<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
CORECOMM LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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BERMUDA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
CEDAR HOUSE CELLULAR COMMUNICATIONS OF
41 CEDAR AVENUE PUERTO RICO, INC.
HAMILTON HM 12 110 EAST 59TH STREET
BERMUDA NEW YORK, NY 10022
(441) 295-2244 (212) 906-8440
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE AND
NUMBER, TELEPHONE NUMBER, INCLUDING AREA CODE,
INCLUDING AREA CODE, OF REGISTRANT'S OF AGENT FOR SERVICE)
PRINCIPAL
EXECUTIVE OFFICES)
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Securities to be registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
NONE NONE
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------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
------------------------
COMMON STOCK, $0.01 PAR VALUE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
<PAGE> 2
CORECOMM LIMITED
INFORMATION REQUIRED IN REGISTRATION STATEMENT:
CROSS-REFERENCE BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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ITEM NUMBER CAPTION LOCATION IN INFORMATION STATEMENT
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Item 1............... Business Summary; Introduction; The Distribution;
Risk Factors; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Financial
Statements.
Item 2............... Financial Information Summary; Risk Factors; Pro Forma
Capitalization; Pro Forma Financial
Information; Selected Historical Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Financial Statements.
Item 3............... Properties Business.
Item 4............... Security Ownership of Certain Security Ownership of Certain Beneficial
Beneficial Owners and Owners; Beneficial Ownership of Management.
Management
Item 5............... Directors and Executive Management; Liability and Indemnification of
Officers Directors and Officers.
Item 6............... Executive Compensation Management; Security Ownership of Certain
Beneficial Owners.
Item 7............... Certain Relationships and Summary; The Distribution; Relationship
Related Transactions Between CCPR and the Company after the
Distribution.
Item 8............... Legal Proceedings Legal Proceedings.
Item 9............... Market Price of and Dividends Summary; The Distribution; Risk Factors;
on the Registrant's Common Management; Security Ownership of Certain
Equity and Related Stockholder Beneficial Owners; Beneficial Ownership of
Matters Management; Description of Company Capital
Stock.
Item 10.............. Recent Sales of Unregistered Not Applicable.
Securities
Item 11.............. Description of Registrant's Description of Company Capital Stock.
Securities to be Registered
Item 12.............. Indemnification of Directors Liability and Indemnification of Directors
and Officers and Officers.
Item 13.............. Financial Statements and Summary; Pro Forma Financial Information;
Supplementary Data Selected Historical Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Financial Statements.
Item 14.............. Changes in and Disagreements Not Applicable.
with Accountants on Accounting
and Financial Disclosure
Item 15.............. Financial Statements and Index to Financial Statements; Exhibit
Exhibits Index.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENTS.
SUBJECT TO COMPLETION, DATED JUNE 10, 1998
INFORMATION STATEMENT
CORECOMM LIMITED
COMMON STOCK
PAR VALUE $0.01 PER SHARE
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by Cellular Communications of Puerto Rico,
Inc. ("CCPR") to holders of record of CCPR common stock, par value $0.01 per
share (the "CCPR Common Stock"), at the close of business on , 1998
(the "Record Date"), of one share of common stock, par value $0.01 per share
(the "CoreComm Common Stock"), of CoreComm Limited, a Bermuda company,
("CoreComm" or the "Company"), including Series A Junior Participating Preferred
Stock Purchase Rights, for each share of CCPR Common Stock owned on the Record
Date. The Distribution will result in 100% of the outstanding shares of CoreComm
Common Stock being distributed to holders of CCPR Common Stock on a pro rata
basis. The Distribution will be effective on , 1998 (the
"Distribution Date").
The Company is a newly formed company which, at the time of the
Distribution, will own and operate communications related businesses which were
previously held in wholly owned subsidiaries of CCPR, some of which have been
recently acquired, as more fully described herein. CoreComm will also pursue new
communications related opportunities both domestically and internationally.
No consideration will be paid by CCPR stockholders for the shares of
CoreComm Common Stock. There is no current public trading market for the shares
of CoreComm Common Stock, although it is expected that a "when-issued' trading
market will develop on or about the Record Date. The Company has applied for
listing of the shares of CoreComm Common Stock on the Nasdaq National Market
System ("Nasdaq") under the symbol ("COMMF").
In reviewing this Information Statement, you should carefully consider the
matters described under the caption "Risk Factors."
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Information Statement is , 1998.
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TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... 2
INTRODUCTION................................................ 6
THE DISTRIBUTION............................................ 6
RISK FACTORS................................................ 10
RELATIONSHIP BETWEEN CCPR AND THE COMPANY AFTER THE
DISTRIBUTION.............................................. 14
DESCRIPTION OF CCPR FUNDING OF THE COMPANY.................. 15
PRO FORMA CAPITALIZATION.................................... 16
UNAUDITED PRO FORMA FINANCIAL INFORMATION................... 17
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA............ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 25
BUSINESS.................................................... 28
MANAGEMENT.................................................. 41
TREATMENT OF CCPR EMPLOYEE STOCK OPTIONS IN THE
DISTRIBUTION.............................................. 44
SECURITY OWNERSHIP OF MANAGEMENT............................ 45
DESCRIPTION OF COMPANY CAPITAL STOCK........................ 46
INDEPENDENT AUDITORS........................................ 53
ADDITIONAL INFORMATION...................................... 53
INDEX TO FINANCIAL STATEMENTS............................... F-1
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i
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FORWARD-LOOKING STATEMENTS
This Information Statement contains certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). CCPR and the Company, respectively, intend such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and include this statement for purposes of such safe harbor
provisions. Forward-looking statements, which are based upon certain assumptions
and describe future plans, strategies and expectations of CCPR and the Company,
respectively, are generally identifiable by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project" or similar expressions.
The ability of CCPR and the Company, respectively, to predict results or the
actual effect of future plans or strategies is inherently uncertain. Important
factors which may cause actual results to differ materially from the
forward-looking statements contained herein or in other public statements by
CCPR or the Company are described in the section entitled "Risk Factors."
IMPORTANT INTRODUCTORY NOTE FOR THE CORECOMM LIMITED
FORM 10, DATED JUNE 10, 1998
The statements in this Information Statement are based on the assumption
that certain matters that will only be accomplished at or about the time of the
Distribution, have been accomplished. For example, the statements in this
Information Statement are based on the assumption (i) that all of the businesses
that will be held by the Company have been transferred to the Company, (ii) that
the financing intended for the Company has occurred, (iii) that CoreComm
Incorporated, has changed its name to Cellular Communications of Puerto Rico,
Inc. and (iv) all licenses for which the Company has applied have been granted.
1
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is qualified
by, the more detailed information set forth in this Information Statement, which
should be read in its entirety. Unless the context otherwise requires, (i)
references in this Information Statement to CCPR or the Company shall include
CCPR's or the Company's respective subsidiaries and (ii) references in this
Information Statement to the Company prior to the Distribution Date shall refer
to the CoreComm Businesses as operated as part of CCPR. Moreover, all of the
statements in this Information Statement are based on the assumption that all of
the businesses that will be held by the Company have been transferred to the
Company, that the financing intended for the Company has or will occur and that
CoreComm Incorporated, a Delaware company, has changed its name to Cellular
Communications of Puerto Rico, Inc. This Information Statement also assumes that
all licenses for which the Company has applied have been granted.
THE COMPANY
CoreComm was formed in March 1998 by CCPR in order to provide an
appropriate vehicle to pursue new telecommunications opportunities outside of
Puerto Rico and the U.S. Virgin Islands in an entrepreneurial corporate
environment. On the Distribution Date, CoreComm will be a holding company that
will own and operate communications businesses which were previously held in
wholly owned subsidiaries of CCPR, some of which have been recently acquired. As
of June 1, 1998, CoreComm and its subsidiaries had approximately 120 employees.
CoreComm now holds, through directly and indirectly wholly owned subsidiaries,
entities which operate or hold licenses or applications to operate in the
competitive local exchange carrier ("CLEC") business, cellular long distance
resale business, landline long distance resale business, cellular service resale
business, paging resale service and repair business, prepaid cellular service
resale business, centralized telecommunications services ("CTS") business, and
local multipoint distribution services ("LMDS") business (collectively the
"CoreComm Businesses"). Aside from the cellular long distance resale business,
which has been operating for approximately seven years, these businesses are in
early stages of development.
CoreComm's CLEC, cellular long distance, landline long distance and
cellular resale businesses were formerly owned by OCOM Corporation, a subsidiary
of NTL Incorporated. OCOM Corporation sold all of these assets and related
liabilities ("OCOM Corporation Telecoms Division" or "OCOM") to a subsidiary of
CoreComm pursuant to an agreement dated as of June 1, 1998. CoreComm, through a
wholly owned subsidiary, also has purchased all of the outstanding capital stock
of Digicom, Inc. ("Digicom"), which operates a CLEC in the State of Ohio. The
Company also acquired all of the operating assets of JeffRand Corp. ("Wireless
Outlet") which operates the Company's paging and prepaid cellular businesses.
CoreComm's LMDS licenses are held in an indirectly wholly owned subsidiary,
which was the high bidder following a recent FCC auction for LMDS licenses, for
15 markets in the State of Ohio.
See "BUSINESS --" for a detailed description of CoreComm's businesses.
2
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THE DISTRIBUTION
Distributing Corporation...... Cellular Communications of Puerto Rico, Inc., a
Delaware corporation ("CCPR").
Distributed Corporation....... CoreComm Limited, a Bermuda corporation, which,
as of the Distribution Date, will have
transferred to it substantially all of the
businesses and assets of, and will be
responsible for substantially all of the
liabilities associated with, the CoreComm
Businesses, as more fully described herein.
Principal Businesses to be
Retained by CCPR.............. CCPR will retain its other businesses,
consisting of all of its current businesses
other than the CoreComm Businesses (the "CCPR
Businesses").
Primary Purpose of the
Distribution.................. To fulfill one of CCPR's stated goals of
pursuing new telecommunications opportunities
outside of Puerto Rico and the U.S. Virgin
Islands, in an entrepreneurial corporate
environment.
Shares to be Distributed...... Approximately 13,182,000 shares of CoreComm
Common Stock, based on the number of shares of
CCPR Common Stock outstanding on March 31,
1998. The shares to be distributed will
constitute 100% of the outstanding shares of
CoreComm Common Stock on the Distribution Date.
Distribution Ratio............ Each CCPR stockholder will receive one share of
CoreComm Common Stock for each share of CCPR
Common Stock held on the Record Date.
Listing and Trading Market.... The Company has applied for listing of the
shares of CoreComm Common Stock on the Nasdaq
National Market System under the symbol
"COMMF."
Record Date................... Close of business on , 1998.
Distribution Date............. , 1998.
Distribution Agent............ Continental Stock Transfer & Trust Company (the
"Distribution Agent").
Tax Consequences.............. Certain Federal income tax consequences will
result from the Distribution. An amount equal
to the fair market value on the Distribution
Date of CoreComm Common Stock distributed to
each stockholder will be taxable to such
stockholder as a dividend, but only to the
extent of the stockholder's portion of CCPR's
current and accumulated earnings and profits.
The amount, if any, that exceeds CCPR's current
and accumulated earnings and profits, would
first be treated as a tax-free return of
capital to the extent of the stockholder's tax
basis in the shares, and to the extent in
excess of such tax basis, as capital gains. See
"THE DISTRIBUTION -- Certain Federal Income Tax
Consequences."
Dividend and Share Repurchase
Policy........................ The Company does not intend to pay a cash
dividend in the foreseeable future.
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Relationship with CCPR after
the Distribution.............. See "DESCRIPTION OF COMPANY CAPITAL STOCK" and
"RELATIONSHIP BETWEEN CCPR AND THE COMPANY
AFTER THE DISTRIBUTION."
RISK FACTORS
Stockholders should carefully consider the matters discussed under the
section entitled "Risk Factors" beginning on page 10 is of this Information
Statement.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following tables set forth summary historical statement of operations
data for OCOM and historical and pro forma balance sheet data for the Company.
The historical financial data are derived from the audited Financial Statements
of the Company and OCOM, which are included elsewhere in this Information
Statement. This historical financial data relates to OCOM as it was operated
prior to its acquisition by the Company.
The pro forma financial data were derived from the "Unaudited Pro Forma
Financial Information" that give pro forma effect to the acquisitions of OCOM,
Digicom and Wireless Outlet (collectively, the "Acquisitions"), CCPR's
contribution to the Company of the acquired assets and related liabilities of
OCOM and Wireless Outlet and to CCPR's funding of the Company through a $150
million capital contribution (see "DESCRIPTION OF CCPR FUNDING OF THE COMPANY")
(the Acquisitions and the contributions are defined as the "Transactions"). The
pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The pro forma statement of
operations data for the three months ended March 31, 1998 and for the year ended
December 31, 1997 give effect to the Transactions as if they had occurred as of
the beginning of the periods. The pro forma balance sheet data give effect to
the Transactions as if they had occurred as of March 31, 1998. The pro forma
financial data do not purport to represent what the financial position or
results of operations of the Company would actually have been had the
Transactions in fact occurred on the assumed dates or to project the financial
position or results of operations of the Company for any future period or date.
These tables should be read in conjunction with "Unaudited Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the audited Financial Statements included elsewhere
herein.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
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CORECOMM OCOM
---------------------------------- ---------------------------------------------
PRO FORMA HISTORICAL
---------------------------------- ---------------------------------------------
THREE MONTHS
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
ENDED YEAR ENDED --------------- ---------------------------
MARCH 31, 1998 DECEMBER 31, 1997 1998 1997 1997 1996 1995
-------------- ----------------- ------- ----- ------- ------- -------
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STATEMENT OF OPERATIONS
DATA:
Revenues............... $ 2,213 $ 9,150 $ 853 $ 986 $ 3,579 $ 5,103 $ 4,001
Operating (loss)....... (1,794) (4,855) (1,492) (754) (4,375) (1,230) (4,412)
Net (loss)............. (1,794) (4,874) (1,492) (754) (4,379) (1,097) (4,154)
Basic and diluted net
(loss) per share..... (0.14) (0.37)
Weighted average
shares............... 13,182 13,075
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CORECOMM
-----------------------
MARCH 31, 1998
-----------------------
PRO FORMA HISTORICAL
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BALANCE SHEET DATA:
Working capital............. $144,724 $(5,251)
Fixed assets, net........... 1,784 --
Total assets................ 180,954 27,426
Long-term debt.............. -- --
Shareholder's equity........ 173,897 22,185
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INTRODUCTION
On June 3, 1998, the Board of Directors of CCPR declared a dividend payable
to holders of record of CCPR Common Stock at the close of business on the Record
Date of one share of CoreComm Common Stock for each share of CCPR Common Stock
held on the Record Date. The Distribution will be effective on ,
1998. As a result of the Distribution, 100% of the outstanding shares of
CoreComm Common Stock will be distributed to CCPR stockholders.
On or prior to the Distribution Date, CCPR will have transferred to the
Company substantially all of the assets and liabilities of the CoreComm
Businesses. Prior to the Distribution, CCPR operated several of the CoreComm
Businesses through wholly owned subsidiaries. The remaining CoreComm Businesses
were acquired in transactions prior to the Distribution Date.
If you have questions relating to the Distribution, please contact the
Distribution Agent at: (212) 509-4000.
