$ 157,467,000 $ 162,822,000
==================================
</TABLE>
In February 1996, CCPR acquired the remaining minority interests aggregating
approximately 6% in the San Juan Cellular Telephone Company in exchange for
approximately 820,000 shares of the Company's common stock. The stock was valued
at $21,536,000, the fair market value on the date of acquisition. In addition,
the San Juan Cellular Telephone Company made a special cash distribution of
$1,172,000 to the minority interest holders. The aggregate purchase price of
$21,536,000 plus expenses of $56,000 and the deficiency in net assets acquired
of $850,000 have been classified as license acquisition costs.
In November 1996, a subsidiary of CCPR acquired the remaining interests,
aggregating 49%, in Star Associates, Inc., the company which owns the FCC
license for the non-wireline cellular system in Adjuntas, Puerto Rico (RSA-2)
for cash of $5,755,000 including expenses.
In January 1998, a wholly-owned indirect subsidiary of the Company purchased the
FCC license to own and operate the non-wireline cellular system in Puerto Rico
RSA-4 (Aibonito) and all of the assets of the system in exchange for $8,400,000
in cash and a promissory note in the amount of $8,900,000. The promissory note
bears interest at 7.95% per annum payable semiannually beginning in July 1998
and the principal is payable in January 2003. Costs of $305,000 were incurred in
connection with this acquisition.
F-12
<PAGE> 13
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
----------------------------------
<S> <C> <C>
Land $ 1,951,000 $ 2,027,000
Office building 9,922,000 -
Operating equipment 127,534,000 97,513,000
Office furniture and other equipment 24,546,000 16,521,000
Rental equipment 1,745,000 1,174,000
Construction in progress 12,533,000 18,674,000
----------------------------------
178,231,000 135,909,000
Accumulated depreciation 49,780,000 37,964,000
----------------------------------
$ 128,451,000 $ 97,945,000
==================================
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consists of:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
----------------------------------
<S> <C> <C>
Accrued compensation $ 765,000 $ 1,005,000
Accrued franchise, property and
income taxes 3,489,000 4,246,000
Commissions payable 1,143,000 1,272,000
Accrued equipment purchases 1,427,000 502,000
Subscriber deposits 1,544,000 1,572,000
Other 3,362,000 2,292,000
----------------------------------
$ 11,730,000 $ 10,889,000
==================================
</TABLE>
7. LONG-TERM DEBT
In January 1997, a wholly-owned subsidiary of CCPR, CCPR Services, Inc.
("Services") issued $200,000,000 principal amount 10% Senior Subordinated Notes
due 2007 (the "Notes") and received proceeds of $193,233,000 after discounts,
commissions and other related costs. The Notes are unconditionally guaranteed by
CCPR. CCPR and Services used approximately $116,000,000 of the proceeds to repay
the $115,000,000 principal outstanding plus accrued interest and fees under the
bank loan (see below). In connection with the repayment of the bank loan,
Services recorded an extraordinary loss of $4,067,000 from the write-off of
unamortized deferred financing costs. In addition, Services made a cash payment
to CCPR of $80,000,000 in exchange for a 21% interest in the San Juan Cellular
Telephone Company, and CCPR distributed the $80,000,000 to the Company.
F-13
<PAGE> 14
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
7. LONG-TERM DEBT (CONTINUED)
The Notes are due on February 1, 2007. Interest on the Notes is payable
semiannually as of August 1, 1997. The Notes are redeemable, in whole or in
part, at the option of Services at any time on or after February 1, 2002, at a
redemption price of 105% that declines annually to 100% in 2005, in each case
together with accrued and unpaid interest to the redemption date. The Indenture
contains certain covenants with respect to Services, CCPR and certain
subsidiaries that limit their ability to, among other things, (i) incur
additional indebtedness, (ii) pay dividends or make other distributions or
restricted payments (except for dividend payments to CCPR and an aggregate of up
to $100,000,000 to be used for dividends or restricted payments to the Company),
(iii) create liens, (iv) sell assets, (v) enter into mergers or consolidations
or (vi) sell or issue stock of subsidiaries. The fair value of the Notes at
December 31, 1997 based on the quoted market price was $194,000,000.
In April 1995, CCPR and Services entered into a $200,000,000 revolving credit
facility with various banks. A portion of the amount borrowed was used to repay
Cellular Communications of Ohio, Inc. ("CCI Ohio"). The line of credit was
available until March 31, 1999, on which date it would have converted into a
term loan. The terms included the payment of interest each quarter at a floating
rate, which was, at the borrower's option, either (a) the higher of the bank's
base rate or the Federal Funds Rate plus 1/2%, (b) the London Interbank Offering
Rate or (c) the 936 Rate, plus, based on the ratio of CCPR's debt to cash flow
and the floating rate in effect, either .25% to 1.875% or 1.25% to 2.875%. The
effective rate on the amounts borrowed as of December 31, 1996 and 1995 was
7.01% and 7.23%, respectively. The terms also included an unused commitment fee
of 1/2% per annum which was payable quarterly. The carrying amount of the bank
loan at December 31, 1996 approximated fair value based on discounted cash flow
analysis.
CCPR had a $47,942,000 principal amount note payable to a subsidiary of Cellular
Communications, Inc. ("CCI"), CCI Ohio, which was due and payable in full on
July 31, 1996. CCPR had been a wholly-owned subsidiary of CCI until February 28,
1992, when CCI distributed to its stockholders all of the outstanding common
stock of CCPR. The note payable to CCI Ohio permitted the deferral of interest
payments, at CCPR's option, throughout the term of the note. Interest was at a
floating rate based on the interest rate in effect under CCI Ohio's bank line of
credit and term loan agreement. Interest expense accrued for the year ended
December 31, 1995 was $1,683,000. In April 1995, CCPR repaid the principal and
deferred interest due to CCI Ohio of $60,920,000.
In connection with license acquisitions, subsidiaries of CCPR issued promissory
notes which were paid in full, together with accrued interest, on their maturity
dates in 1996.
F-14
<PAGE> 15
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
8. RELATED PARTY TRANSACTIONS
CCI provided management, financial and legal services to CCPR. Amounts charged
to CCPR included direct costs where identifiable and allocated corporate
overhead based upon the amount of time incurred on CCPR business by the common
officers and employees of CCI and CCPR. Amounts charged to CCPR included in
general and administrative expenses during the years ended December 31, 1996 and
1995 were $429,000 and $458,000, respectively. In August 1996, upon the merger
of CCI with AirTouch Communications, Inc., NTL Incorporated ("NTL") commenced
providing management, financial and legal services to CCPR. NTL charged CCPR for
direct costs where identifiable and allocated corporate overhead based upon the
amount of time incurred on CCPR business by the common officers and employees of
NTL and CCPR. The amount charged to CCPR included in general and administrative
expenses in 1996 was $207,000.