For other information relating to CCPR or the Company, please contact
either company at: 110 East 59th Street, New York, NY 10022 (Telephone: (212)
906-8440).
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The Board of Directors of CCPR has determined that it is in the best
interest of CCPR and its stockholders to undertake the Distribution, thereby
separating the CoreComm Businesses from CCPR, for the reasons described herein.
CCPR's strategy, in creating and distributing shares of CoreComm, is to create
an appropriate vehicle to pursue new telecommunications opportunities outside of
Puerto Rico and the U.S. Virgin Islands in an entrepreneurial corporate
environment.
The Distribution is designed to establish CoreComm as a stand alone company
that can adopt strategies and pursue objectives appropriate to its specific
businesses. As a separate company, the Company's management should better be
able to access the capital markets to finance these new telecommunications
opportunities and to structure and operate the Company in a manner more directly
and appropriately tailored to meet the business opportunities and challenges
presented by the competitive telecommunications environment in which the Company
operates.
CCPR believes that the separation of the CoreComm Businesses from its
established Puerto Rico and U.S. Virgin Islands telecommunications businesses
will allow the two entities to be recognized and appropriately valued by the
financial community as distinct businesses with different investment risk and
return profiles. As a result of the Distribution, CCPR should develop and
enhance its following in the financial community primarily as a leading provider
of telecommunications services in Puerto Rico and the U.S. Virgin Islands while
the Company should develop its following primarily as an entrepreneurial
telecommunications company. In this regard, investors will be better able to
evaluate the merits and future prospects of the businesses of CCPR and the
Company, enhancing the likelihood that each will achieve appropriate market
recognition and valuation for its performance and potential. In addition,
current stockholders and potential investors will be better able to direct their
investments to their specific areas of interest. The Distribution will also
enable the Company, as and when appropriate, to explore the possibility of
engaging in strategic acquisitions, joint ventures and other collaborative
arrangements.
The Distribution is also designed to allow each of the Company and CCPR,
respectively, to establish and tailor its own equity-based compensation plans so
that there will be a more direct alignment between the performance of each
business and the compensation of its management. Following the Distribution, it
is anticipated that the Company's management will be granted stock options which
will be closely aligned with the financial results of the Company, thereby
linking each employee's financial success directly to the financial success of
the Company. Among other things, the implementation of a separate CoreComm stock
option plan
6
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is intended to strengthen and enhance the incentives for the Company's
management to capitalize on opportunities to grow the business and enhance
operating efficiencies. See "MANAGEMENT."
For the reasons stated above, the CCPR Board of Directors believes that the
Distribution is in the best interest of CCPR, the Company and CCPR's
shareholders.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in a Distribution Agreement, dated as of , 1998 (the
"Distribution Agreement"), between CCPR and the Company. See "RELATIONSHIP
BETWEEN CCPR AND THE COMPANY AFTER THE DISTRIBUTION."
The Distribution will be made on the basis of one share of CoreComm Common
Stock for each share of CCPR Common Stock held on the Record Date. The actual
total number of shares of CoreComm Common Stock to be distributed will depend on
the number of shares of CCPR Common Stock outstanding on the Record Date. Based
upon the shares of CCPR Common Stock outstanding on March 31, 1998,
approximately 13,182,000 shares of CoreComm Common Stock will be distributed to
CCPR's stockholders. The shares of CoreComm Common Stock will be fully paid and
nonassessable and the holders thereof will not be entitled to preemptive rights.
See "DESCRIPTION OF COMPANY CAPITAL STOCK."
Prior to the Distribution Date, CCPR will deliver all shares of CoreComm
Common Stock to be distributed ("Distribution Shares") to the Distribution Agent
for distribution. The Distribution Agent will mail, beginning on or about the
Distribution Date, certificates representing the Distribution Shares to CCPR
shareholders of record on the Record Date. CCPR shareholders will not be
required to pay for shares received in the Distribution, or to surrender or
exchange CCPR shares in order to receive shares of CoreComm Common Stock. No
vote of CCPR shareholders is required or sought in connection with the
Distribution.
No holder of CCPR Common Stock will be required to pay any cash or other
consideration for the shares of CoreComm Common Stock received in the
Distribution or to surrender or exchange shares of CCPR Common Stock in order to
receive shares of CoreComm Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material anticipated Federal
income tax consequences under current law relating to the Distribution. This
summary is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations promulgated thereunder and
administrative rulings and judicial decisions now in effect, all of which are
subject to change, possibly with retroactive effect. The following discussion
does not purport to deal with all aspects of Federal income taxation that may be
applicable to specific stockholders. In particular, the following discussion may
not be applicable to stockholders who acquired their shares of CCPR capital
stock pursuant to the exercise of employee stock options or other compensation
arrangements with CCPR or who are not citizens or residents of the United States
or who are otherwise subject to special tax treatment. In addition, this
discussion applies only to stockholders who have held their CCPR Common Stock
and will hold their CoreComm Common Stock as capital assets.
EACH STOCKHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISOR TO DETERMINE THE
PARTICULAR FEDERAL TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE DISTRIBUTION, AS
WELL AS THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS.
Earnings and Profits. The discussion below refers to current and
accumulated earnings and profits for Federal income tax purposes. CCPR presently
believes that it does not have, as of the date hereof, any current or
accumulated earnings and profits. However, CCPR may generate current earnings
and profits for 1998, including as a result of the Distribution. It is
impossible to predict whether the Company or CCPR will have earnings and profits
for 1998. Similarly, earnings and profits of the Company during years after 1998
will depend on future activities, as to which no predictions can be made.
7
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The Distribution. The Distribution will be a taxable transaction for
Federal income tax purposes. Accordingly, an amount equal to the fair market
value on the Distribution Date of CoreComm Common Stock distributed to each
stockholder will be taxable to such stockholder as a dividend, but only to the
extent of the stockholder's portion of CCPR's current and accumulated earnings
and profits for Federal income tax purposes for the year of the Distribution.
The amount, if any, of such fair market value that exceeds the stockholder's
portion of such earnings and profits will be treated first, as a nontaxable
reduction of the stockholder's tax basis in his shares of CCPR Common Stock, to
the extent of such tax basis, and thereafter, as gain from the sale of such
shares. Such gain will be capital gain and will be long-term capital gain if the
CCPR Common Stock has been held for more than one year.
In general, a dividend for Federal income tax purposes that is made from
CCPR to a corporate stockholder will qualify for the 70% dividends received
deduction under Section 243 of the Code, to the extent certain holding period
and other requirements are met. Corporate stockholders should note, however,
that there can be no assurance that there will be sufficient earnings and
profits for any of the Distribution to constitute a dividend for Federal income
tax purposes. In addition, certain "extraordinary dividends" under Section 1059
of the Code could cause a corporate holder that claims the dividends received
deduction to reduce its tax basis in its CCPR Common Stock. Corporate holders of
CCPR Common Stock are advised to consult their own tax advisors regarding the
treatment of the Distribution as a dividend.
A stockholder's initial tax basis in CoreComm Common Stock generally will
equal such stock's fair market value on the Distribution Date, and his holding
period for the CoreComm Common Stock will begin on the Distribution Date.
To the extent that the fair market value of the assets contributed by CCPR
to CoreComm prior to the distribution exceeds CCPR's tax basis therein, or to
the extent that the fair market value of the CoreComm Common Stock on the
Distribution Date exceeds CCPR's tax basis in the CoreComm Common Stock
immediately before the distribution, then CCPR will recognize capital gain, and
generate current earnings and profits in an amount equal to such excess. No loss
will be recognized.
Ownership of CoreComm Common Stock. For U.S. Federal income tax purposes,
and subject to the discussion below regarding PFICs (as defined below), a
stockholder will recognize gain or loss equal to the difference between the
amount realized on a sale or exchange of CoreComm Common Stock and his tax basis
therein. Any such gain or loss will be capital gain or loss, and will constitute
long-term capital gain if such stock was held more than one year.
The Company will be a passive foreign investment company (a "PFIC") if 75%
or more of its gross income (including the pro rata share of the gross income of
any company, U.S. or foreign, in which the Company is considered to own 25% or
more of the shares by value) in a taxable year is passive income. Alternatively,
the Company will be considered to be a PFIC if at least 50% of the assets
(averaged over the year and generally determined based upon fair market value)
of the Company (including the pro rata share of the assets of any company of
which the Company is considered to own 25% or more of the shares by value) in a
taxable year are held for the production of, or produce, passive income. If the
Company becomes a PFIC, each stockholder who is a U.S. person, in the absence of
an election by such stockholder to treat the Company as a "qualified electing
fund" (a "QEF election"), as discussed below, upon certain distributions by the
Company and upon disposition of the CoreComm Common Stock at a gain, would be
liable to pay tax at the then prevailing income tax rates on ordinary income
plus interest on the tax, as if the distribution or gain had been recognized
ratably over the stockholder's holding period for the CoreComm Common Stock.
Additionally, if the Company were to become a PFIC, stockholders who acquire
CoreComm Common Stock from a decedent would be denied the normally available
step-up of the tax basis for such shares to fair market value at the date of
death and instead would have a tax basis equal to the decedent's basis, if
lower.
If a stockholder had made a QEF election for all taxable years that such
shareholder has held the CoreComm Common Stock and the Company were a PFIC,
distributions and gain will not be deemed to have been recognized ratably over
the stockholder's holding period or be subject to an interest charge, gain on
the sale of CoreComm Common Stock will be characterized as capital gain and the
denial of basis step-up at death described above will not apply. Instead, a
stockholder that has made a QEF election is required for each
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taxable year to include in income a pro rata share of the ordinary earnings of
the qualified electing fund as ordinary income and a pro rata share of the net
capital gain of the qualified electing fund as capital gain, regardless of
whether the Company has distributed such earnings or gain.
A stockholder of certain publicly traded PFIC stock could elect to mark the
stock to market annually, recognizing as ordinary income or loss each year an
amount equal to the difference between the holder's adjusted basis in the PFIC
stock and its fair market value. Losses would be allowed only to the extent of
net mark-to-market gain previously included by the stockholder under the
election for prior taxable years. If the mark-to-market election were made, then
the rules set for the above would not apply for periods covered by the election.
The tests for determining PFIC status are applied annually and it is
difficult to make accurate predictions of future income and assets, which are
relevant to this determination. Accordingly, there can be no assurance that the
Company will not become a PFIC.
The Company will comply with applicable information reporting requirements
for stockholders to make a QEF election and will promptly supply a PFIC annual
information statement to any stockholder or former stockholder who requests it,
as well as any other information that may be required to give effect to a QEF
election. Stockholders should consult their own tax advisors regarding
eligibility, manner and advisability of making a QEF election if the Company is
treated as a PFIC.
THE DISCUSSION ABOVE DOES NOT COVER ALL ASPECTS OF FEDERAL TAXATION THAT
MAY BE RELEVANT TO PARTICULAR STOCKHOLDERS. ACCORDINGLY, STOCKHOLDERS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES
OF THE DISTRIBUTION.
LISTING AND TRADING OF CORECOMM COMMON STOCK
The Company has applied for listing of the shares of CoreComm Common Stock
on the Nasdaq National Market System under the symbol "COMMF." The Company is
expected to have initially approximately 321 holders of record, based on the
number of stockholders of record of CCPR on March 31, 1998.
A "when-issued" trading market is expected to develop on or about the
Record Date. The term "when-issued" means that shares can be traded prior to the
time certificates are actually available or issued. Prices at which the shares
of CoreComm Common Stock may trade on a "when-issued" basis or after the
Distribution cannot be predicted. See "RISK FACTORS -- Absence of Prior Trading
Market for CoreComm Common Stock."
The shares of CoreComm Common Stock distributed to CCPR stockholders will
be freely transferable, except for shares received by persons who may be deemed
to be "affiliates" of the Company within the meaning of the Securities Act of
1933, as amended (the "Securities Act"). Persons who may be deemed to be
affiliates of the Company after the Distribution generally include individuals
or entities that control, are controlled by, or are under common control with
the Company and may include the directors and principal executive officers of
the Company as well as any principal stockholder of the Company. Persons who are
affiliates of the Company will be permitted to sell their shares of CoreComm
Common Stock only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemptions afforded by Section 4(2) of the
Securities Act and Rule 144 thereunder.
9
<PAGE> 14
RISK FACTORS
LIMITED OPERATIONS; EARLY STAGE COMPANY
Aside from the Company's cellular long distance business, which has been
operating for seven years, the Company has only recently begun managing and
generating the CoreComm Business, and has only recently begun to develop the
requisite staff and plans necessary to effectively manage and operate these
businesses. Therefore, historical financial information is reflective of a
company in the early growth stage of its development. Prospective investors
should be aware of the difficulties encountered by enterprises in development,
like the Company, especially in view of the highly competitive nature of the
telecommunications industry. See "-- New Industry and Technology Risks and
Limitations."
OPERATING HISTORY AND FUTURE PROSPECTS; TRANSITION TO AN INDEPENDENT PUBLIC
COMPANY
The Company was formed immediately prior to the Distribution from various,
separate previously owned CCPR subsidiaries and independent businesses, and does
not have an operating history as an independent public company. Accordingly, the
financial statements included herein may not necessarily reflect the results of
operations, financial condition and cash flows that would have been achieved had
the CoreComm Businesses been operated as an independent company during the
periods presented. Following the Distribution, the Company will also be
responsible for the costs associated with being an independent public company,
including costs related to corporate governance, listed and registered
securities and investor relations issues.
Moreover, the financial statements included herein do not reflect many
changes that may occur in the operations of the Company as a result of the
Company's future business strategies. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS." The Company
believes that these changes, when implemented, will make a positive contribution
to the results of operations of the Company. However, there can be no assurance
as to the timing or amount of any positive contribution which may be realized or
that these changes might not result in material adverse consequences.
The Company's future results of operations will also depend upon a number
of factors and events, including the following: (i) the levels of demand for the
Company's existing products; (ii) the substantial competition encountered by the
Company in all of its lines of business (see "-- Competition"); (iii) the effect
of future regulatory changes; and (iv) the Company's transition to a separate
public company and the costs associated therewith.
COMPETITION
The telecommunications industry and all of its segments are highly
competitive. CoreComm's Competitive Local Exchange Carrier ("CLEC") business,
which is in the development stage, will operate in this highly competitive
environment. The Company expects that competition will continue to intensify in
the future due to the increase in the size, resources and number of market
participants. In each of its markets, the Company faces competition from larger,
better capitalized incumbent providers.