In January 1997, the Company and NTL agreed to a change in NTL's fee for the
provision of management, financial and legal services. NTL charges the Company
for direct costs where identifiable and a fixed percentage of its corporate
overhead. The amount charged to the Company included in general and
administrative expenses in 1997 was $1,780,000. It is not practicable to
determine the amount of expenses that would have been incurred had the Company
or CCPR operated as an unaffiliated entity. However, in the opinion of
management of the Company, the allocation methods are reasonable.
9. NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income
(loss) per common share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary item $ (2,014,000) $ 5,114,000 $ (1,451,000)
Extraordinary item (3,326,000) - -
----------------------------------------------------
Net income (loss) $ (5,340,000) $ 5,114,000 $ (1,451,000)
----------------------------------------------------
Denominator for basic net income (loss)
per common share 13,075,000 13,196,000 11,070,000
Effect of dilutive securities:
Stock options - 831,000 -
----------------------------------------------------
Denominator for diluted net income (loss)
per common share 13,075,000 14,027,000 11,070,000
----------------------------------------------------
Basic net income (loss) per common share:
Income (loss) before extraordinary item $(.15) $.39 $(.13)
Extraordinary item (.25) - -
----------------------------------------------------
Net income (loss) $(.40) $.39 $(.13)
====================================================
Diluted net income (loss) per common share:
Income (loss) before extraordinary item $(.15) $.36 $(.13)
Extraordinary item (.25) - -
----------------------------------------------------
Net income (loss) $(.40) $.36 $(.13)
====================================================
</TABLE>
F-15
<PAGE> 16
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
9. NET INCOME (LOSS) PER COMMON SHARE (CONTINUED)
Stock options and the shares issuable upon the conversion of the Convertible
Senior Subordinated Notes prior to conversion are excluded from the calculation
of net loss per common share as their effect will be antidilutive.
10. SHAREHOLDERS' EQUITY
TREASURY STOCK
In April 1996, the Board of Directors authorized the repurchase of up to an
additional 750,000 shares of the Company's Common Stock through open market
purchases as market conditions warrant. This repurchase plan is in addition to a
previously announced repurchase plan for up to 250,000 shares. As of December
31, 1997, the Company had repurchased 590,000 shares for an aggregate of
$15,207,000, of which 207,000 shares that cost an aggregate of $6,145,000 were
retired.
CONVERSION OF SENIOR SUBORDINATED NOTES
In August 1992, CCPR issued $40,000,000 principal amount 8-1/4% Convertible
Senior Subordinated Notes due August 1, 2000 (the "Convertible Notes"). In 1995,
primarily as a result of CCPR's issuance of a notice of redemption, the
Convertible Notes were converted into approximately 2,778,000 shares of Common
Stock. Unamortized deferred financing costs of $1,421,000 were charged to equity
upon the conversion. The diluted net income per common share for 1995 assuming
the conversion of the Convertible Notes at the beginning of 1995 would have been
$.03.
SHAREHOLDER RIGHTS PLAN
On January 23, 1992, the Board of Directors approved the Rights Agreement, which
has become the CoreComm Rights Agreement. The Rights Agreement provides that
eight-tenths of a Right will be issued with each share of Common Stock issued
(whether originally issued or from treasury) on or after February 28, 1992 and
prior to the occurrence of certain potential takeover events ("Rights
Distribution Date"). The Rights are not exercisable until the Rights
Distribution Date and will expire at the close of business on February 28, 2002
unless previously redeemed by the Company. When exercisable, each Right entitles
the owner to purchase from the Company 1/100 of a share of Series A Junior
Participating Preferred Stock ("Series A Preferred Stock") at a purchase price
of $100.
The Series A Preferred Stock will be entitled to a minimum preferential
quarterly dividend payment of $.01 per share and will be entitled to an
aggregate dividend of 100 times the dividend, if any, declared per share of
Common Stock. In the event of liquidation, the holders of Series A Preferred
Stock will be entitled to a minimum preferential liquidation payment of $1 per
F-16
<PAGE> 17
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
10. SHAREHOLDERS' EQUITY (CONTINUED)
share and will be entitled to an aggregate payment of 100 times the payment made
per share of Common Stock. Each share of Series A Preferred Stock will have 100
votes and will vote together with the Common Stock. In the event of any merger,
consolidation or other transaction in which shares of Common Stock are changed
or exchanged, each share of Series A Preferred Stock will be entitled to receive
100 times the amount received per share of Common Stock. The rights are
protected by customary antidilution provisions.
There are 80,000 shares of Series A Preferred Stock designated from the
2,500,000 authorized shares of Series Preferred Stock. No shares of Series A
Preferred Stock are issued or outstanding.
STOCK OPTIONS
There are 1,848,000 shares of Common Stock reserved for issuance under the 1992
Stock Option Plan (the "Plan"). The Plan provides that incentive stock options
be granted at the fair market value of the Common Stock on the date of grant,
and nonqualified stock options be granted at not less than 85% of the fair
market value of the Common Stock on the date of grant. Options are exercisable
as to 20% of the shares subject thereto on the date of grant and become
exercisable as to an additional 20% of the shares subject thereto on each
January 1 thereafter, while the optionee remains an employee. Options will
expire ten years after the date of the grant.
There are 295,000 shares of Common Stock reserved for issuance under the
Non-Employee Directors Stock Option Plan (the "Directors Plan"). The Directors
Plan provides that all options be granted at the fair market value of the Common
Stock on the date of grant. Options are exercisable as to 20% of the shares
subject thereto on the first anniversary of the date of grant and become
exercisable as to an additional 20% of the shares subject thereto on each
subsequent anniversary of the grant date, while the optionee remains a director
of the Company. Options will expire ten years after the date of the grant.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995: risk-free interest rates of 5.89%, 6.56%
and 6.61%, respectively, dividend yield of 0%, volatility factor of the expected
market price of the Company's common stock of .319, .258 and .258, respectively,
and a weighted-average expected life of the option of 10 years.
F-17
<PAGE> 18
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
10. SHAREHOLDERS' EQUITY (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Following is the
Company's pro forma information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income (loss) $ (7,581,000) $ 3,467,000 $ (2,309,000)
Pro forma net income (loss) per share:
Basic $(.58) $.26 $(.21)
Diluted (.58) .25 (.21)
</TABLE>
A summary of the Company's stock option activity and related information for the
years ended December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 2,453,000 $ 17.81 2,180,000 $ 16.41 1,918,000 $ 14.13
Granted 1,895,000 16.41 289,000 27.87 287,000 31.60
Exercised (133,000) 2.49 (16,000) 7.64 (25,000) 15.94
Forfeited (1,869,000) 23.93 0 0.00 0 0.00
---------- --------- ---------
Outstanding-end of year 2,346,000 $ 12.68 2,453,000 $ 17.81 2,180,000 $ 16.41
========== ========= =========
Exercisable at end of year 1,114,000 $ 9.69 1,690,000 $ 14.06 1,317,000 $ 11.65
========== ========= =========
</TABLE>
In 1997, the Company cancelled and reissued options to purchase 1,757,000 shares
of Common Stock. Weighted-average fair value of options, calculated using the
Black-Scholes option pricing model, granted during 1997, 1996 and 1995 is $8.64,
$15.07 and $17.14, respectively.
F-18
<PAGE> 19
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
10. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes the status of the stock options outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
| STOCK OPTIONS OUTSTANDING | STOCK OPTIONS EXERCISABLE |
|-------------------------------------------------------------------------------------------------------------------
| WEIGHTED- WEIGHTED- | WEIGHTED- |
| REMAINING AVERAGE | AVERAGE |
| RANGE OF EXERCISE NUMBER OF CONTRACTUAL EXERCISE | NUMBER OF EXERCISE |
| PRICES OPTIONS LIFE PRICE | OPTIONS PRICE |
|-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
| $0.08 to $0.64 204,000 4.2 Years $ 0.365 | 204,000 $ 0.365 |
| $0.88 to $1.12 210,000 4.2 Years $ 0.939 | 210,000 $ 0.939 |
| $11.40 to $15.20 1,812,000 8.3 Years $15.065 | 682,000 $14.965 |
| $18.25 120,000 9.4 Years $ 18.25 | 18,000 $ 18.25 |
|-------------------------------------------------------------------------------------------------------------------
| Total 2,346,000 | 1,114,000 |
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 741,000 $ - $ -
State 947,000 - -
Puerto Rico and U.S.
Virgin Islands 471,000 4,555,000 4,007,000
--------------------------------------------------
Total current 2,159,000 4,555,000 4,007,000
--------------------------------------------------
Deferred:
Federal - - -
Puerto Rico - 797,000 -
--------------------------------------------------
Total deferred - 797,000 -
--------------------------------------------------
$ 2,159,000 $ 5,352,000 $ 4,007,000
==================================================
</TABLE>
The provision for income taxes differs from the statutory rate principally due
to state and local income taxes from each subsidiary and income taxes on
CoreComm Incorporated's income.
F-19
<PAGE> 20
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
11. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
----------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation and amortization $29,094,000 $21,759,000
Deferred tax assets:
Net operating loss carryforwards 36,352,000 27,125,000
Valuation allowance for deferred tax assets (8,055,000) (6,163,000)
----------------------------
Net deferred tax assets 28,297,000 20,962,000
----------------------------
Net deferred tax liabilities $ 797,000 $ 797,000
============================
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards of
$106,900,000 for federal income tax purposes that expire as follows: $3,800,000
in 2004, $3,900,000 in 2006, $20,400,000 in 2007, $26,400,000 in 2008,
$14,100,000 in 2009, $9,600,000 in 2010, $5,500,000 in 2011 and $23,200,000 in
2012.
12. PENSION PLANS
Two subsidiaries of the Company have defined contribution plans covering all
employees who have completed six months of employment. The Company's matching
contributions are determined annually. Participants can make salary deferral
contributions of 1% to 20% of annual compensation not to exceed the maximum
allowed by law. The Company's expense for 1997, 1996 and 1995 was $204,000,
$168,000 and $134,000, respectively.
13. LEASES
Total rent expense during the years ended December 31, 1997, 1996, and 1995 was
$3,680,000, $3,085,000 and $2,293,000, respectively.
Future minimum annual lease payments under noncancellable operating leases at
December 31, 1997 are: $3,099,000 (1998); $2,887,000 (1999); $2,197,000 (2000);
$1,392,000 (2001); $860,000 (2002) and $3,525,000 thereafter.
F-20
<PAGE> 21
CoreComm Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
13. LEASES (CONTINUED)
In 1997, the Company entered into a lease for office space through 2012 which is
classified as a capital lease for financial reporting purposes. Accordingly, an
asset of $9,922,000 has been recorded. Future minimum annual payments under this
lease at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 1,196,000
1999 1,196,000
2000 1,196,000
2001 1,196,000
2002 1,257,000
Thereafter 12,169,000
------------
18,210,000
Interest (8,482,000)
------------
Present value of net minimum obligations 9,728,000
Current portion (272,000)
------------
$ 9,456,000
============
</TABLE>
14. COMMITMENTS AND CONTINGENT LIABILITIES
As of December 31, 1997, the Company was committed to purchase approximately
$4,100,000 for cellular network and other equipment and for construction
services. In addition, as of December 31, 1997, the Company had commitments to
purchase telephones, pagers and accessories of approximately $1,500,000.
In 1992, the Company entered into an agreement which in effect provides for a
twenty year license to use a service mark which is also licensed to many of the
non-wireline cellular systems in the United States. The Company is required to
pay licensing and advertising fees, and to maintain certain service quality
standards. The total fees paid for 1997 were $216,000, which were determined by
the size of the Company's markets.
The Company is involved in various disputes, arising in the ordinary course of
business, which may result in pending or threatened litigation. The Company's
management expects no material adverse effect on the Company's financial
condition, results of operations or cash flows to result from these matters.
F-21
<PAGE> 22
CoreComm Incorporated and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
(1) (2)
-------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING OF COSTS AND ACCOUNTS- DEDUCTIONS - BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts $3,767,000 $7,146,000 $ - $(8,807,000)(a) $2,106,000
Year ended December 31, 1996:
Allowance for doubtful accounts $3,233,000 $7,520,000 $ - $(6,986,000)(a) $3,767,000
Year ended December 31, 1995:
Allowance for doubtful accounts $1,174,000 $6,603,000 $ - $(4,544,000)(a) $3,233,000
</TABLE>
(a) - Uncollectible accounts written off, net of recoveries.