In the local exchange markets, the Company also faces competition or
prospective competition from one or more CLECs, many of which have significantly
greater financial resources than the Company, and from other competitive
providers, including some non-facilities-based providers like the Company. For
example, AT&T, MCI and Sprint, among other carriers, have each begun to offer
local telecommunications services in major U.S. markets using their own
facilities or by resale of the ILECs' or other providers' services. In fact,
certain competitors, including AT&T, MCI and Sprint, have entered into
interconnection agreements with Ameritech (as defined) with respect to the
States of Michigan and Ohio, where the Company currently operates. These
competitors either have begun or in the near future likely will begin offering
local exchange service in those states, subject to the joint marketing
restrictions under the Telecommunications Act. In addition to these long
distance service providers, entities that currently offer or are potentially
capable of offering switched services include other CLECs, cable television
companies, electric utilities, other long distance carriers, microwave carriers,
wireless telephone system operators and large customers who build
10
<PAGE> 15
private networks. Many facilities-based CLECs and long distance carriers, for
example, have committed substantial resources to building their networks or to
purchasing CLECs or Inter Exchange Carriers ("IXC's") with complementary
facilities. By building or purchasing a network or entering into interconnection
agreements or resale agreements with ILECs, including Regional Bell Operating
Companies ("RBOCs"), a facilities-based provider can offer single source local
and long distance services similar to those offered by the Company. Such
additional alternatives may provide such competitors with greater flexibility
and a lower cost structure than the Company. In addition, some of these CLECs
and other facilities-based providers of local exchange service are acquiring or
being acquired by IXCs. While certain of these combined entities may continue to
be subject to the joint marketing restrictions in the Telecommunications Act,
others will not be subject to such restrictions. Any of these combined entities
may have resources far greater than those of the Company. These combined
entities may provide a bundled package of telecommunications products, including
local and long distance telephony, that is in direct competition with the
products offered or planned to be offered by the Company. See
"BUSINESS -- REGULATION" and "BUSINESS -- COMPETITION."
The Company's LMDS Business will compete with franchised cable systems and
also may face competition from several other sources, such as Multichannel
Multipoint Distribution Systems ("MMDS"), Satellite Master Antenna Television
systems, DBS, video service from telephone companies and television receive-only
satellite dishes. Moreover, the Telecommunications Reform Act eliminates
restrictions that prohibit local telephone exchange companies from providing
video programming in their local telephone service areas and substantially
reduces current and future regulatory burdens on franchised cable systems, thus
potentially resulting in significant additional competition from local telephone
companies and franchised cable systems.
Pay television operators face competition from other sources of
entertainment, such as movie theaters and computer on-line services. Further,
premium movie services offered by cable television systems have encountered
significant competition from the home video industry. In areas where several
off-air television broadcasts can be received without the benefit of cable
televison, cable television systems have experienced competition from such
broadcasters.
Many actual and potential competitors have greater financial, marketing and
other resources than the Company. No assurance can be given that the Company
will be able to compete successfully. See "BUSINESS -- REGULATION -- LMDS" and
"BUSINESS -- COMPETITION."
NEW INDUSTRY AND TECHNOLOGY RISKS AND LIMITATIONS
The Company's planned LMDS broadband wireless telecommunications system
utilizes a new technology with a limited operating history whose system
architecture remains subject to further development and refinement. In the past,
other companies experienced a number of technical difficulties, some of which
have affected subscriber acceptance of their systems. Additional technical
issues may arise in the course of system deployment that could adversely affect
reception quality and coverage of the Company's possible service areas. In
addition, the Company believes that a significant percentage of the households
in the Company's LMDS markets will be located in "shadowed" areas capable of
receiving the transmitted signal only with the assistance of small, low cost
"repeaters," which the Company may deploy. The Company would only deploy
repeaters where such deployment is economically justifiable. Two-Way Services
will require the development and mass production of appropriate equipment. There
can be no assurance that such equipment will become commercially available at a
cost acceptable to the Company. While a number of techniques, including digital
compression and frequency reuse technologies, can expand the effective capacity
of the Company's system, the Company's capacity to support high service volumes
will ultimately be limited by its total available bandwidth and limitations of
the technology it employs. See "BUSINESS -- LMDS Business" and
"BUSINESS -- REGULATION -- LMDS".
11
<PAGE> 16
POSSIBILITY OF LOSS OF CELLULAR ONE(R) BRAND NAME; COSTS OF INTRODUCING NEW
BRAND NAME
The Company has a license for the use of the service mark and trademark
CELLULAR ONE(R), in the States of Ohio and Michigan which is also licensed to
many of the non-wireline cellular systems in the United States. In 1997, the
owners of such mark entered into a new agreement with OCOM Corporation, with an
effective fifteen-year term, which agreement was assigned to a subsidiary of the
Company on June 1, 1998. Under the Cellular One(R) Agreement, the Company is
required to maintain certain service quality standards and to pay licensing and
other fees for the use of the service mark. If the Company had to adopt a new
brand name, it could encounter significant challenges in marketing its services
under the new brand name. The Company believes that the use of the nationally
recognized Cellular One(R) brand name will assist in attracting and retaining
customers in its markets. The Company would have to make large advertising and
promotional expenditures to position a new brand name in its regional and local
markets. The Company is unable to predict the extent of expenditures that would
be necessary to implement such a strategy. The Company is also unable to predict
with certainty the extent to which the substitution of a new brand name may
adversely affect its retention and acquisition of customers, its access to
distribution channels or its financial performance.
Although the Company anticipates that it will continue to have use of the
mark, there is no guarantee that it will remain available after the expiration
of the existing agreements. Moreover, it is possible that the Company will cease
to meet the service quality standards required to maintain use of the mark. See
"BUSINESS -- Patents, Copyrights and Licenses."
DEPENDENCE ON RELATIONSHIPS WITH THIRD-PARTY FACILITIES-BASED PROVIDERS
The Company does not own any part of a local exchange network or a long
distance network. As a result, the Company depends entirely on facilities-based
carriers for its various resale based services, and has entered into agreements
with such carriers. Although the Company believes that its relations with its
underlying carriers are good, the termination of any of the Company's contracts
with its carriers or a reduction in the quality or increase in cost of such
carriers' services could have a material adverse effect on the Company's
financial condition and results of operations. In addition, the accurate and
prompt billing of the Company's customers is dependent upon the timeliness and
accuracy of call detail records provided by the carriers whose service the
Company resells. There can be no assurance that the current carriers will
continue to provide, or that new carriers will provide, accurate information on
a timely basis, and such carrier's failure to do so could have a material
adverse effect on the Company's financial condition and results of operations.
In addition, physical damage, power loss and software defects (including
the inability to update their systems to be Year 2000 compliant) of the
facilities-based carriers may cause interruption in service and/or reduced
capacity for the Company's customers. In the event that the Company's long
distance carriers are unable to handle the growth in customer usage, the Company
could transfer such traffic to a carrier that had sufficient capacity, but there
can be no assurance that additional capacity will be available. If any of the
local exchange carriers are unable to handle the provisioning or growth in
customer usage, then the Company would be required to use another local carrier,
which could be difficult in light of the limited development of facilities-based
competitive local exchange networks. In the event the Company otherwise elects
to use other carriers, the charges for such services may exceed those under the
existing contracts, which could have a material adverse effect on the Company's
financial condition and results of operations. See "BUSINESS."
RISK OF SUBSCRIBER ACCEPTANCE AND SERVICE CANCELLATION
The success of the Company's business strategy will depend upon consumer
acceptance of the Company's planned offerings, most of which in their early
stages of deployment or are only in the planning stage. Subscriber acceptance
could be adversely affected by, among other things, customer loyalty to more
established competitors and unfamiliarity with the Company's systems. In
addition, there can be no assurance that technical problems will not impede or
delay subscriber acceptance of the Company's services.
12
<PAGE> 17
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the abilities and continued efforts of its senior management to execute its
business strategy. The loss of the services of any of such individuals could
have a material adverse effect upon the Company's results of operations and
financial condition. See "MANAGEMENT -- Executive Officers."
ABSENCE OF PRIOR TRADING MARKET FOR CORECOMM COMMON STOCK
There has not been any established public trading market for CoreComm
Common Stock, although it is expected that a "when-issued" trading market will
develop on or about the Record Date. The Company has applied for listing of the
CoreComm Common Stock on the Nasdaq National Market System. However, there can
be no assurance either as to the prices at which shares of CoreComm Common Stock
will trade before or after the Distribution Date. Until the CoreComm Common
Stock is fully distributed and an orderly market for those shares develops, the
prices at which such shares trade may fluctuate significantly. Prices for shares
of CoreComm Common Stock will be determined in the marketplace and may be
influenced by many factors, including the nature and liquidity of the market for
the shares, investor perception of the Company, the competitive environment of
the industries in which the Company participates, and general economic and
market conditions.
DIVIDENDS AND SHARE REPURCHASES
The payment and amount of cash dividends or share repurchases, if any, on
the CoreComm Common Stock after the Distribution will be subject to the
discretion of the Company's Board of Directors. The Company's policy will be
reviewed by the Company's Board of Directors at such future times as may be
appropriate, and payment of dividends on or share repurchases of the CoreComm
Common Stock will depend upon the Company's financial position, capital
requirements, profitability, cash flows, and such other factors as the Company's
Board of Directors deems relevant. At present, the Company has no plans to pay
cash dividends in the foreseeable future.
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND
OTHER MATTERS
Certain provisions of the Company's By-Laws, including provisions
classifying the Board of Directors, prohibiting stockholder action by written
consent and requiring advance notice for nomination of directors and stockholder
proposals, may inhibit changes of control of the Company that are not approved
by the Company's Board of Directors. Such By-Law provisions and preferred stock
purchase rights could diminish the opportunities for a stockholder to
participate in certain tender offers, including tender offers at prices above
the then-current fair market value of the CoreComm Common Stock, and may also
inhibit fluctuations in the market price of the CoreComm Common Stock that could
result from takeover attempts. In addition, the Company's Board of Directors,
without further stockholder approval, may issue preferred stock that could have
the effect of delaying, deferring or preventing a change in control of the
Company. The issuance of preferred stock could also adversely affect the voting
power of the holders of CoreComm Common Stock, including the loss of voting
control to others. The Company has no present plans to issue any preferred
stock. The provisions of the By-Laws and the preferred stock purchase rights may
have the effect of discouraging or preventing an acquisition of the Company or a
disposition of certain of the Company's businesses. See "DESCRIPTION OF COMPANY
CAPITAL STOCK -- Certain Special Provisions of the By-Laws."
GOVERNMENT REGULATION
The Company is subject to extensive regulation by the FCC and by the public
utility commissions of various states. Changes in statutes, regulations or
judicial interpretations, such as permitting new competitors to enter the
communications services marketplace, which is an element of the
Telecommunication Act of 1996 (the "Telecommunications Act"), could have
material adverse effects on the Company's operations. See
"BUSINESS -- REGULATION"
13
<PAGE> 18
RELATIONSHIP BETWEEN CCPR
AND THE COMPANY AFTER THE DISTRIBUTION
GENERAL
The Company's relationship with CCPR will be governed by agreements to be
entered into in connection with the Distribution, including a Distribution
Agreement and a Tax Disaffiliation Agreement, the material terms of which are
described below. The descriptions set forth below are intended to be summaries,
and while material terms of the agreements are set forth herein, the
descriptions are qualified in their entirety by reference to the relevant
agreement filed as an exhibit to the Registration Statement of which this
Information Statement is a part.
DISTRIBUTION AGREEMENT
Prior to the Distribution, CCPR and the Company will enter into the
Distribution Agreement, which will provide for, among other things, the amount
of CoreComm Common Stock to be issued in connection with the Distribution.
TAX DISAFFILIATION AGREEMENT
CCPR and the Company will enter into a Tax Disaffiliation Agreement (the
"Tax Disaffiliation Agreement"), detailing their respective obligations
concerning various tax liabilities. The Tax Disaffiliation Agreement generally
will require CCPR to pay, and indemnify the Company against, all Federal, state
and local domestic taxes relating to the businesses conducted by CCPR or its
subsidiaries for any taxable period ending on or prior to the Distribution Date.
Taxes relating to the Company and its subsidiaries for periods after the
Distribution Date will be paid by the Company.
The Tax Disaffiliation Agreement will further provide for cooperation with
respect to certain tax matters, the exchange of information and retention of
records which may affect the tax liability of either party.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
One million two hundred thousand shares of CoreComm Common Stock were
outstanding or beneficially owned by CCPR prior to the Distribution. Immediately
after the Distribution, approximately 13,182,000 shares of CoreComm Common Stock
will be outstanding, based on the number of shares of CCPR Common Stock
outstanding on March 31, 1998.
14
<PAGE> 19
The following table sets forth certain information regarding the beneficial
ownership of CCPR Common Stock, as of June 2, 1998, by stockholders holding 5%
or more of CCPR's Common Stock.
<TABLE>
<CAPTION>
PERCENT
COMMON STOCK VOTE
NUMBER PERCENTAGE OF COMMON
NAME AND ADDRESS OF SHARES OF OWNERSHIP STOCK
---------------- ------------ ------------ ---------
<S> <C> <C> <C>
Snyder Capital Management, L.P.(1).................... 1,687,662 12.44 12.44
Snyder Capital Management, Inc.
350 California Street, Suite 1460
Francisco, CA 94104
Ronald Baron(2)....................................... 1,506,200 11.10 11.10
Baron Capital Group, Inc.
Bamco, Inc.
Baron Capital Management Inc.
Baron Asset Fund
767 Fifth Avenue
New York, NY 10153
Wallace R. Weitz & Company(3)......................... 829,300 6.11 6.11
1125 South 103rd Street
Suite 600
Omaha, NE 68124-6008
The Equitable Companies Incorporated(4)............... 710,249 5.24 5.24
1290 Avenue of the Americas
New York, NY 10104
Lazard Freres & Co., LLC(5)........................... 681,883 5.03 5.03
30 Rockefeller Plaza
New York, NY 10020
</TABLE>
- ---------------
(1) Based solely upon a Schedule 13-G, dated May 11, 1998, filed by Snyder
Capital Management, L.P. and by Snyder Capital Management, Inc. with the SEC
(2) Based solely upon a Schedule 13-G (Amendment No. 2), dated February 13,
1998, filed by Baron Capital, Inc. with the Securities and Exchange
Commission (the "SEC").
(3) Based solely upon a Schedule 13-G, dated February 11, 1998, filed by Wallace
R. Weitz & Company with the SEC.
(4) Based solely upon a Schedule 13-G, dated February 10, 1998, filed by The
Equitable Companies Incorporated with the SEC.
(5) Based solely upon a Schedule 13-G (Amendment No. 1), dated April 7, 1997,
filed by Lazard Freres & Co., LLC with the SEC.
DESCRIPTION OF CCPR FUNDING OF THE COMPANY
Prior to the Distribution, CCPR will contribute to CoreComm $150 million in
cash. The financing will be used to pay expenses associated with the
Distribution and for working capital and general corporate purposes of the
Company following the Distribution, including making future acquisitions. CCPR's
ability to make the capital contribution is contingent upon the closing of a
bank loan to CCPR Services, Inc. ("Services"), a wholly-owned indirect
subsidiary of CCPR. Services has a commitment from The Chase Manhattan Bank
dated May 14, 1998 for senior secured credit facilities in an aggregate amount
of up to $160 million, which are subject to customary closing conditions.