F-22
<PAGE> 1
EXHIBIT 99(a)(vii)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CoreComm Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------------------------------
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,250,000 $ 11,783,000
Marketable securities 24,374,000 62,666,000
Accounts receivable--trade, less allowance for doubtful
accounts of $2,114,000 (1998) and $2,106,000 (1997) 19,021,000 19,043,000
Equipment inventory 4,438,000 2,882,000
Prepaid expenses and other current assets 9,647,000 7,147,000
---------------------------------
Total current assets 76,730,000 103,521,000
Property, plant and equipment, net 129,046,000 128,451,000
Unamortized license acquisition costs 197,514,000 157,467,000
Goodwill, less accumulated amortization of $60,000 2,349,000 -
Deferred financing costs, less accumulated amortization
of $926,000 (1998) and $584,000 (1997) 5,864,000 6,206,000
Other assets, less accumulated amortization of
$639,000 (1998) and $1,088,000 (1997) 1,734,000 1,631,000
---------------------------------
$ 413,237,000 $ 397,276,000
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,491,000 $ 6,873,000
Accrued expenses 12,260,000 11,730,000
Due to NTL Incorporated 779,000 71,000
Interest payable 8,687,000 8,333,000
Deferred revenue 4,914,000 3,952,000
---------------------------------
Total current liabilities 36,131,000 30,959,000
Long-term debt 208,900,000 200,000,000
Obligation under capital lease 9,310,000 9,456,000
Commitments and contingent liabilities
Shareholders' equity:
Series preferred stock--$.01 par value; authorized
2,500,000 shares; issued and outstanding none - -
Common stock--$.01 par value; authorized 30,000,000 shares;
issued 13,567,000 (1998) and 13,565,000 (1997) shares 136,000 136,000
Additional paid-in capital 226,520,000 226,490,000
(Deficit) (58,698,000) (60,703,000)
---------------------------------
167,958,000 165,923,000
Treasury stock--at cost, 383,000 shares (9,062,000) (9,062,000)
---------------------------------
158,896,000 156,861,000
---------------------------------
$ 413,237,000 $ 397,276,000
=================================
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
See accompanying notes.
2
<PAGE> 2
CoreComm Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------- --------------------------------
1998 1997 1998 1997
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Service revenue $ 38,308,000 $ 34,694,000 $ 72,767,000 $ 68,046,000
Equipment revenue 5,559,000 3,744,000 10,513,000 7,663,000
------------------------------- --------------------------------
43,867,000 38,438,000 83,280,000 75,709,000
COSTS AND EXPENSES:
Cost of equipment sold 4,894,000 4,294,000 9,469,000 9,073,000
Operating expenses 5,303,000 4,338,000 9,418,000 8,228,000
Selling, general and administrative expenses 19,058,000 18,429,000 35,687,000 36,478,000
Depreciation of rental equipment 275,000 198,000 516,000 375,000
Depreciation expense 6,423,000 4,186,000 12,369,000 7,992,000
Amortization expense 1,710,000 1,654,000 3,400,000 3,211,000
------------------------------- --------------------------------
37,663,000 33,099,000 70,859,000 65,357,000
------------------------------- --------------------------------
Operating income 6,204,000 5,339,000 12,421,000 10,352,000
OTHER INCOME (EXPENSE):
Interest income and other, net 494,000 1,282,000 1,180,000 1,985,000
Interest expense (5,395,000) (5,077,000) (10,760,000) (9,061,000)
------------------------------- --------------------------------
Income before income taxes and
extraordinary item 1,303,000 1,544,000 2,841,000 3,276,000
Income tax provision (370,000) (17,000) (836,000) (1,345,000)
------------------------------- --------------------------------
Income before extraordinary item 933,000 1,527,000 2,005,000 1,931,000
Loss from early extinguishment of debt,
net of income tax benefit of $225,000 - (12,000) - (3,842,000)
------------------------------- --------------------------------
Net income (loss) $ 933,000 $ 1,515,000 $ 2,005,000 $ (1,911,000)
=============================== ================================
Earnings per common share:
Income before extraordinary item $ .07 $ .12 $ .15 $ .15
Extraordinary item - - - (.29)
------------------------------- --------------------------------
Net income (loss) $ .07 $ .12 $ .15 $ (.14)
=============================== ================================
Earnings per common share-Assuming Dilution:
Income before extraordinary item $ .06 $ .12 $ .14 $ .15
Extraordinary item - - - (.29)
------------------------------- --------------------------------
Net income (loss) $ .06 $ .12 $ .14 $ (.14)
=============================== ================================
</TABLE>
See accompanying notes.
3
<PAGE> 3
CoreComm Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------- PAID-IN ---------------------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 13,565,000 $ 136,000 $ 226,490,000 $ (60,703,000) (383,000) $ (9,062,000)
Exercise of stock options 2,000 30,000
Net income for the six months
ended June 30, 1998 2,005,000
---------------------------------------------------------------------------------------------
Balance, June 30, 1998 13,567,000 $ 136,000 $ 226,520,000 $ (58,698,000) (383,000) $ (9,062,000)
=============================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 4
CoreComm Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------------------------
1998 1997
--------------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 20,219,000 $ 14,428,000
--------------------------------------
INVESTING ACTIVITIES
Payment of the LMDS license fee (25,356,000) -
Cost of cellular license interest (8,686,000) (146,000)
Acquisition of subsidiaries, net of cash acquired (3,715,000) -
Purchase of property, plant and equipment (13,307,000) (16,747,000)
Purchase of marketable securities (38,496,000) (35,886,000)
Proceeds from maturities of marketable securities 76,911,000 31,548,000
--------------------------------------
Net cash (used in) investing activities (12,649,000) (21,231,000)
--------------------------------------
FINANCING ACTIVITIES
Repayment of bank loan - (115,000,000)
Proceeds from issuance of Notes, net of financing costs - 193,695,000
Purchase of treasury stock - (688,000)
Principal payments of capital lease obligation (133,000) (68,000)
Proceeds from exercise of stock options 30,000 287,000
--------------------------------------
Net cash provided by (used in) financing activities (103,000) 78,226,000
--------------------------------------
Increase in cash and cash equivalents 7,467,000 71,423,000
Cash and cash equivalents at beginning of period 11,783,000 2,307,000
--------------------------------------
Cash and cash equivalents at end of period $ 19,250,000 $ 73,730,000
======================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest exclusive
of amounts capitalized $ 10,406,000 $ 2,406,000
Income taxes paid 355,000 2,897,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Liabilities incurred to acquire property, plant and equipment $ 1,754,000 $ 6,263,000
Long-term debt issued to acquire cellular license interest 8,900,000 -
Capital lease obligation to acquire office building - 9,922,000
</TABLE>
See accompanying notes.
5
<PAGE> 5
CoreComm Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
NOTE B - ACQUISITIONS
In April and June 1998, a wholly-owned subsidiary of the Company, CoreComm
Limited, acquired the stock of Digicom, Inc. and certain operating assets and
related liabilities of the Wireless Outlet and OCOM Corporation. Digicom, Inc.
is a reseller of Centrex services based in Cleveland, Ohio. The Wireless Outlet
is a reseller of primarily prepaid cellular and paging service in Ohio and other
locations in the United States. OCOM Corporation is competitive local exchange
carrier ("CLEC") on a resale basis as well as a reseller of long distance and
cellular service. The OCOM CLEC business is based in Ohio and the long distance
and cellular businesses operate in Ohio and other locations in the United
States. Aside from the cellular long distance resale business, which has been
operating for approximately seven years, these businesses are in early stages of
development. These acquisitions have been accounted for as purchases, and,
accordingly, the net assets and results of operations of the acquired businesses
have been included in the consolidated financial statements from the dates of
acquisition. The aggregate purchase price for these acquisitions was cash of
$3,787,000 which exceeded the fair value of the net tangible assets acquired by
$2,409,000, which is classified as goodwill. The goodwill is being amortized on
a straight-line basis over 10 years.
The Company intends to spin-off CoreComm Limited and its subsidiaries to the
Company's shareholders. The Company intends to make a capital contribution of
$150,000,000 to CoreComm Limited in cash or in-kind prior to the spin-off (see
Note 1).
6
<PAGE> 6
CoreComm Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
NOTE B - ACQUISITIONS (CONTINUED)
The pro forma unaudited consolidated results of operations for the six months
ended June 30, 1998 and 1997 assuming consummation of the acquisitions described
above as of the beginning of the periods are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-------------------------------
1998 1997
-------------------------------
<S> <C> <C>
Total revenue $ 86,588,000 $ 80,707,000
Income (loss) before extraordinary item (1,101,000) 416,000
Net (loss) (1,101,000) (3,426,000)
Basic net (loss) per common share:
Income (loss) before extraordinary item (.08) .03
Net (loss) (.08) (.26)
Diluted net (loss) per common share:
Income (loss) before extraordinary item (.08) .03
Net (loss) (.08) (.26)
</TABLE>
NOTE C - UNAMORTIZED LICENSE ACQUISITION COSTS
Unamortized license acquisition costs consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------------------------------
(Unaudited)
<S> <C> <C>
Deferred cellular and LMDS license costs $ 31,291,000 $ 5,935,000
Excess of purchase price paid over the fair
market value of tangible assets acquired 207,052,000 189,466,000
-------------------------------
238,343,000 195,401,000
Accumulated amortization 40,829,000 37,934,000
-------------------------------
$ 197,514,000 $ 157,467,000
===============================
</TABLE>
In January 1998, the San Juan Cellular Telephone Company ("SJCTC"), a
wholly-owned indirect subsidiary of the Company purchased the FCC license to own
and operate the non-wireline cellular system in Puerto Rico RSA-4 (Aibonito) and
all of the assets of the system in exchange for $8,400,000 in cash and a
promissory note in the amount of $8,900,000. Costs of $286,000 were incurred in
connection with this acquisition.
7
<PAGE> 7
CoreComm Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
NOTE C - UNAMORTIZED LICENSE ACQUISITION COSTS (CONTINUED)
An indirect subsidiary of CoreComm Limited, Cortelyou Communications Corp.
("Cortelyou"), was the successful bidder, for an aggregate of $25,241,000, for
15 Block A Local Multipoint Distribution Service ("LMDS") licenses in Ohio. LMDS
frequencies are expected to be used for the provision of voice, data, video and
Internet services to businesses and homes in competition with incumbent local
exchange telephone companies and/or cable television operators. The FCC has
allocated two blocks of frequencies to be licensed in each of the 493 Basis
Trading Areas in the United States and its territories based on an auction that
commenced in February 1998 and ended in March 1998. In June 1998, Cortelyou paid
its bid and the FCC issued the licenses. Cortelyou incurred costs of $115,000 in
connection with the auction and its license application.
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------------------------------
(Unaudited)
<S> <C> <C>
Land $ 1,951,000 $ 1,951,000
Office building 9,922,000 9,922,000
Operating equipment 136,462,000 127,534,000
Office furniture and other equipment 31,804,000 24,546,000
Rental equipment 2,596,000 1,745,000
Construction in progress 8,770,000 12,533,000
--------------------------------
191,505,000 178,231,000
Accumulated depreciation 62,459,000 49,780,000
--------------------------------
$ 129,046,000 $ 128,451,000
================================
</TABLE>
8
<PAGE> 8
CoreComm Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
NOTE E - ACCRUED EXPENSES
Accrued expenses consists of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-----------------------------
(Unaudited)
<S> <C> <C>
Accrued compensation $ 1,783,000 $ 765,000
Accrued equipment purchases 246,000 1,427,000
Accrued franchise, property and income taxes 4,091,000 3,489,000
Commissions payable 1,092,000 1,143,000
Subscriber deposits 1,425,000 1,544,000
Other 3,623,000 3,362,000
-----------------------------
$ 12,260,000 $ 11,730,000
=============================
</TABLE>
NOTE F - LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------------------------
(Unaudited)
<S> <C> <C>
Senior Subordinated Notes $ 200,000,000 $ 200,000,000
Subsidiary Note Payable 8,900,000 -
------------------------------
$ 208,900,000 $ 200,000,000
==============================
</TABLE>
In connection with the acquisition of Puerto Rico RSA-4, SJCTC issued a
promissory note in January 1998. The promissory note was repaid in August 1998
using proceeds from the new bank loan. Interest on the note was payable at 7.95%
per annum beginning in July 1998.
9
<PAGE> 9
CoreComm Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
NOTE G - NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income
(loss) per common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary item $ 933,000 $ 1,527,000 $ 2,005,000 $ 1,931,000
Extraordinary item - (12,000) - (3,842,000)
------------------------------------------------------------------------
Net income (loss) 933,000 1,515,000 2,005,000 (1,911,000)
------------------------------------------------------------------------
Denominator for basic net income (loss) per
common share 13,184,000 13,074,000 13,183,000 13,072,000
Effect of dilutive securities:
Stock options 1,305,000 120,000 772,000 225,000
------------------------------------------------------------------------
Denominator for diluted net income (loss) per
common share 14,489,000 13,194,000 13,955,000 13,297,000
------------------------------------------------------------------------
Basic net income (loss) per common share:
Income before extraordinary item $ .07 $ .12 $ .15 $ .15
Extraordinary item - - - (.29)
------------------------------------------------------------------------
Net income (loss) $ .07 $ .12 $ .15 $ (.14)
========================================================================
Diluted net income (loss) per common share:
Income before extraordinary item $ .06 $ .12 $ .14 $ .15
Extraordinary item - - - (.29)
------------------------------------------------------------------------
Net income (loss) $ .06 $ .12 $ .14 $ (.14)
========================================================================
</TABLE>
NOTE H - COMMITMENTS AND CONTINGENT LIABILITIES
As of June 30, 1998, the Company was committed to purchase approximately
$4,300,000 for cellular network and other equipment and for construction
services. In addition, as of June 30, 1998, the Company had commitments to
purchase telephones, pagers and accessories of approximately $700,000.