15
<PAGE> 20
PRO FORMA CAPITALIZATION
(IN THOUSANDS)
(UNAUDITED)
The following table sets forth the historical and pro forma capitalization
of the Company at March 31, 1998. This table should be read in conjunction with
the Unaudited Pro Forma Financial Information appearing elsewhere in this
Information Statement. The pro forma information may not reflect the
capitalization of the Company in the future or as it would have been had the
Company been a separate, independent company on March 31, 1998. Assumptions
regarding the number of shares of CoreComm Common Stock may not reflect the
actual number of shares at the Distribution Date. See "Unaudited Pro Forma
Financial Information."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Long term debt.............................................. $ -- $ --
Shareholder's equity:
Series preferred stock -- $.01 par value; authorized
1,000,000 shares; issued and outstanding none.......... -- --
Common stock, $.01 par value: authorized 75,000,000
shares; issued and outstanding 1,200,000 (historical)
and 13,182,000 (pro forma) shares...................... 12 132
Additional paid-in capital................................ 22,173 173,765
------- --------
Total shareholder's equity.................................. 22,185 173,897
------- --------
Total capitalization........................................ $22,185 $173,897
======= ========
</TABLE>
16
<PAGE> 21
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information gives effect to (i) the
acquisition of the assets and related liabilities of OCOM, (ii) the acquisition
of all of the outstanding capital stock of Digicom, (iii) the acquisition of all
of the operating assets of Wireless Outlet (the acquistions described in clause
(ii) and (iii) above are collectively referred to as the "Other Acquisitions"
and together with the acquisition described in clause (i) above, the
"Acquisitions"), (iv) CCPR's contribution to the Company of the acquired assets
and related liabilities of OCOM and Wireless Outlet, and (v) the $150 million
cash contribution from CCPR (collectively the "Transactions"). The pro forma
financial information is based on the historical financial statements of
CoreComm, OCOM, Digicom and Wireless Outlet.
The Acquisitions have been accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed have been
recorded at their estimated fair value, which are subject to further adjustment
based upon appraisals and other analysis, with appropriate recognition given to
CoreComm's financing rates and income tax rates.
The unaudited pro forma condensed combined statement of operations for the
three months ended March 31, 1998 and for the year ended December 31, 1997 gives
effect to the Transactions as if they had been consummated at the beginning of
the year. The unaudited pro forma condensed combined balance sheet as of March
31, 1998 gives effect to the Transactions as if they had been consummated on
March 31, 1998.
The pro forma adjustments are based upon available information and
assumptions that management believes are reasonable at the time made. The
unaudited pro forma condensed combined financial statements do not purport to
present the financial position or results of operations of CoreComm had the
Transactions occurred on the dates specified, nor are they necessarily
indicative of the financial position or results of operations that may be
achieved in the future. The unaudited pro forma condensed combined statements of
operations do not reflect any adjustments for synergies that management expects
to realize commencing upon consummation of the Acquisitions. No assurances can
be made as to the amount of cost savings or revenue enhancements, if any, that
may be realized.
The unaudited pro forma financial statements should be read in conjunction
with the financial statements and notes thereto of OCOM and the consolidated
balance sheet and notes thereto of CoreComm appearing elsewhere in this
Information Statement.
17
<PAGE> 22
CORECOMM LIMITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------
OTHER PRO
CORECOMM OCOM ACQUISITIONS ADJUSTMENTS FORMA
-------- ------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Cash............................... $ -- $ -- $ 163 $150,000A $150,163
Accounts receivable, net........... 459 628 1,087
Inventory.......................... 66 56 122
Other.............................. 339 70 409
------- ------ ------ -------- --------
Total current assets.......... 864 917 150,000 151,781
Fixed assets, net.................. 1,361 423 1,784
LMDS auction bid................... 25,241 25,241
Intangibles........................ 1,963B 1,963
Other, net......................... 2,185 (2,000)B 185
------- ------ ------ -------- --------
$27,426 $2,225 $1,340 $149,963 $180,954
======= ====== ====== ======== ========
Accounts payable................... $ -- $ 20 $ 717 $ -- $ 737
Other.............................. 5,241 1,012 67 6,320
------- ------ ------ -------- --------
Total current liabilities..... 5,241 1,032 784 7,057
Shareholder's equity............... 22,185 1,193 556 149,963A,B 173,897
------- ------ ------ -------- --------
$27,426 $2,225 $1,340 $149,963 $180,954
======= ====== ====== ======== ========
</TABLE>
18
<PAGE> 23
CORECOMM LIMITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
OTHER PRO
CORECOMM OCOM ACQUISITIONS ADJUSTMENTS FORMA
-------- ------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
Revenues............................ $ -- $ 853 $1,360 $ -- $ 2,213
Costs and expenses:
Cost of equipment sold............ 20 20
Operating......................... 415 1,222 1,637
Selling, general and
administrative................. 1,766 361 2,127
Depreciation and amortization..... 144 30 49C 223
------- ------- ------ ------- -------
2,345 1,613 49 4,007
------- ------- ------ ------- -------
Operating (loss).................... (1,492) (253) (49) (1,794)
Other income (expense).............. --
------- ------- ------ ------- -------
Net (loss).......................... $ -- $(1,492) $ (253) $ (49) $(1,794)
======= ======= ====== =======
Basic and diluted net (loss) per
share............................. $ (0.14)
=======
Weighted average shares............. 13,182D 13,182
======= =======
</TABLE>
19
<PAGE> 24
CORECOMM LIMITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
OTHER PRO
CORECOMM OCOM ACQUISITIONS ADJUSTMENTS FORMA
-------- ------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
Revenues............................ $ -- $ 3,579 $5,571 $ -- $ 9,150
Costs and expenses:
Cost of equipment sold............ 20 20
Operating......................... 1,561 4,380 5,941
Selling, general and
administrative................. 5,934 1,329 7,263
Depreciation and amortization..... 439 146 196C 781
------- ------- ------ ------- -------
7,954 5,855 196 14,005
------- ------- ------ ------- -------
Operating (loss).................... (4,375) (284) (196) (4,855)
Other income (expense).............. (4) (15) -- (19)
------- ------- ------ ------- -------
Net (loss).......................... $ -- $(4,379) $ (299) $ (196) $(4,874)
======= ======= ====== ======= =======
Basic and diluted net (loss) per
share............................. $ (0.37)
=======
Weighted average shares............. 13,075D 13,075
======= =======
</TABLE>
20
<PAGE> 25
CORECOMM LIMITED
PRO FORMA ADJUSTMENTS
(IN THOUSANDS)
<TABLE>
<C> <S> <C>
A. Capital contribution from CCPR.............................. $150,000
========
B. Purchase price for the Acquisitions:
Included in Other assets.................................... $ 2,000
Capital contribution from CCPR.............................. 1,712
--------
Total....................................................... 3,712
Aggregate net assets acquired............................... 1,749
--------
Intangibles................................................. $ 1,963
========
Historical Shareholder's equity............................. $ 22,185
Capital contributions from CCPR:
Cash........................................................ 150,000
Acquisitions................................................ 1,712
--------
Pro forma Shareholder's Equity.............................. $173,897
========
C. Amortization of intangibles over 10 years:
For the three months ended March 31, 1998................... $ 49
========
For the year ended December 31, 1997........................ $ 196
========
D. Weighted average shares:
Based on the historical weighted average shares of CCPR on a
one-for-one basis
For the three months ended March 31, 1998................... 13,182
========
For the year ended December 31, 1997........................ 13,075
========
Stock options are excluded from the calculation of diluted
net loss per share as their effect would be anti-dilutive.
</TABLE>
21
<PAGE> 26
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical financial data of the Company and OCOM
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere in this Information Statement. The selected
historical financial data relates to OCOM as it was operated prior to its
acquisition by CoreComm. The selected historical financial data that relates to
March 31, 1998 have been derived from the historical consolidated balance sheet
of the Company audited by Ernst & Young LLP, independent auditors. The selected
historical financial data that relate to the three year period ended December
31, 1997 have been derived from the historical financial statements of OCOM
audited by Ernst & Young LLP, independent auditors.
The pro forma financial data were derived from the "Unaudited Pro Forma
Financial Information" that give pro forma effect to the Transactions. The pro
forma adjustments are based upon available information and certain assumptions
that management believes are reasonable. The pro forma statement of operations
data for the three months ended March 31, 1998 and for the year ended December
31, 1997 give effect to the Transactions as if they had occurred as of the
beginning of the periods. The pro forma balance sheet data give effect to the
Transactions as if they had occurred as of March 31, 1998. The pro forma
financial data do not purport to represent what the financial position or
results of operations of the Company would actually have been had the
Transactions in fact occurred on the assumed dates or to project the financial
position or results of operations of the Company for any future periods or date.
These tables should be read in conjunction with "Unaudited Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the audited Financial Statements included elsewhere
herein.
22
<PAGE> 27
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORECOMM
---------------------------------------
PRO FORMA
---------------------------------------
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 2,213 $ 9,150
Costs and expenses:
Cost of equipment sold.................................. 20 20
Operating............................................... 1,637 5,941
Selling, general and administrative..................... 2,127 7,263
Depreciation and amortization........................... 223 781
-------- -------
4,007 14,005
-------- -------
Operating (loss).......................................... (1,794) (4,855)
Other income (expense).................................... -- (19)
-------- -------
Net (loss)................................................ $ (1,794) $(4,874)
======== =======
Basic and diluted net (loss) per share.................... $ (0.14) $ (0.37)
======== =======
Weighted average shares................................... 13,182 13,075
======== =======
</TABLE>
<TABLE>
<CAPTION>
CORECOMM
-----------------------
MARCH 31, 1998
-----------------------
PRO FORMA HISTORICAL
--------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $144,724 $(5,251)
Fixed assets, net......................................... 1,784 --
Total assets.............................................. 180,954 27,426
Long-term debt............................................ -- --
Shareholder's equity...................................... 173,897 22,185
</TABLE>
23
<PAGE> 28
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCOM
----------------------------------------------------------------------
HISTORICAL
----------------------------------------------------------------------
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ 853 $ 986 $ 3,579 $ 5,103 $ 4,001 $3,690 $4,286
Costs and expenses:
Cost of equipment sold......... 20 -- 20 -- -- -- --
Operating...................... 415 437 1,561 3,065 2,478 1,617 1,609
Selling, general and
administrative............... 1,766 1,255 5,934 3,119 5,798 1,200 1,728
Depreciation and
amortization................. 144 48 439 149 137 170 192
------- ------ ------- ------- ------- ------ ------
2,345 1,740 7,954 6,333 8,413 2,987 3,529
------- ------ ------- ------- ------- ------ ------
Operating income (loss).......... (1,492) (754) (4,375) (1,230) (4,412) 703 757
Other income (expense)........... -- -- (4) 133 258 345 202
------- ------ ------- ------- ------- ------ ------
Net income (loss)................ $(1,492) $ (754) $(4,379) $(1,097) $(4,154) $1,048 $ 959
======= ====== ======= ======= ======= ====== ======
</TABLE>
24
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
CoreComm will require significant capital resources to develop and expand
its existing businesses and licenses, acquire or develop additional
telecommunications-related business, and fund near term operating losses.
CoreComm intends to fund its near term capital expenses, operating losses and
working capital requirements with the $150,000,000 capital contribution in cash
to be received from CCPR. CCPR's ability to make the capital contribution is
contingent upon the closing of a bank loan to CCPR Services, Inc. ("Services"),
a wholly-owned indirect subsidiary of CCPR. Services has a commitment from The
Chase Manhattan Bank dated May 14, 1998 for senior secured credit facilities in
an aggregate amount of up to $160,000,000, which are subject to customary
closing conditions. Longer term, it is likely that CoreComm will be required to
raise additional debt and/or equity financing to fully implement its goals.
The existing resale businesses will consume capital to acquire new
customers and to finance the working capital required to support these new
customers. These businesses will also require additional billing, customer
service and other back-office infrastructure. These capabilities can be expanded
in-house or can be outsourced to reduce up-front capital requirements. To date,
CoreComm's strategy has been to utilize the expertise developed by its
management to develop in-house billing and back-office capabilities. In the
future, the Company plans to make further appropriate acquisitions and to
purchase and build telecommunications facilities which may require significant
capital expenditures.
The amount of capital required to construct the LMDS systems is unknown at
this time, but is likely to be several times the cost of the licenses. In
addition to up-front network construction costs, a significant ongoing capital
requirement will be the cost to acquire customer premise equipment to receive
and transmit LMDS signals. The network and customer premise equipment costs are
unknown because a de facto standard has yet to emerge among the LMDS auction
winners and because insufficient orders have been placed with manufacturers who
determine likely prices for equipment. As license holders choose equipment
manufacturers and one or more equipment standard emerges, prices will become
more easily quantifiable.
RESULTS OF OPERATIONS
The following discussion of the results of operations of OCOM should be
read in conjunction with the financial statements and notes thereto appearing
elsewhere in this Information Statement.
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Telecommunications revenues decreased to $826,000 from $986,000 primarily
due to a reduction in cellular long distance revenues as a result of customers
switching to other long distance providers. The reduction in cellular long
distance revenues was partially offset by revenues from landline long distance
and cellular service, both of which were introduced subsequent to March 31,
1997.
The income from telephone equipment increased to $7,000 from zero as a
result of the introduction of cellular service in late 1997. OCOM's strategy is
to minimize sales of cellular telephones or accessories below cost, which is
typical in the cellular market since the cellular carriers subsidize the sale of
equipment in order to activate customers under long-term contracts.
Operating costs decreased to $415,000 from $437,000 as a result of the
decline in telecommunications revenues. Operating costs as a percentage of
telecommunications revenues increased to 50.2% from 44.3% due to the reduction
in cellular long distance revenues which has a higher gross margin than landline
long distance and cellular service.
Selling, general and administrative expenses increased to $1,766,000 from
$1,255,000 as a result of increased selling and marketing costs and increased
customer service costs, offset by a reduction in billing costs due to the
implementation of in-house billing subsequent to March 31,1997.
25
<PAGE> 30
Depreciation expense increased to $142,000 from $45,000 as a result of an
increase in fixed assets, primarily computer equipment.
Amortization expense decreased to $2,000 from $3,000 because the deferred
costs were fully amortized.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Telecommunications revenues decreased to $3,565,000 from $5,103,000
primarily due to a reduction in cellular long distance revenues as a result of
customers switching to other long distance providers. The reduction in cellular
long distance revenues was partially offset by revenues from landline long
distance and cellular service, both of which were introduced subsequent to
December 31, 1996.
The loss from telephone equipment increased to $6,000 from zero as a result
of the introduction of cellular service in late 1997. OCOM's strategy is to
minimize sales of cellular telephones or accessories below cost, which is
typical in the cellular market since the cellular carriers subsidize the sale of
equipment in order to activate customers under long-term contracts.
Operating costs decreased to $1,561,000 from $3,065,000 as a result of the
decline in telecommunications revenues. Operating costs as a percentage of
telecommunications revenues decreased to 43.8% from 60.1% due to the improvement
in the margin on cellular long distance as a result of a reduction in the
wholesale cost.
Selling, general and administrative expenses increased to $5,934,000 from
$3,119,000 as a result of increased selling and marketing costs, customer
service costs and management costs due to increased efforts beginning in late
1996 to grow and develop OCOM's business.
Depreciation expense increased to $428,000 from $138,000 as a result of an
increase in fixed assets, primarily computer equipment.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Telecommunications revenues increased to $5,103,000 from $4,001,000 due to
an increase in cellular long distance revenues as a result of the expansion of
OCOM's cellular long distance resale business in to certain AT&T Wireless
markets in 1995. Prior to this expansion, OCOM only provided cellular long
distance service in certain AirTouch Communications markets in Ohio.
Operating costs increased to $3,065,000 from $2,478,000 as a result of the
increase in cellular long distance revenues. Operating costs as a percentage of
telecommunications revenues decreased to 60.1% from 61.9%.
Selling, general and administrative expenses decreased to $3,119,000 from
$5,798,000. The 1995 amount includes one-time costs of $2,294,000 incurred in
connection with the expansion of the cellular long distance resale business into
certain AT&T Wireless markets. The remainder of the decrease was due to reduced
selling and marketing costs. Included in the 1996 amount are increased billing
costs and increased management costs beginning in late 1996 in order to grow and
develop OCOM's business.