In 1992, the Company entered into an agreement which in effect provides for a
twenty year license to use its service mark in Puerto Rico and U.S. Virgin
Islands which is also licensed to many of the non-wireline cellular systems in
the United States. The Company is required to pay licensing and advertising
fees, and to maintain certain service quality standards. The total fees paid for
1998 were $289,000, which were determined by the size of the Company's markets.
10
<PAGE> 10
CoreComm Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
NOTE I - NEW BANK LOAN AND SPIN-OFF OF CORECOMM LIMITED
In August 1998, a wholly-owned indirect subsidiary of the Company, CCPR
Services, Inc. ("Services") entered into a $170,000,000 credit agreement with
various banks. Services has borrowed $155,000,000 which, along with cash on hand
of $7,000,000, was used to repay amounts due to Cellular Communications of
Puerto Rico, Inc. ("CCPR") (a wholly-owned subsidiary of the Company and the
parent of Services) of $30,000,000, to purchase a 23.5% interest in SJCTC from
CCPR for cash of $120,000,000, to pay fees incurred in connection with the new
bank loan of approximately $3,000,000 and to make a term loan to SJCTC of
$8,900,000 in order for SJCTC to repay its note payable to a third party, which
repayment was a condition of the bank loan. CCPR used $30,000,000 to repay most
of its loan payable to the Company, and CCPR made a cash distribution of
$120,000,000 to the Company. The Company is planning to make a capital
contribution to CoreComm Limited of $150,000,000 in cash or in-kind and spinning
out 100% of CoreComm Limited and its subsidiaries to the Company's shareholders.
Services has $15,000,000 available under the bank loan until September 2001. The
terms include the payment of interest at least quarterly at a floating rate,
which is, at Services' option, either (a) the greater of the bank's prime rate
or the Federal Funds Rate plus 0.5% or (b) LIBOR, plus, based on the ratio of
CCPR and subsidiaries' debt to cash flow and the floating rate in effect, either
0% to 1.25% or 1.25% to 2.5%. The effective rate on Services' borrowings as of
August 12, 1998 was 8%. The terms also include an unused commitment fee of 0.5%
per annum which is payable quarterly. Principal payments commence on September
30, 2001 based on two amortization schedules. One schedule is for the first
$95,000,000 borrowed which includes quarterly payments until June 2006. The
other schedule is for the remainder of the amount borrowed which includes
quarterly payments until June 2005.
In connection with the bank loan, CCPR has pledged to the banks the stock of its
subsidiaries and CCPR and its subsidiaries have given the banks a security
interest in their assets. CCPR and its other subsidiaries have guaranteed the
payment in full when due of the principal, interest and fees owing under the
bank loan. The bank loan also includes, among other things, restrictions on CCPR
and its subsidiaries (i) dividend payments, (ii) acquisitions, (iii)
investments, (iv) sales and dispositions of assets, (v) additional indebtedness
and (vi) liens. The bank loan requires that CCPR and subsidiaries maintain
certain ratios of indebtedness to cash flow, fixed charges to cash flow and debt
service to cash flow.
Services incurred costs of approximately $3,000,000 in connection with the bank
loan which will be included in deferred financing costs.
11
<PAGE> 1
Exhibit 99(a)(ix)
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. ANNOUNCES EXCHANGE OFFER
OF A NEW ISSUE OF 15% SUBORDINATED NOTES DUE 2008 FOR UP TO
3,500,000 SHARES OF ITS OUTSTANDING COMMON STOCK
New York, New York (October 15, 1998)--Cellular Communications of Puerto
Rico, Inc. (the "Company") announced today that it is commencing an offer to
exchange (the "Exchange Offer") $15.00 principal amount of a new issue of 15%
Subordinated Notes due 2008 (the "Notes") in exchange for each share of its
Common Stock, par value $.01 per share, up to 3,500,000 shares (although the
Company may determine to accept a greater or lesser number of shares in
accordance with provisions of the Exchange Offer and in compliance with
applicable law, including Rule 13e-4(f)(1)(ii) of the Securities Exchange Act of
1934, as amended).
The Notes will be issued in the amount of $15.00 of principal amount for
each share of Common Stock tendered and accepted and will be issued in
denominations of $15.00 and multiples thereof. Interest on the Notes will be
payable semi-annually, and, at the option of the Company following the second
semi-annual payment, may be paid in cash or through the issuance of additional
Notes.
The terms of the Exchange Offer and instructions for tendering shares is
set forth in an Offering Circular that is being distributed to all of the
Company's shareholders. Among other provisions, the Exchange Offer is subject to
certain conditions, any one of which would allow the Company to terminate the
offer and return any shares of Common Stock tendered.
The Exchange Offer will expire November 12, 1998.
This release does not constitute an offer, which is only made by the
Offering Circular and accompanying materials. The Exchange Agent for the
Exchange Offer is Continental Stock Transfer & Trust Company, 212-509-4000.
* * * * *
For further information contact: Stanton N. Williams, Chief Financial
Officer, Richard J. Lubasch, Senior Vice President--General Counsel or Jeffrey
G. Wyman, Assistant General Counsel, all at (212) 355-3466.
<PAGE> 1
Exhibit 99(a)(x)
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
110 EAST 59TH STREET
NEW YORK, NEW YORK 10022
October 15, 1998
To the Holders of
Shares of Common Stock, Par Value $.01
of Cellular Communications of Puerto Rico, Inc.
Cellular Communications of Puerto Rico, Inc. ("CCPR" or the "Company") is
offering (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in the enclosed Offering Circular (the "Offering Circular"), and in
the accompanying Letter of Transmittal (the "Letter of Transmittal"), to
exchange $15.00 principal amount of a new issue of 15% Subordinated Notes due
2008 (the "Notes") in exchange for each share of its Common Stock, par value
$.01 share (the "Common Stock"), up to 3,500,000 shares (although the Company
may determine to accept a greater or lesser number of shares in accordance with
the provisions for modifying the terms of the Exchange Offer and in compliance
with applicable law, including Rule 13e-4(f)(1)(ii) of the Securities Exchange
Act of 1934, as amended).