Depreciation expense increased to $138,000 from $126,000 as a result of an
increase in fixed assets.
Other income decreased to $133,000 from $258,000 due to the termination of
OCOM's consulting agreement with AT&T Wireless for assistance in marketing and
implementing a cellular long distance resale business.
YEAR 2000
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Company is assessing
both the internal readiness of its computer systems and the compliance of the
computer systems of certain significant vendors for handling the year 2000. The
Company expects to implement successfully the systems and programming changes
necessary to address year 2000 issues, and does not believe that the cost of
such actions will have a material adverse effect on the Company. There can be no
26
<PAGE> 31
assurance, however, that there will not be a delay in, or increased costs
associated with, the implementation of such changes, and the Company's inability
to implement such changes could have an adverse effect on the Company. In
addition, the failure of certain of the Company's significant vendors to address
the year 2000 issue could have a material adverse effect on the Company.
27
<PAGE> 32
BUSINESS
CoreComm was formed in March 1998 by CCPR in order to provide an
appropriate vehicle to pursue new telecommunications opportunities outside of
Puerto Rico and the U.S. Virgin Islands in an entrepreneurial corporate
environment. On the Distribution Date, CoreComm will be a holding company that
will own and operate communications businesses which were previously held in
wholly owned subsidiaries of CCPR, some of which have been recently acquired. As
of June 1, 1998 CoreComm and its subsidiaries had approximately 120 employees.
CoreComm now holds, through directly and indirectly wholly owned subsidiaries,
entities which operate or hold licenses or applications to operate in the
competitive local exchange business, cellular long distance resale business,
landline long distance resale business, cellular service resale business, paging
resale service and repair business, prepaid cellular service resale business,
centralized telecommunications services business, and local multipoint
distribution services business. Aside from the cellular long distance resale
business, which has been operating for approximately seven years, these
businesses are in early stages of development.
CoreComm's CLEC, cellular long distance, landline long distance and
cellular resale businesses were formerly owned by OCOM Corporation, a subsidiary
of NTL Incorporated ("NTL"). OCOM Corporation sold all of these assets and
related liabilities ("OCOM Corporation Telecoms Business" or "OCOM") to a
subsidiary of CoreComm pursuant to an agreement dated as of June 1, 1998.
CoreComm, through a wholly owned subsidiary, also has purchased all of the
outstanding capital stock of Digicom, Inc. ("Digicom"), which operates a CLEC in
the State of Ohio. The Company also acquired all of the operating assets of
JeffRand Corp. ("Wireless Outlet") which operates the Company's paging and
prepaid cellular businesses. CoreComm's LMDS licenses are held in an indirectly
wholly owned subsidiary, which was the high bidder at the recent FCC auction for
LMDS licenses, for 15 markets in the State of Ohio.
COMPETITIVE LOCAL EXCHANGE CARRIER BUSINESS
CoreComm's Competitive Local Exchange Carrier ("CLEC") business is divided
into two segments: Ohio and sixteen undeveloped markets. In the State of Ohio,
through its acquisition of OCOM, CoreComm has already been certified as a CLEC
and began providing CLEC services to residential customers in March, 1998.
CoreComm has also applied for certification as a CLEC in sixteen other states,
through sixteen independent wholly owned subsidiaries, and is expecting to gain
certification for CLEC services in those states by the end of 1998. These two
segments are each discussed in detail below. For a detailed description of the
Telecommunications Act of 1996 and the regulatory environment for CLEC's, see
"-- REGULATION."
CLEC BUSINESS -- OHIO
On February 19, 1997, OCOM applied to the Public Utility Commission of Ohio
("PUCO") for certification as a CLEC in the State of Ohio. On June 13, 1997,
OCOM's application for certification as a CLEC was granted by PUCO, and OCOM
began offering residential CLEC service on March 11, 1998. The granting of
certification made OCOM one of the first CLECs in the State of Ohio to be
certified to compete with the Incumbent Local Exchange Carrier ("ILEC") for
residential, local phone service.
OCOM provides CLEC service on a resale basis, pursuant to an
Interconnection Agreement OCOM signed with Ameritech Services, Inc.,
("Ameritech") the ILEC, on November 17, 1997. Under that agreement, OCOM
purchases local exchange services at wholesale prices from Ameritech, and is
permitted to resell those services to OCOM's customers.
Services offered for resale include most of the telecommunications products
and services engineered and provided by Ameritech, such as local exchange
calling and attendant features including call waiting, call forwarding, caller
ID and three-way calling. The rates for these services are filed with PUCO. OCOM
also has an agreement with Ameritech for the resale of certain non-tariffed
services to its customers, including inside wire maintenance. OCOM's CLEC
service is transparent to the customer, whose phone operates precisely the same
as it did prior to selecting OCOM as its Local Exchange Carrier ("LEC"). The
customer receives its bill from OCOM, rather than Ameritech. OCOM offers this
service under the CELLULAR ONE(R) service mark. See "-- Patents, Copyrights and
Licenses."
28
<PAGE> 33
In addition to OCOM's CLEC business, prior to the Distribution Date, a
wholly owned subsidiary of CoreComm purchased all of the outstanding capital
stock of Digicom. One of Digicom's principal lines of business is CLEC service
to small businesses in the State of Ohio. Digicom also has an interconnection
agreement with Ameritech covering all of Ameritech's Ohio markets. See
"-- Centrex Business."
CLEC BUSINESS -- OTHER STATES
Apart from the CLEC business conducted by OCOM and Digicom in Ohio,
CoreComm, through independent, indirectly wholly owned subsidiaries (the "CLEC
Subs"), is in the process of applying, has applied for or has received
certification as a CLEC in sixteen states: Arizona, California, Delaware,
Florida, Illinois, Kansas, Maryland, Massachusetts, Missouri, Nevada, New
Jersey, New York, Oklahoma, Pennsylvania, Texas and Virginia. The Company
expects the last of the CLEC Subs to receive its certification by the end of
1998.
LOCAL MULTIPOINT DISTRIBUTION SERVICE BUSINESS
Local Multipoint Distribution Service ("LMDS") is a broadband wireless
communications service that uses frequencies in the 28GHz to 31GHz range to
transmit video and data signals to and from residences and offices over a
cellular-like network at distances under a few miles. An LMDS system is capable
of providing high-capacity broadband service for the "last mile" to a
subscriber's home or office, at what may be a substantially lower cost than
other competing delivery systems.
Video or data signals transmitted through an LMDS system, such as
television programming, are received by the system from satellite transponders,
terrestrial microwave facilities and/or studios. Internet Access can be obtained
through dedicated lines, such as a T-3 line, connected to the Internet
"backbone." The signals are then upconverted to the LMDS frequency band and
transmitted via omnidirectional transmitters.
Prior to the development of LMDS systems, transmission of communications
signals in the 28 GHz frequency range was not commercially pursued apart from
limited satellite applications because technical impediments, such as intercell
interference and rainfade, were thought to be insurmountable. Modern LMDS
systems eliminate or significantly reduce these impediments through the
strategic placement of cells and advanced system architecture.
29
<PAGE> 34
CoreComm, through an indirect, wholly owned subsidiary, participated in the
FCC's recently concluded auction of LMDS licenses. CoreComm has been awarded the
A Block licenses in 15 markets in Ohio with a total of 10,573,982 pops:
<TABLE>
<CAPTION>
MARKET NAME POPS(1)
----------- ----------
<S> <C>
Cleveland-Akron, OH......................................... 2,894,133
Cincinnati, OH.............................................. 1,990,451
Columbus, OH................................................ 1,477,891
Dayton-Springfield, OH...................................... 1,207,689
Toledo, OH.................................................. 782,184
Canton-New Philadelphia, OH................................. 513,623
Youngstown-Warren, OH....................................... 492,619
Lima, OH.................................................... 249,734
Mansfield, OH............................................... 221,514
Zanesville-Cambridge, OH.................................... 178,179
Findlay-Tiffin, OH.......................................... 147,523
Sandusky, OH................................................ 133,019
Ashtabula, OH............................................... 99,821
Chillicothe, OH............................................. 93,579
Marion, OH.................................................. 92,023
----------
Total............................................. 10,573,982
==========
</TABLE>
- ---------------
(1) Pops are defined as the estimated population of a market multiplied by a
company's ownership interest in the entity operating the system in that
market. The number of pops owned by an operator does not represent the
number of users of its services and is not necessarily indicative of the
number of potential subscribers. Rather, this term is used only as a basis
for comparison of the current size of system operators. The FCC used pops in
the LMDS auction for determining upfront payments, bidder eligibility, and
minimum bids. The pops in this chart are based upon the April 1, 1990 U.S.
Department of Commerce, Bureau of the Census data.
For a detailed description of the FCC bidding process and LMDS, see
"REGULATION -- LMDS"
Each LMDS license covers a defined Basic Trading Area ("BTA"), with each
A-Block LMDS license consisting of 1150 MHZ of spectrum. CoreComm bid
approximately $25.2 million for such licenses, for an average of $2.39/pop.
In the provision of multichannel video services, the Company will compete
with franchised cable systems and also may face competition from several other
sources, such as MMDS, Satellite Master Antenna Television ("SMATV") systems,
DBS, video service from telephone companies and television receive-only
satellite dishes. Moreover, the Telecommunications Act of 1996 eliminates
restrictions that prohibit local telephone exchange companies from providing
video programming in their local telephone service areas and substantially
reduces current and future regulatory burdens on franchised cable systems, thus
potentially resulting in significant additional competition from local telephone
companies and franchised cable systems.
CELLULAR LONG DISTANCE BUSINESS
OCOM sells retail long distance telephone services in portions of Ohio,
Michigan, Kentucky and Indiana to cellular customers of various local cellular
service providers who have chosen OCOM as their long distance service provider.
OCOM markets these cellular long distance services under the CELLULAR ONE(R)
service mark. OCOM currently has approximately 60,000 subscribers in Ohio, which
generate annual revenues of approximately $1 million.
30
<PAGE> 35
OCOM also sells retail long distance services to cellular customers of AT&T
Wireless who choose OCOM as their long distance service provider. OCOM provides
these services primarily through arrangements with other long distance carriers
under tariff or contract. OCOM currently has approximately 130,000 customers in
these markets which generate annual revenues of approximately $1.4 million. The
markets currently include Colorado, Florida, Minnesota, Nevada and Pennsylvania
where the services are offered under the "Cellular Long Distance Company"
service mark, and California and Texas, where the services are offered under the
"Cellular Network" service mark.
OCOM provides domestic and international interexchange long distance
service to points outside OCOM's operating territory through arrangements with
LCI International ("LCI") and other long distance carriers. LCI provides OCOM
with terminating switched service from any LCI switch location. When an outgoing
long distance cellular call is placed, the call is routed to the interconnection
point for the long distance carrier. OCOM pays long distance companies a
wholesale rate for these calls and bills its customers at a retail rate.
LANDLINE LONG DISTANCE BUSINESS
In addition to its cellular long distance business, OCOM recently developed
a landline long distance business. OCOM is a reseller of long distance telephone
services to residential and small business customers throughout the State of
Ohio, under the CELLULAR ONE(R) service mark. The primary product is OCOM's
Dial-1 Telephone Service. Its other long distance telephone products are 800
Number services and debit calling card services.
In order to provide these products, OCOM generally contracts to purchase
long distance telephone time from national carriers at wholesale rates based
upon high volume usage. OCOM then resells this time to its customers at its own
retail rates which are priced generally below AT&T's published, tariffed basic
rates. OCOM's Dial-1 Service is transparent to its customers once a customer's
long distance service has been converted to OCOM. OCOM's calling card products
operate similarly to the calling card products offered by the major carriers.
OCOM's customers pay for their long distance calling usage through direct
billing from OCOM or through direct billing by OCOM of the customer's major
credit card or checking account.
PAGING BUSINESS
Wireless Outlet operates a paging system on a resale basis and a pager
sales and repair business (collectively the "Paging Business"). The Paging
Business resells paging services and markets its products through a dealer
network that sells the service and the pagers, primarily to small businesses
throughout Ohio.
CENTREX BUSINESS
In purchasing Digicom, the Company acquired a well developed Centralized
Telecommunication Services and Telecommunications Facilities Management Services
("TFMS") business (the "Centrex Business"). Digicom offers its customers, small
to large sized businesses throughout the State of Ohio, reliable one-source
communications services previously available through the Bell System, together
with the latest in communications equipment and enhanced services.
Although the Company presently does not have any plans to do so, in the
future it may become possible to offer OCOM's various communications services to
Digicom's Centrex Business customers, as part of their bundled package of
services.
CELLULAR RESALE BUSINESS
Through OCOM and Wireless Outlet, the Company sells cellular telephone
service throughout the states of Ohio and Michigan. OCOM sells cellular service
under the CELLULAR ONE(R) service mark on a resale basis. OCOM has signed resale
agreements with the three major providers of cellular service in Michigan and
Ohio: New Par (d/b/a AirTouch Cellular), GTE Mobilenet Inc. and Ameritech Mobile
Communications, Inc. OCOM has been actively engaged in marketing this business
for less than 9 months, and as of March 31,
31
<PAGE> 36
1998 had approximately 690 cellular telephone numbers in operation. Wireless
Outlet also operates a cellular service on a resale basis, also operating
through resale agreements with AirTouch, GTE and Ameritech.
PREPAID CELLULAR BUSINESS
In addition to its traditional paging and cellular resale businesses,
Wireless Outlet also sells pre-paid cellular service on a resale basis through
the sale of pre-paid debit cards. Prepaid debit cards allow users to make calls
from a cellular phone based on a prepaid dollar amount that has been credited to
the card. Prepaid debit card applications include promotional campaigns, fund
raising for charitable organizations and budgeted out-of-town calling for
traveling employees. In addition, prepaid debit cards allow cellular resale
companies to generate revenues from a base of customers who would otherwise not
have the opportunity to take advantage of cellular services due to credit
problems or who need to limit the usage of cellular service. For example, a
developing niche market for prepaid cellular debit cards are college students.
Under the name "Wireless Outlet", Wireless Outlet currently sells prepaid
cellular cards in Ohio, and is also in the process of expanding its business to
other states.
PATENTS, COPYRIGHTS AND LICENSES
The Company does not have any patents or copyrights nor does the Company
believe patents or copyrights play a material role in its business. Other than
the Company's FCC licenses, the Company's only license is for the use of the
service mark and trademark CELLULAR ONE(R), which is also licensed to many of
the non-wireline cellular systems in the United States. In August, 1997, the
owners of such mark entered into a new agreement with OCOM Corporation, with an
effective fifteen-year term, which agreement was assigned to a subsidiary of the
Company. Under the Cellular One(R) Agreement, the Company is required to
maintain certain service quality standards and to pay licensing and other fees
for the use of the service mark.
COMPETITION
The telecommunications industry and all of its segments are highly
competitive. CoreComm's CLEC Business, which is in the development stage, will
operate this highly competitive environment. The Company expects that
competition will continue to intensify in the future due to the increase in the
size, resources and number of market participants. In each of its markets, the
Company faces competition from larger, better capitalized incumbent providers.
In the local exchange markets, the Company's principal competitor will be
the ILEC. The Company also faces competition or prospective competition from one
or more CLECs, many of which have significantly greater financial resources than
the Company. For example, AT&T, MCI and Sprint, have each begun to offer local
telecommunications services in major U.S. markets using their own facilities or
by resale of the ILECs' or other providers' services. In fact, certain
competitors, including AT&T, MCI and Sprint, have entered into interconnection
agreements with Ameritech with respect to the States of Michigan and Ohio in
which the Company operates. These competitors either have begun or in the near
future likely will begin offering local exchange service in those states,
subject to the joint marketing restrictions under the Telecommunications Act. In
addition to long distance service providers and existing CLECs, entities that
are potentially capable of offering switched services include cable television
companies, electric utilities, microwave carriers, wireless telephone system
operators and large customers who build private networks. Many facilities-based
CLECs have committed substantial resources to building their networks or to
purchasing CLECs or IXCs with complementary facilities. By building or
purchasing a network or entering into interconnection agreements or resale
agreements with ILECs, including Bell Operating Companies ("BOCs"), and IXCs, a
provider can offer single source local and long distance services similar to
those offered by the Company. Some of these CLECs and other facilities-based
providers of local exchange service are acquiring or being acquired by IXCs.
While certain of these combined entities may continue to be subject to the joint
marketing restrictions in the Telecommunications Act, others will not be subject
to such restrictions. Some of these combined entities may have resources far
greater than those of the Company. These combined entities may provide a bundled
package of telecommunications products, including local and long distance
telephony, that is in direct competition with the products offered by the
Company.
32
<PAGE> 37
Under the Telecommunications Act and related federal and state regulatory
initiatives, barriers to local exchange competition are being removed. The
availability of broad-based local resale and introduction of facilities-based
local competition are required before the BOCs may provide in-region
interexchange long distance services. Also, the largest long distance carriers
(AT&T, MCI, Sprint and any other carrier with 5% or more of the pre-subscribed
access lines) are prevented under the Telecommunications Act from bundling local
services resold from an BOC in a particular state with their long distance
services until the earlier of (i) February 8, 1999 or (ii) the date on which the
BOC whose services are being resold obtains in-region long distance authority in
that state. The BOCs are currently allowed to offer certain in-region
"incidental" long distance services (such as cellular, audio and visual
programming and certain interactive storage and retrieval functions) and to
offer virtually all out-of-region long distance services.
Section 271 of the Telecommunications Act prohibits a BOC from providing
long-distance service that originates (or in certain cases terminates) in one of
its in-region states until the BOC has satisfied certain statutory conditions in
that state and has received the approval of the FCC. The FCC to date has denied
each application for such approval, including the application of Ameritech for
in-region long distance authority in Michigan. The Company anticipates that a
number of BOCs, including Ameritech, will file additional applications for
in-region long distance authority in certain states in 1998. The FCC will have
90 days from the date an application for in-region long distance authority is
filed to decide whether to grant or deny the application. Based on continuing
legal challenges, the Company does not believe that any BOC will provide in-
region long distance services on a significant basis prior to 1999.
Once the BOCs are allowed to offer widespread in-region long distance
services, both they and the largest IXCs will be in position to offer
single-source local and long distance services similar to those offered by the
Company. On December 31, 1997, a United States District Court judge in Texas
held unconstitutional certain sections of the Telecommunications Act, including
Section 271. This decision, which has been stayed pending appeal, would permit
the three BOCs that are parties in the case to begin offering widespread
in-region long distance services. Unless overturned on appeal, this decision
could have a material adverse effect on the Company. Although there can be no
assurance as to the outcome of this litigation, the Company believes that
significant parts of the District Court decision may be reversed or vacated on
appeal.
While new business opportunities will be made available to the Company
through the Telecommunications Act and other federal and state regulatory
initiatives, regulators are likely to provide the ILECs with an increased degree
of flexibility with regard to pricing of their services as competition
increases. Although the Ameritech resale agreement contains certain pricing
protections, including adjustments in the wholesale rates to be consistent with
any changes in the Ameritech retail rates, if the ILECs elect to lower their
rates and sustain lower rates over time, this may adversely affect the revenues
of the Company and place downward pressure on the rates the Company can charge.
The Company believes the effect of lower rates may be offset by the increased
revenues available by offering new products and services to its target
customers, but there can be no assurance that this will occur. In addition, if
future regulatory decisions afford the LECs excessive pricing flexibility or
other regulatory relief, such decisions could have a material adverse effect on
the Company.
Competition for the Company's products and services is based on price,
quality, network reliability, service features and responsiveness to customers
needs. A continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors to the
Company. Many of the Company's existing and potential competitors have
financial, technical and other resources significantly greater than those of the
Company. In addition, in December 1997 the FCC issued rules to implement the
provisions of the World Trade Organization Agreement on Basic
Telecommunications, which was drafted to liberalize restrictions on foreign
ownership of domestic telecommunications companies and foreign
telecommunications companies to enter domestic markets. The new FCC rules went
into effect in February 1998 and make it substantially easier for many non-U.S.
telecommunications companies to enter the U.S. market, thus further increasing
the number of competitors. The new rules also give non-U.S. individuals and
corporations greater ability to invest in U.S. telecommunications companies,
thus increasing the financial and technical resources available to the Company
and its existing and potential competitors.
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Pay television operators face competition from other sources of
entertainment, such as movie theaters and computer on-line services. Further,
premium movie services offered by cable television systems have encountered
significant competition from the home video industry. In areas where several
off-air television broadcasts can be received without the benefit of cable
televison, cable television systems have experienced competition from such
broadcasters.
Many actual and potential competitors have greater financial, marketing and
other resources than the Company. No assurance can be given that the Company
will be able to compete successfully.
See "-- REGULATION -- LMDS" and "RISK FACTORS -- Competition from Suppliers
of Telecommunication Services."
REGULATION
OVERVIEW
Telecommunications services provided by the Company are subject to
regulation by federal, state and local government agencies. At the federal
level, the FCC has jurisdiction over interstate and international services.
Jurisdictionally, interstate services are communications that originate in one
state and terminate in another. Intrastate services are communications that
originate and terminate in a single state. State public service commissions
("State PSCs") exercise jurisdiction over intrastate services. Additionally,
municipalities and other local government agencies may regulate limited aspects
of the Company's business, such as use of government-owned rights-of-way and
construction permits. The Company's networks are also subject to numerous local
regulations such as building codes, franchise and right-of-way licensing
requirements.
TELECOMMUNICATIONS ACT OF 1996
On February 8, 1996, the Federal Telecommunications Act of 1996 was signed
into law. The Telecommunications Act has and will continue to result in
substantial changes in the marketplace for telecommunications services. These
changes include opening local exchange services to competition and will result
in a substantial increase in the addressable services for the Company. Among its
more significant provisions, the Telecommunications Act (i) removes legal
barriers to entry into all telecommunications services, such as long distance
and local exchange services, (ii) requires ILECs to "interconnect" with
competitors, (iii) establishes procedures for ILEC entry into new services, such
as long distance and cable television, (iv) relaxes regulation of
telecommunications services provided by ILECs and all other telecommunications
service providers, and (v) directs the FCC to establish an explicit subsidy
mechanism for the preservation of universal service. As a component of the need
for explicit subsidy mechanism for universal service, the FCC was also directed
by Congress to revise and make explicit subsidies inherent in the current access
charge system.
REMOVAL OF ENTRY BARRIERS
Prior to enactment of the Telecommunications Act, many states limited the
services that could be offered by a Company competing with the ILEC. See
"-- State Regulation." The Telecommunications Act prohibits state and local
governments from enforcing any law, rule or legal requirement that prohibits or
has the effect of prohibiting any entity from providing interstate or intrastate
telecommunications services.
The provisions of the Telecommunications Act should enable the Company to
provide a full range of local telecommunications services in any state. Although
the Company will be required to obtain certification from the State PSCs in
almost all cases, the Telecommunications Act should limit substantially the
ability of a State PSC to deny a request for certification filed by the Company.
The provisions of the Telecommunications Act also reduces the barriers to entry
by other potential competitors and therefore increases the level of competition
the Company will likely face in all its markets. See "-- Competition."
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<PAGE> 39
INTERCONNECTION WITH LEC FACILITIES
A Company cannot compete effectively with the ILEC in switched local
telephone services unless it is able to connect its facilities with the ILEC and
obtain access to certain essential services and resources under reasonable
rates, terms and conditions. The Telecommunications Act imposes a number of
access and interconnection requirements on all local exchange providers,
including CLECs, with additional requirements imposed on non-rural ILECs. These
requirements will provide access to certain networks under reasonable rates,
terms and conditions. Specifically, LECs must provide the following:
Telephone Number Portability. Telephone number portability enables a
customer to keep the same telephone number when the customer switches LECs.
Dialing Parity. All LECs must provide dialing parity, which means
that a customer calling to or from a CLEC network cannot be required to
dial more digits than is required for a comparable call originating and
terminating on the LEC's network.
Reciprocal Compensation. The duty to provide reciprocal compensation
means that LECs must terminate calls that originate on competing networks
in exchange for a given level of compensation and that they are entitled to
termination of calls that originate on their network for which they must
pay a given level of compensation.
Resale. LECs generally may not prohibit or place unreasonable
restrictions on the resale of their services. In addition, ILECs must offer
bundled local exchange services to resellers at a wholesale rate that is
less than the retail rate charged to end users.
Access to Rights-of-Way. All ILECs, CLECs and certain other utilities
must provide access to their poles, ducts, conduits and rights-of-way on a
reasonable, nondiscriminatory basis.
Unbundling of Network Elements. ILECs must offer access to various
unbundled elements of their network. This requirement allows new entrants
to purchase at cost-based rates elements of an ILEC's network that may be
necessary to provide service to a new entrant's customers.
While the Telecommunications Act generally requires ILECs to offer
interconnection, unbundled network elements and resold services to CLECs,
LEC-CLEC interconnection agreements may have short terms, requiring the CLEC to
renegotiate the agreements. LECs may not provide timely provisioning or adequate
service quality, thereby impairing a CLEC's reputation with customers who can
easily switch back to the LEC. In addition, the prices set in the agreements may
be subject to significant rate increases if state regulatory commissions
establish prices designed to pass on to the CLECs part of the intrastate cost of
providing universal service.
On July 2, 1996, the FCC ordered all LECs to begin phased development of a
long-term service provider number portability method in the 100 largest
Metropolitan Statistical Areas ("MSAs") no later than October 1, 1997, and to
complete deployment in those MSAs by December 31, 1998. After December 31, 1998,
each LEC must make number portability available within six months after
receiving a specific request by another telecommunications carrier in areas
outside the 100 largest areas MSAs in which the requesting carrier is operating
or plans to operate. Until long-term service number portability is available,
all LECs must provide currently available number portability measures as soon as
reasonably possible after a specific request from another carrier.
On August 8, 1996, the FCC released its orders concerning the
interconnection obligations of all telecommunications carriers and ILEC pricing
of interconnection, resale and unbundled elements (the "Local Competition
Orders").
On July 18, 1997, the U.S. Court of Appeals for the Eighth Circuit ("Eighth
Circuit") vacated certain portions of the Local Competition Orders. The Eighth
Circuit decision created uncertainty about individual states' rules governing
the pricing, terms and conditions of interconnection agreements, and may make
negotiating and enforcing such agreements more difficult and protracted.
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On August 22, 1997, the Eighth Circuit issued an order vacating the FCC's
dialing parity rules to the extent they apply to intrastate traffic and certain
non-toll interstate services. On October 14, 1997, the Eighth Circuit vacated an
FCC rule that obligated ILECs, under certain circumstances, to provide
combinations of network elements, rather then provide them individually. This
decision may make it more difficult or expensive for competitors to use
combinations of ILEC elements.
The U.S. Supreme Court accepted for review the Eighth Circuit's decision on
the Local Competition Orders, but is not expected to issue a decision before the
end of 1998. On January 22, 1998 the Eighth Circuit ruled that the FCC cannot
apply its local competition pricing rules in reviewing applications of the BOCs
for authorization to provide long distance services that originate and certain
services that terminate in their regions. If upheld, this decision could make it
somewhat easier for BOCs to enter the market for in-region long distance
services.
Various parties have requested that the FCC reconsider its orders
implementing the Telecommunications Act. There is uncertainty as to how the
courts and FCC will affect these rules, and how State PSCs will act in light of
the Telecommunications Act and the FCC rules.
Finally, continuing challenges to state and federal rules and policies
implementing the Telecommunications Act, and individual actions by State PSCs
could cause the Company to incur substantial legal and administrative expenses.
LEC ENTRY INTO NEW MARKETS
The Company's principal competitor in each area it enters is the ILEC. See
"-- Competition." Prior to the enactment of the Telecommunications Act, the BOCs
generally were prohibited by the consent decree that broke up the Bell System
from providing interLATA (i.e., long distance) services. Section 271 of the
Telecommunications Act established procedures under which a BOC can provide
interLATA services originating from (and in certain cases, terminating in) its
telephone service area ("in-region" interLATA service). BOCs are currently
permitted to provide interLATA services to customers outside of their local
service areas ("out-of-region" interLATA service), and interLATA service in
conjunction with their mobile telephone service offerings ("incidental"
interLATA service). Before a BOC can provide non-incidental in-region interLATA
service, it must enter into a state-approved interconnection agreement with a
Company that provides local exchange service to business and residential
customers predominantly over its own facilities, and receive FCC approval. The
interconnection offered or provided by the BOC must comply with a "competitive
checklist" that incorporates the interconnection requirements discussed above.
See "-- Interconnection with LEC Facilities."
Section 271 approval from the FCC will enable a BOC to provide customers
with a full range of local and long distance telecommunications services. The
provision of interLATA services by BOCs is expected to reduce the market share
of the major long distance carriers, which may be significant customers of the
Company's services. Consequently, the entry of the BOCs into the long distance
market may have adverse consequences on the ability of CLECs both to generate
access revenues from the IXCs and to compete in offering a package of local and
long distance services. To date, FCC authority to provide in-region interLATA
service has been sought by Ameritech in Michigan, Southwestern Bell in Oklahoma
and BellSouth in South Carolina and Louisiana. The Department of Justice opposed
each of these requests, and the FCC denied them. More BOC requests to provide
in-region interLATA service are expected to be filed with the FCC in the near
future.
Further FCC rulings on Section 271 applications have been complicated by a
Texas Federal District Court ruling on December 31, 1997 that Section 271 of the
Telecommunications Act is unconstitutional. On February 11, 1998, the District
Court granted a request for stay of its decision pending the outcome of an
appeal on the merits to the U.S. Court of Appeals for the Fifth Circuit.
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RELAXATION OF REGULATION
A long-term goal of the Telecommunications Act is to increase competition
for telecommunications services, thereby reducing the need for regulation of
these services. To this end, the Telecommunications Act requires the FCC to
streamline its regulation of ILECs and permits the FCC to forbear from
regulating particular classes of telecommunications services or providers. Since
the Company is a non-dominant carrier and, therefore, is not heavily regulated
by the FCC, the potential for regulatory forbearance likely will be more
beneficial to the ILECs than the Company in the long run.
In an exercise of its "forbearance authority," the FCC ruled that
nondominant IXCs will no longer be able to file tariffs with the FCC concerning
their long distance services. This order has been stayed pending review in the
U.S. Court of Appeals for the District of Columbia.
Pursuant to the forebearance provisions of the Telecommunications Act, in
June 1997, the FCC adopted an order allowing nondominant providers of exchange
access service the option of tariffing or detariffing their services. The FCC
also requested further comment on whether to mandate the detariffing of exchange
access services.