As of October 12, 1998, there were approximately 13,204,000 shares
(exclusive of 383,000 treasury shares) of Common Stock outstanding. The Exchange
Offer is being made for 3,500,000 shares of Common Stock. If more than 3,500,000
shares of Common Stock are properly tendered prior to the Expiration Date, the
Company may accept for exchange 3,500,000 shares from shareholders who properly
tender the shares on a pro-rata basis. If the Company modifies the number of
shares of Common Stock that it will accept, and more than that number designated
by the Company are tendered, the Company may accept for exchange such designated
number of shares on a pro-rata basis.
Please read carefully the Offering Circular and the other enclosed
materials relating to the Exchange Offer. If you require assistance, you should
consult your financial, tax or other professional advisors. Holders who wish to
participate in the Exchange Offer are asked to respond promptly by completing
and returning the enclosed Letter of Transmittal, and all other required
documentation, to Continental Stock Transfer & Trust Company, the Exchange Agent
for the Exchange Offer.
QUESTIONS REGARDING THE TERMS OF THE EXCHANGE OFFER MAY BE DIRECTED TO THE
INFORMATION AGENT: D.F. KING & CO., INC., 77 WATER STREET, NEW YORK, NEW YORK
10005, (212) 269-5550 or (888) 414-5566.
Very truly yours,
CELLULAR COMMUNICATIONS OF PUERTO
RICO, INC.
<PAGE> 1
Exhibit 99(a)(xi)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in CCPR's Offering
Circular of our report dated March 30, 1998 with respect to the consolidated
financial statements of CCPR included in its Annual Report (Form 10-K) for the
year ended December 31, 1997 filed with the Securities and Exchange Commission.
Ernst & Young, LLP
New York, New York
October 15, 1998
<PAGE> 1
EXHIBIT 99(a) (xii)
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares (as defined below). The offer is made solely by the Offering
Circular dated October 15, 1998, and the related Letter of Transmittal which are
being mailed to all holders of Shares. Capitalized terms not defined in this
announcement are defined in the Offering Circular. The Offer is not being made
to holders of Shares in any jurisdiction in which the making of the Offer or the
acceptance thereof would not be in compliance with the laws of such jurisdiction
or any administrative or judicial action pursuant thereto. In any jurisdiction
where securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of
Cellular Communications of Puerto Rico, Inc. by one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
Notice of Offer to Exchange
by
Cellular Communications of Puerto Rico, Inc.
15% Subordinated Notes Due 2008
For Up To 3,500,000 Shares Of Its Common Stock, Par Value $.01
Cellular Communications of Puerto Rico, Inc. ("CCPR" or the "Company")
hereby offers (the "Offer"), upon the terms and subject to the conditions set
forth in the Offering Circular (the "Offering Circular") dated October 15, 1998,
and in the accompanying Letter of Transmittal (the "Letter of Transmittal"), to
exchange $15.00 principal amount of a new issue of 15% Subordinated Notes due
2008 (the "Notes") in exchange for each share of its Common Stock, par value
$.01 share (the "Common Stock" or "Shares"), up to 3,500,000 shares (although
the Company may determine to accept a greater or lesser number of Shares in
accordance with the provisions for modifying the terms of the Offer set forth in
the Offering Circular and in compliance with applicable law, including Rule
13e-4(f)(1)(ii) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")). The information contained in the Offering Circular and Letter
of Transmittal is incorporated by reference herein in its entirety.
THE OFFER EXPIRES AT 5:00 P.M., NEW YORK CITY TIME,
ON NOVEMBER 12, 1998, UNLESS THE OFFER IS EXTENDED.
The Offer is not conditioned on any minimum number of Shares being
tendered, but is subject to certain other conditions set forth in the Offering
Circular.
<PAGE> 2
The purpose of the Offer is to provide to Shareholders who seek to
discontinue an equity position as holders of Common Stock in the Company an
opportunity to obtain an alternative return on their investment in the Company
through the exchange of their Shares for Notes, and to reduce the equity
capitalization of the Company.
Notes will be issued in the amount of $15.00 of principal amount for
each share of Common Stock tendered and accepted and will be issued in
denominations of $15.00 and multiples thereof. Interest on the Notes will accrue
from November 15, 1998, and be payable on May 15 and November 15. After the
second semiannual interest payment on November 15, 1999, interest may, at the
option of CCPR, be paid in whole or in part, in cash or through the issuance of
additional Notes. The Notes are redeemable at the Company's option at any time
after November 15, 1999 at 102% of principal amount plus accrued interest to the
redemption date. The Notes will be subordinated to all Senior Indebtedness of
the Company.
The Board of Directors of the Company has approved the Offer. Neither
the Company nor its Board of Directors, however, makes any recommendation to
shareholders as to whether to tender or refrain from tendering their Shares.
Each shareholder must make the decision whether to tender such shareholder's
Shares and, if so, how many Shares to tender and the price or prices at which
such Shares should be tendered.
Notwithstanding any other provision of the Exchange Offer, the
Company's obligation to accept for exchange, and to exchange, shares of Common
Stock properly tendered and not withdrawn pursuant to the Exchange Offer is
conditioned upon certain conditions. If the conditions of the Exchange Offer are
satisfied or waived and the shares of Common Stock are accepted by the Company
for exchange, the Notes will be exchanged on or promptly after the date on which
the shares of Common Stock are accepted for exchange. Under no circumstances
will any interest be payable because of any delay in the transmission of Notes
or funds to holders of shares of Common Stock. Subject to applicable securities
laws and the terms set forth in the Offering Circular, the Company reserves the
right (i) to waive any and all conditions to the Exchange Offer, (ii) to extend
the Exchange Offer or (iii) otherwise to amend the Exchange Offer in any
respect.
Any beneficial holder of shares of Common Stock desiring to tender all
or any portion of his shares should either (i) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in the
Letter of Transmittal and mail or deliver it, together with the certificates
representing tendered shares of Common Stock and any other required documents,
to Continental Stock Transfer & Trust Company (the "Exchange Agent") or tender
such shares of Common Stock pursuant to the procedure for book-entry transfer
set forth in the Offering Circular or (2) request his broker, dealer, commercial
bank, trust company or nominee to effect the transaction for him. Beneficial
holders whose shares of common stock are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee must contact such person
if they desire to
2
<PAGE> 3
tender their shares of Common Stock. Holders who wish to tender shares of Common
Stock and whose certificates representing such shares of Common Stock are not
immediately available or who cannot comply with the procedures for book entry
transfer on a timely basis may tender such shares of Common Stock by following
the procedures for guaranteed delivery set forth in the Offering Circular.
Upon the terms and subject to the conditions of the Offer, if more than
3,500,000 Shares (or such greater or lesser number of Shares as the Company may
determine to exchange pursuant to the Offer in accordance with the provisions
for modifying the Offer set forth in the Offering Circular, and in compliance
with applicable law, including Rule 13e-4(f)(1)(ii) of the Exchange Act) have
been validly tendered and not properly withdrawn prior to the Expiration Date,
Shares will be accepted and Notes will be allocated to tendering stockholders on
a pro rata basis based on the number of Shares tendered by each tendering
stockholder. The Company will accept from each tendering stockholder that number
of Shares equal to 3,500,000 (or such greater or lesser number of Shares as the
Company may determine to accept as described above) multiplied by a fraction,
the numerator of which is the total number of shares validly tendered by such
tendering stockholder and the denominator of which is the total number of the
Shares validly tendered by all tendering stockholders. The number of Shares will
be rounded up or down as nearly as practicable to result in the tender of whole
Shares rather than fractional Shares. Any Shares not accepted by the Company as
a result of the allocation described above will be returned promptly to the
tendering stockholder.
The Company expressly reserves the right, subject to applicable law,
(i) to delay acceptance for exchange of any Shares or, regardless of whether
such Shares were thereto fore accepted for exchange, to delay the exchange of
any Shares pursuant to the Offer or to terminate the Offer and not accept for
exchange any Shares, if any of the conditions to the Offer specified in the
Offer fail to be satisfied, by giving oral or written notice of such delay or
termination to the Exchange Agent; (ii) to waive any condition to the Offer and
accept all the Shares tendered; and (iii) at any time, or from time to time, to
amend the terms of the Offer in any respect, including altering the Exchange
Offer Consideration or increasing or decreasing the number of Shares the Company
will accept. The reservation by the Company of the right to delay exchange or
acceptance for exchange of Shares is subject to the provisions of Rule
13e-4(f)(5) under the Exchange Act, which requires that the Company pay the
consideration offered or return the Shares deposited by or on behalf of holders
thereof promptly after the termination or withdrawal of the Offer.
Although the Company has no current intention to do so, if it should
modify the Exchange Offer Consideration, the modified consideration would be
applicable with regard to all shares of Common Stock accepted in the Offer,
including those tendered before the announcement of the modification. If the
Exchange Offer Consideration is modified, or the number of Shares to be accepted
is increased or decreased (except for an increase of less
3
<PAGE> 4
than 271,740 Shares) the Offer will remain open at least ten business days from
the date the Company gives notice by public announcement or otherwise, of such.
Tenders of Shares may be withdrawn at any time prior to the Expiration
Date as such date may be extended. Thereafter, such tenders are irrevocable,
except that they may be withdrawn after the expiration of forty (40) business
days from the commencement of the Offer unless accepted for exchange prior to
that date. Holders who wish to exercise their right of withdrawal with respect
to the Offer must give written notice of withdrawal, delivered by mail or hand
delivery or facsimile transmission, to the Exchange Agent at its address set
forth below prior to the Expiration Date or at such other time provided in the
Offer. In order to be effective, a notice of withdrawal must specify the name of
the person who deposited the Shares to be withdrawn (the "Depositor"), the name
in which the Shares are registered, if different from that of the Depositor, and
the number of the Shares to be withdrawn prior to the physical release of the
certificates to be withdrawn. If tendered Shares to be withdrawn have been
delivered or identified through confirmation of book-entry transfer to the
Exchange Agent, the notice of withdrawal also must specify the name and number
of the account at the Book-Entry Transfer Facility to be credited with with
drawn Shares. The notice of withdrawal must be signed by the registered holder
of such Shares in the same manner as the applicable Letter of Transmittal
(including any required signatures), or be accompanied by evidence satisfactory
to the Company that the person withdrawing the tender has succeeded to the
beneficial ownership of such Shares. Withdrawal of tenders of shares may not be
rescinded, and any Shares withdrawn will be deemed not validly tendered
thereafter for purposes of the Offer. However, properly withdrawn Shares may be
tendered again at any time prior to the Expiration Date by following the
procedures for tendering Shares that were not previously tendered as described
elsewhere in the Offer.
The Notes issued upon exchange of shares of Common Stock will be issued
by the Company in reliance on the exemption from the registration requirements
of the Securities Act of 1933, as amended, provided in Section 3(a)(9) thereof.
The Company believes that the Notes issued by the Company to holders of Common
Stock not deemed affiliates (as defined under Rule 144 of the Securities Act of
1933, as amended) upon the exchange of shares of Common Stock will be freely
tradeable by such holders of Common Stock because such Common Stock has been
registered pursuant to an effective registration statement under the Securities
Act of 1933, as amended. Holders of Common Stock deemed affiliates will be
subject to the restrictions contained in Rule 144.
An application Form T-3 will be filed with the Securities and Exchange
Commission (the "SEC") on or about the date of the Offer for qualification under
the Trust Indenture Act of 1939 of the Indenture under which the Notes will be
issued. The Offer is conditioned upon the Indenture being qualified under the
Indenture Act. No Shares will be accepted, and no Notes will be issued until
such qualification is effective.
4
<PAGE> 5
The information required to be disclosed by Rule 13e-4(d)(1) under the
Securities Exchange Act of 1934, as amended, is contained in the Offering
Circular and is incorporated herein by reference. The Offering Circular and the
related Letter of Transmittal are being mailed to record holders of Shares as of
October 15, 1998, and are being furnished to brokers, banks and similar persons
whose names or the names of whose nominees appear on the Company's shareholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing for subsequent transmittal to beneficial owners.
The Offering Circular and the Letter of Transmittal contain Important
Information which should be read carefully before any tenders are made.
Questions and requests for assistance or for copies of the Offering
Circular, the Letter of Transmittal and other documents may be directed to D.F.
King & Co., Inc. (the "Information Agent") at its address and telephone number
set forth below, and copies will be furnished promptly at the Company's expense.
The Company will not pay any fees or commissions to any broker or dealer or
other person for soliciting tenders of Shares pursuant to the Offer. Officers,
directors and regular employees of the Company may solicit tenders of Shares,
but they will not receive additional compensation thereof.
The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 269-5550
All Others Call Toll Free: (888) 414-5566
The Exchange Agent for the Offer is:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
(212) 509-4000, Ext. 535
October 15, 1998
5