UNIVERSAL SERVICE AND ACCESS CHARGE REFORM
On May 8, 1997, the FCC issued an order to implement the provisions of the
Telecommunications Act relating to the preservation and advancement of universal
telephone service. This order requires all telecommunications carriers providing
interstate telecommunications services, including the Company, to contribute to
universal service support.
In a related proceeding, on May 16, 1997, the FCC issued an order to
implement certain reforms to its access charge rules. Access charges are charges
imposed by LECs on long distance providers for access to the local exchange
network, and are designed to compensate the LEC for its investment in the local
network. The FCC regulates interstate access and the states regulate intrastate
access. This order required ILECs to substantially decrease over time the prices
they charge for switched and special access and changed how access charges are
calculated. These changes are intended to reduce access charges paid by IXCs to
LECs and shift certain usage-based charges to flat-rated, monthly per-line
charges. To the extent that these rules are effective in reducing access
charges, the ability of the Company to provide customers with lower-cost access
services might be impaired. Additionally, the FCC ruled that ILECs may no longer
impose certain interconnection charges on competitive providers that
interconnect with the ILEC at the incumbent's end offices but do not use the
ILEC's transport facilities.
These FCC orders are subject to petitions seeking reconsideration by the
FCC and petitions for review before U.S. Courts of Appeals. Until the time when
any such review proceeding or appeals are decided, there can be no assurance of
how these orders will be implemented, or what effect these orders will have on
competition within the telecommunications industry, generally, or on the
competitive position of the Company, specifically.
Some State PSCs are currently considering actions to preserve universal
services and promote the public interest. The actions may impose conditions on
the authorizations issued to the Company which could increase the cost to the
Company of providing services, or could otherwise affect the Company's
flexibility to offer certain services.
FEDERAL REGULATION GENERALLY
Through a series of proceedings, the FCC has established different levels
of regulation for "dominant carriers" and "non-dominant carriers." Only ILECs
are classified as dominant; all other providers of domestic interstate services
are classified as non-dominant carriers. As a non-dominant carrier, the Company
is subject to relatively limited regulation by the FCC. The Company must offer
interstate services at just and reasonable rates in a manner that is not
unreasonably discriminatory.
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The FCC has adopted rules requiring ILECs to provide "collocation" to CLECs
for the purpose of interconnecting their competing networks. Under the rules
adopted by the Local Competition Orders, ILECs are required to provide either
physical collocation or virtual collocation at their switching offices.
As discussed earlier, all LECs, including CLECs, must make their services
available for resale by other carriers, provide nondiscriminatory access to
rights-of-way, offer reciprocal compensation for termination of traffic and
provide dialing parity and telephone number portability. In addition, the
Telecommunications Act requires all telecommunications carriers to contribute to
the universal service mechanism established by the FCC and to ensure that their
services are accessible to and usable by persons with disabilities. Moreover,
the FCC is currently engaged in a number of rulemakings in which it is
considering regulatory implications of various aspects of local exchange
competition. Any or all of the proceedings may negatively affect CLECs,
including the Company.
The FCC could grant ILECs substantial pricing flexibility with regard to
interstate access services. The May 21, 1997 order reforming the FCC's price cap
formula affords LECs greater flexibility in establishing rates and provides
additional incentives to foster efficiency. To the extent these regulatory
initiatives enable or require ILECs to offer selectively reduced rates for
access services, the rates the Company may charge for access services will be
constrained. The Company's rates also will be constrained by the fact that
competitors other than the ILECs are subject to the same streamlined regulatory
regime as the Company and can price their services to meet competition.
To promote the development of the Internet, the FCC has treated traffic to
ISPs terminated in the local exchange as local calls, for which end user
customers normally pay fixed monthly charges or low per-minute rates up to a
cap. ILECs contend that traffic routed to the Internet is interstate in nature
and that the charge for such calls should be charged at a different rate. The
FCC is considering such changes. If the FCC changes its policy and requires a
different payment arrangement for Internet calls routed through local ISPs,
CLECs may no longer receive the benefit of substantial call-termination revenue
from LECs for CLEC ISP customers whose traffic is mostly inbound (such that CLEC
payments to the LEC for terminating calls are minimal).
The Telecommunications Act and FCC rules adopted thereunder protect the
privacy of certain information about telecommunications customers that a
carrier, such as the Company, acquires by virtue of its provision of
telecommunications services to such customers. Protected information, known as
Customer Proprietary Network Information ("CPNI"), includes information related
to the quantity, technical configuration, type, destination, and the amount of
use of a telecommunications service. A carrier may not use CPNI acquired through
one of its service offerings to market certain other service offerings without
the approval of the affected customers. These restrictions may affect the
Company's ability to market a variety of packaged services to existing
customers.
STATE REGULATION GENERALLY
Most State PSCs require companies that wish to provide intrastate common
carrier services to be certified to provide such services. These certifications
generally require a showing that the carrier has adequate financial, managerial
and technical resources to offer the proposed services in a manner consistent
with the public interest.
In addition to obtaining certification, the Company must negotiate terms of
interconnection with the ILEC before it can begin providing switched services.
Under the Telecommunications Act, the FCC has adopted interconnection
requirements, certain portions of which have been overturned by the Eighth
Circuit. See "-- Telecommunications Act of 1996 -- Interconnection with LEC
Facilities." The Company, through OCOM and Digicom, has entered into
interconnection agreements with Ameritech.
The Company is not presently subject to price regulation. Most states
require CLECs to file tariffs setting forth the terms, conditions and prices for
intrastate services. Some states permit tariffs to list a rate range or set
prices on an individual case basis.
Several states provide ILECs with flexibility for their rates, special
contracts (selective discounting) and tariffs, particularly for services deemed
subject to competition. This pricing flexibility increases the ability of
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the ILEC to compete with the Company and constrains the rates the Company may
charge for its services. In light of the additional competition that is expected
to result from the Telecommunications Act, states may grant ILECs additional
pricing flexibility. At the same time, some ILECs may request increases in local
exchange rates to offset revenue losses due to competition.
REGULATION OF RESELLERS
The FCC has defined resale as an activity in which a party (the reseller)
subscribes to the services or facilities of a facilities-based provider (or
another reseller) and then reoffers communications services to the public for
profit, with or without adding value. Resellers are common carriers generally
subject to all rules and regulations placed on providers of the underlying
services by either the FCC or the states in which they operate. The FCC has held
that prohibitions on the resale of common carrier services are unjust,
unreasonable, and unlawfully discriminatory in violation of the Communications
Act. Accordingly, all common carriers must make their services available for
resale at rates, terms, and conditions that do not unreasonably discriminate
against resellers. The 1996 Act imposed the additional duty upon ILECs to make
their services available for resale at wholesale rates. The FCC adopted specific
requirements for determining such wholesale rates for local telecommunications
services, but the FCC's rules were vacated by the Eighth Circuit Court of
Appeals. The U.S. Supreme Court has accepted an appeal of the Eighth Circuit's
decision. Unless or until the FCC's rules are reinstated, each state is free to
adopt its own rules regarding the wholesale pricing of local services for
resale. As to other telecommunications services, however, there is no regulation
that requires discounts to resellers below those offered to end users of the
same quantities of like services. The FCC has determined that because of the
competitive development of broadband commercial mobile radio service ("CMRS,"
i.e., cellular PCS, and certain SMR services), broadband CMRS providers will not
be required to offer their services for resale after a date that is five years
after the FCC awards the last PCS license.
LOCAL GOVERNMENT AUTHORIZATIONS
Some jurisdictions where the Company may provide service, require license
or franchise fees based on a percent of certain revenues. There are no
assurances that jurisdictions that do not currently impose fees will not seek to
impose fees in the future. In many markets, other companies providing local
telecommunications services, particularly the ILECs, currently are excused from
paying license or franchise fees or pay fees that are materially lower than
those that would be required from new competitors such as the Company. The
Telecommunications Act requires jurisdictions to charge nondiscriminatory fees
to all telecommunications providers, but it is uncertain how quickly this
requirement will be implemented by particular jurisdictions in which the Company
operates or plans to operate or whether it will be implemented without a legal
challenge initiated by the Company or another CLEC.
LMDS
In March, 1997 the FCC established service and auction rules for a new
wireless service that it named Local Multipoint Distribution Service ("LMDS").
The FCC allocated two frequency blocks in each of 493 Basic Trading Areas
("BTAs") in the U.S. to LMDS: Block A with 1,150 MHZ of spectrum in the 28 GHz
and 31 GHz bands, and Block B with 150 MHZ in the 31 GHz band. LMDS licenses
will be awarded for ten-year terms with renewal expectancies provided to
licensees that make a showing of substantial service in their licensed areas.
LMDS may be used to provide any kind of communications service on a common
carrier or non-common-carrier basis. Radio frequencies in the 28 and 31 GHz
bands are generally capable of only "line-of-sight" transmission and reception,
are subject to interference from certain weather conditions, and do not lend
themselves to mobile applications. LMDS is expected to be used for the delivery
of various broadband services to homes and offices, including
telecommunications, Internet access, and two-way video. The single currently
operating U.S. LMDS system provides analog video service to homes in a portion
of the New York metropolitan area. At least seven other countries, including
Canada and Mexico, have licensed LMDS on either a permanent or experimental
basis. LMDS licensees are expected to be able to provide a wide array of
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services, two-way capabilities, and high capacity through the use of newer
digital equipment and transmission mechanisms. The FCC expects that Block A LMDS
licensees especially, by applying cellular-style frequency re-use technology to
an already large frequency bandwidth, have the potential to become competitors
to ILECs and cable operators. Accordingly, the LMDS rules prohibit ownership of
Block A licenses by ILECs and incumbent cable operators prior to July, 2000, but
permit an applicant that would otherwise be prohibited from holding a Block A
license to apply for a waiver of the ownership restriction by showing that it
does not have market power in its telephone or cable service area.
The FCC held a simultaneous, multiple-round auction for the 986 LMDS
licenses which closed on March 25, 1998. 104 winning participants bid a total of
$578,663,029 for 864 licenses. No auction participant placed the minimum opening
bid on any of the remaining 122 licenses, which are expected to be the subject
of a future reauction. CoreComm won 15 Block A licenses for BTAs encompassing
substantially all population centers in the state of Ohio, for a total bid of
$25,241,133. Auction participants that had average gross revenues for the
previous three years of $75 million or less, when aggregated with all commonly
controlled affiliates, were entitled to bidding credits of 25%, 35%, or 45%.
CoreComm did not qualify for any bidding credit.
On April 16, 1998, the FCC issued a public notice that it had accepted the
final applications of the LMDS auction winners, including CoreComm. The notice
stated that, unless there were oppositions to such applications, the FCC would
be prepared to grant LMDS licenses to the auction winners sometime after May 19,
1998. Six small ILECs that were top bidders for BTAs in which they provide
telephone service applied for waivers of the LMDS ownership rules. Although any
oppositions to LMDS applicants are likely to be focused on auction winners that
took advantage of bidding credits or are seeking waivers of FCC rules and
CoreComm is not among such applicants, the FCC will not award CoreComm's
licenses until the mandatory public notice period has elapsed, any oppositions
to its application have been disposed of in CoreComm's favor, and CoreComm pays
the remaining amount of its high bids. There can be no assurance that LMDS will
develop into a technically and commercially feasible business.
FUTURE INTERNATIONAL OPERATIONS
The Company may ultimately expand its operations to other countries. The
FCC requires every carrier that intends to originate international
telecommunications from within the U.S., either through the use of its own
facilities or on a resale basis, to secure in advance an authorization from the
FCC pursuant to Section 214 of the Communications Act (a "214 Authorization").
Additionally all such carriers must file with the FCC a tariff containing the
rates, terms, and conditions of their international service offerings. In
applying for a 214 Authorization, a carrier must disclose any affiliations with
or special concessions from foreign carriers or nations. The FCC has streamlined
its procedures for granting 214 Authorizations, providing routine grant of such
authorizations in 35 days unless an application is formally opposed or the
applicant is affiliated with a carrier that controls bottleneck
telecommunications facilities in a foreign country, in which case the applicant
may be subject to more stringent regulation as a "dominant" carrier.
Additionally, applicants affiliated with foreign carriers in countries that are
signatories to the Telecommunications Annex to the World Trade Organization
General Agreement of Trade in Services, including Canada, have a reduced burden
of demonstrating their "non-dominance." Carriers that have received 214
Authorizations are subject to certain reporting requirements, must file
contracts with foreign correspondents, and are restricted in the provision of
certain services to certain nations, such as the use of resold private lines for
switched services and the provision of any services to countries on the FCC's
"exclusion list." The Company applied for a 214 Authorization for both
facilities-based and resale international services on May 1, 1998 and has not
yet filed a tariff for its proposed international services.
PROPERTIES
The Company leases office space which is adequate to meet its needs at
present and its expected needs for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not engaged in any legal disputes that are expected to have
a material adverse effect on its operations.
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MANAGEMENT
DIRECTORS
The Board of Directors of the Company and of CCPR consists of the seven
persons listed below (other than Ted H. McCourtney who does not serve on CCPR's
Board of Directors), each of whom will be elected for a term expiring at the
annual meeting of stockholders indicated below and until his successor shall
have been elected and qualified.
<TABLE>
<CAPTION>
TERM EXPIRES
AT ANNUAL
NAME AGE MEETING IN
- ---- --- ------------
<S> <C> <C>
Alan J. Patricof.......................................... 63 2001
Warren Potash............................................. 66 2001
Sidney R. Knafel.......................................... 67 2002
Ted H. McCourtney......................................... 59 2002
Del Mintz................................................. 70 2002
George S. Blumenthal...................................... 54 2000
J. Barclay Knapp.......................................... 41 2000
</TABLE>
Set forth below is a brief description of the present and past business
experience of each of the persons who serve as directors of the Company:
ALAN J. PATRICOF, a director of the Company since March 18, 1998, has been
a director of CCPR from the date of the February 1992 distribution by Cellular
Communications, Inc. ("CCI") to its stockholders of the Common Stock of the
Company's predecessor (the "CCI Distribution") and is Chairman of Patricof & Co.
Ventures, Inc., a venture capital firm he founded in 1969. Mr. Patricof also
serves as a director of Cellular Communications International, Inc. ("CCII"),
NTL Incorporated ("NTL") and other privately owned companies.
WARREN POTASH, a director of the Company since March 18, 1998, has been a
director of CCPR from the date of the CCI Distribution. Mr. Potash retired in
1991 as President and Chief Executive Officer of the Radio Advertising Bureau, a
trade association, a position he held since 1989. Prior to that time, and
beginning in 1986, he was President of New Age Communications, Inc., a
communications consultancy firm. Until his retirement in 1986, Mr. Potash was a
Vice President of Capital Cities/ABC Broadcasting, Inc., a position he held
since 1970. Mr. Potash is also a director of CCII and NTL.
SIDNEY R. KNAFEL, a director of the Company since March 18, 1998, and, a
director of CCPR from the date of the CCI Distribution, has also been Managing
Partner of SRK Management Company, a private investment concern, since 1981. In
addition, Mr. Knafel is Chairman of Insight Communications, Inc. and BioReliance
Corporation. Mr. Knafel is also a director of General American Investors
Company, Inc., IGENE Biotechnology, Inc., CCII, NTL and some privately owned
companies.
TED H. MCCOURTNEY, a director of the Company since March 18, 1998, is a
General Partner of Venrock Associates, a venture capital investment partnership,
a position he has held since 1970. Mr. McCourtney also serves as a director of
Medpartners Inc., Visual Networks, Inc. and several privately owned companies.
DEL MINTZ, a director of the Company since March 18, 1998, and a director
of CCPR from the date of the CCI Distribution, is President of Cleveland Mobile
Tele Trak, Inc., Cleveland Mobile Radio Sales, Inc. and Ohio Mobile Tele Trak,
Inc., companies providing telephone answering and radio communications services
in Cleveland and Columbus, respectively. Mr. Mintz has held similar positions
with the predecessors of these companies since 1967. Mr. Mintz is President of
several other companies, and was President and a principal stockholder of
Cleveland Mobile Cellular Telephone, Inc. before such company was acquired by a
merger with CCI's predecessor in 1985. Mr. Mintz is also a director of CCII, NTL
and several privately owned companies.
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<PAGE> 46
GEORGE S. BLUMENTHAL, a director of the Company since March 18, 1998, has
been Chairman, Treasurer and a director of CCPR from and prior to the CCI
Distribution and was appointed Chief Executive Officer in March 1994. In
addition, Mr. Blumenthal is Chairman, Treasurer and a director of NTL. Mr.
Blumenthal is also a director of Andover Togs, Inc. Mr. Blumenthal was Chairman,
Treasurer and a director of CCII from its organization until April 1994. Mr.
Blumenthal was also Chairman, Treasurer and a director of CCI, which positions
he held from CCI's founding in 1981 until its merger in 1996 into a subsidiary
of AirTouch Communications, Inc. (the "CCI Merger").
J. BARCLAY KNAPP, a director of the Company since March 18, 1998, was
appointed President of CCPR in March 1994 and has been Executive Vice President,
Chief Operating Officer and a director of CoreComm from and prior to the CCI
Distribution and was Chief Financial Officer from that date to 1997. He is
Executive Vice President, Chief Operating Officer and a director of CCII and he
is President, Chief Executive Officer, Chief Financial Officer and a director of
NTL. Mr. Knapp was also Executive Vice President, Chief Operating Officer, Chief
Financial Officer and a director of CCI until the CCI Merger.
Following the Distribution, the Company may expand the Board of Directors
to include additional independent directors. The identities of such additional
independent directors have not yet been determined and will not be determined
prior to the Distribution.
CLASSIFIED BOARD OF DIRECTORS
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes as nearly equal in number as possible
with the directors in each class serving staggered three-year terms. Initially,
the Class I directors will be George S. Blumenthal and J. Barclay Knapp; the
Class II directors will be Alan J. Patricof and Warren Potash and the Class III
directors will be Sidney R. Knafel, Ted H. McCourtney and Del Mintz. The terms
of the Class I, Class II and Class III Directors will expire initially in 2000,
2001 and 2002, respectively. At each annual meeting of the stockholders of the
Company, the successors to the class of directors whose term expires will be
elected to hold office for a term expiring at the annual meeting of stockholders
held in the third year following their election. See "DESCRIPTION OF COMPANY
CAPITAL STOCK."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors intends to establish a Compensation and Option
Committee and an Audit Committee. Messrs. Knafel and Mintz will serve as members
of the Board of Directors' Compensation and Option Committee and Messrs. Mintz,
Patricof and Potash will serve as members of the Board of Directors' Audit
Committee. The Compensation and Option Committee will review and make
recommendations regarding annual compensation for Company officers and the Audit
Committee will oversee the Company's financial reporting process on behalf of
the Company's Board of Directors. There are no other plans to establish
committees of the Board of Directors. Directors will be reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board of Directors
and the committees.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who serve as executive officers of the Company. George S. Blumenthal, J. Barclay
Knapp, Richard J. Lubasch and Gregg Gorelick also serve
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<PAGE> 47
as executive officers of CCPR. Executive officers of the Company and CCPR are
elected annually by the Board of Directors and serve until their successors are
duly elected and qualified.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
George S. Blumenthal...................... 54 Chairman of the Board
J. Barclay Knapp.......................... 41 President, Chief Executive Officer and Chief
Financial Officer
Patty J. Flynt............................ 46 Senior Vice President -- Chief Operating
Officer
Richard J. Lubasch........................ 51 Senior Vice President -- General Counsel and
Secretary
Gregg Gorelick............................ 39 Vice President -- Controller, Treasurer
Richard H. Bennett........................ 29 Assistant Secretary
</TABLE>
Set forth below is a brief description of the present and past business
experience of each of the persons who serve as executive officers of the Company
who are not also serving as directors. Descriptions of the persons serving as
directors begin on page 56.
PATTY J. FLYNT has been OCOM Corporation's President since 1996. Ms. Flynt
is also Group Managing Director of the Information Services Division of NTL
Incorporated. Prior to joining OCOM in 1996, Ms. Flynt was a Vice President of
New Par, a joint venture of CCI and AirTouch Communications, Inc. from 1989
until 1996.
RICHARD J. LUBASCH has been CCPR's Senior Vice President-General Counsel
and Secretary from the date of the CCI Distribution. Mr. Lubasch is also Senior
Vice President -- General Counsel and Secretary of CCII and NTL, as well as
Treasurer of CCII. Mr. Lubasch was Vice President, General Counsel and Secretary
of CCI from July 1987 until the CCI Merger.
GREGG GORELICK has been CCPR's Vice President -- Controller from the date
of the CCI Distribution. From 1981 to 1986 he was employed by Ernst & Whinney
(now known as Ernst & Young LLP). Mr. Gorelick is a certified public accountant
and was Vice President -- Controller of CCI from 1986 until the CCI Merger. Mr.
Gorelick holds that position at CCII and NTL.
EXECUTIVE COMPENSATION
NTL intends to provide certain corporate management, financial, legal and
technical services to the Company. Amounts charged to the Company by NTL will
consist of salaries and direct costs where identifiable and indirect costs to be
allocated to the Company. The executives named in this section will receive
salaries from NTL and will be compensated assuming that a certain amount of time
will be spent on the business of the Company. To the extent any officer exceeds
their allocation, NTL will bill the Company for such services.
BERMUDA RESIDENT REPRESENTATIVE AND SECRETARY
The Company is required, as a matter of Bermuda law, to maintain a
representative presence in Bermuda and has elected to appoint a resident
representative. The resident representative is entitled to attend and speak, but
not to vote at meetings of the board or any committee of the board or of the
shareholders. Hugh Gillespie, an attorney with Appleby, Spurling & Kempe, the
Company's Bermuda legal advisor has been appointed as the Company's initial
resident representative.
RICHARD H. BENNETT is employed by A.S. & K. Services Ltd., a Bermuda
Corporation, and an affiliate of Appleby, Spurling & Kemp, as a corporate
administrator.
STOCK OPTION PLAN
Under the Company's stock option plan, stock options will be granted to the
Company's executive officers. Stock options are designed to align the interests
of executives with those of shareholders. The options generally will be granted
at an exercise price equal to the market price of the CoreComm Common Stock on
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<PAGE> 48
the date of grant and vest over a period of five years. Accordingly, the
executives will be provided additional incentive to create shareholder value
over the long term since the full benefit of the options cannot be realized
unless stock price appreciation occurs over a number of years.
In determining individual options grants, the Compensation Committee will
take into consideration the number of options previously granted to that
individual, the amount of time and effort dedicated to the Company during the
preceding year and expected commitment to the Company on a forward-looking
basis. The Compensation Committee will also strive to provide each option
recipient with an appropriate incentive to increase shareholder value, taking
into consideration their cash compensation levels.
The Stock Option Plan will be filed as an exhibit to the Registration
Statement of which this Information Statement is a part.
TREATMENT OF CCPR EMPLOYEE
STOCK OPTIONS IN THE DISTRIBUTION
Certain employees of the Company currently hold CCPR Options pursuant to
the CCPR Stock Option Plan (the "CCPR Stock Option Plan"). In connection with
the Distribution, and pursuant to the CCPR Stock Option Plan and the related
option agreements, an equitable adjustment will be made for each option holder
as a result of the Distribution.
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<PAGE> 49
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the
anticipated beneficial ownership of CoreComm Common Stock as of the Distribution
date, based on ownership of CCPR Common Stock as of June 2, 1998 by (i) each
executive officer and director of the Company and (ii) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-------------------------------------------------
PRESENTLY
COMPANY EXERCISABLE
EXECUTIVE OFFICERS AND DIRECTORS STOCK OPTIONS(1) TOTAL PERCENT(2)
-------------------------------- ------- ----------- --------- ----------
<S> <C> <C> <C> <C>
George S. Blumenthal(3)......................... 136,449 321,813 458,262 3.30
J. Barclay Knapp................................ 9,298 401,478 410,776 2.94
Patty J. Flynt.................................. -- 6,250 6,250 *
Richard J. Lubasch(4)........................... 3,282 115,185 118,467 *
Gregg Gorelick.................................. 18,837 37,904 56,741 *
Richard H. Bennett.............................. -- -- -- *
Del Mintz(5).................................... 282,286 23,023 305,309 2.25
Sidney R. Knafel(6)............................. 199,249 23,023 222,272 1.64
Ted H. McCourtney(7)............................ 10,355 21,523 31,878 *
Alan J. Patricof(8)............................. 11,172 23,023 34,195 *
Warren Potash................................... 542 20,419 20,961 *
All directors and officers as a group (11 in
number)....................................... 671,470 993,641 1,665,111 11.38
</TABLE>
- ---------------
* Represents less than one percent.
(1) Includes shares of CCPR Common Stock purchasable upon the exercise of
options which are presently exercisable or become exercisable in the next 60
days.
(2) Includes Common Stock and Presently Exercisable CCPR Options.
(3) Includes 1,980 shares of Common Stock held by trusts for the benefit of Mr.
Blumenthal's children.
(4) Includes 104 shares of Common Stock owned by Mr. Lubasch as custodian for
his child, as to which shares Mr. Lubasch disclaims beneficial ownership.
(5) Includes 20,732 shares of Common Stock owned by Mr. Mintz's children or by
Mr. Mintz's children as trustees for their children and 25 shares owned by
Mr. Mintz's wife, as to which shares Mr. Mintz disclaims beneficial
ownership.
(6) Includes 100,449 shares of Common Stock owned by trust accounts for the
benefit of Mr. Knafel's children, as to which shares Mr. Knafel disclaims
beneficial ownership. An additional 44,617 shares are owned by an adult
child of Mr. Knafel, as to which shares Mr. Knafel disclaims beneficial
ownership.
(7) Includes 520 shares of Common Stock held by trusts for the benefit of Mr.
McCourtney's children, as to which shares Mr. McCourtney disclaims
beneficial ownership.
(8) Includes 65 shares of Common Stock owned by Mr. Patricof's wife and 1,436
shares owned by, or in trust account for the benefit of, Mr. Patricof's
children, as to which shares Mr. Patricof disclaims beneficial ownership.
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<PAGE> 50
DESCRIPTION OF COMPANY CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of seventy-five
million (75,000,000) shares of CoreComm Common Stock and one million (1,000,000)
shares of Series A Junior Participating Preferred Stock. On June 1, 1998, there
were 1,200,000 shares of Common Stock outstanding. The following description is
qualified in all respects by reference to the Memorandum of Association (the
"Memorandum") and the By-laws, copies of which will be made available upon
request.
COMMON STOCK
All shares of CoreComm Common Stock participate equally in dividends
payable to holders of CoreComm Common Stock when and as declared by the Board of
Directors and in net assets available for distribution to holders of CoreComm
Common Stock on liquidation or dissolution, have one vote per share on all
matters submitted to a vote of the Company's shareholders and do not have
cumulative rights in the decision of directors. All issued and outstanding
shares of CoreComm Common Stock are fully paid and nonassessable, and the
holders thereof do not have pre-emptive rights.
TRANSFER AGENT
Continental Stock Transfer & Trust Company is the transfer agent and
registrar for the Company's Common Stock.
CERTAIN SPECIAL PROVISIONS OF THE BY-LAWS
Certain provisions contained in the By-laws 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 By-laws. Such description is intended as a summary only
and is qualified in its entirety by reference to the By-laws and copies of which
will be available upon request.
Classified Board of Directors: The By-laws provide that the Board of
Directors will be divided into three classes of directors, with the classes to
be as nearly equal in number as possible. The Board of Directors consists of the
persons referred to in "MANAGEMENT -- Directors and Officers of the Company." At
each annual meeting of shareholders, one class of directors will be 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 shareholders because, by providing that
directors will serve three-year terms rather than one-year terms, it will
enhance 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, will permit the board to represent more
effectively the interests of all shareholders.
With a classified Board of Directors, it will generally take a majority
shareholder two annual meetings of shareholders 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 shares because
its provisions could 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 shareholders. In addition, because under
the By-laws directors may be removed only for cause, a classified board would
delay shareholders 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 By-laws provide that
the number of directors shall consist of not more than fifteen nor less than
three directors. In addition, pursuant to authority conferred under a
Shareholders resolution, and subject to any rights of holders of any shares of
Preferred Stock, if any, a majority of the Board of Directors then in office is
empowered to fill any vacancies on the Board of Directors.
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<PAGE> 51
Accordingly, the Board of Directors could temporarily prevent any shareholder
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 Bermuda Companies Act, 1981, as amended (the "Companies Act"), a
director serving on a classified board may be removed by the shareholders only
for cause. Moreover, the By-laws provide 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 shares entitled to vote generally in the election
of directors (the "Voting Shares"), voting together as a single class.
Advance Notice Provisions for Shareholder Nominations: 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").
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 shareholder 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. Under the
Nomination 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 shareholders, 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
shareholders, notice by the shareholder 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 shareholder'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
shareholder proposing to nominate such person, including, without limitation,
the name and record address of the shareholder and the class, series and number
of shares of capital shares of the Company which are beneficially owned by the
shareholder. 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. 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.
By requiring advance notice of nominations by shareholders, the Nomination
Procedure will afford 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 shareholders about
such qualification. Although the By-laws do not give the Board of Directors any
power to approve or disapprove shareholder nominations for the election of
directors or proposals for action, they may have the effect of precluding a
contest for the election of directors 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 without regard to whether
consideration of such nominees might be harmful or beneficial to the Company and
its shareholders.
Preferred Stock: The By-laws authorize 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, as
are stated in resolutions adopted by the Board of Directors providing for the
issue of such series and as are permitted by the Companies Act.
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<PAGE> 52
The Company believes that the ability of the Board of Directors to issue
one or more series of Preferred Stock will provide 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, will be available for issuance without
further action by the Company's shareholders, unless such action is required by
applicable law or the rules of any shares 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 shareholders 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 shareholder 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 shareholders. 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 shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their shares over the then current
market price of such shares.
Voting Requirements for Certain Business Combinations: The By-laws also
provide that, in addition to any affirmative vote required by law, the
affirmative vote of holders of two-thirds of the voting power of the Company
shall be necessary to approve any "Business Combination" (as defined) proposed
by an "Interested Shareholder (as defined). The additional voting requirements
will not apply, however, if: (a) the Business Combination was approved by not
less than a majority of the Continuing Directors or (ii) a series of conditions
are satisfied requiring (in summary) (a) that the consideration to be paid to
the Company's shareholders in the Business Combination must be at least equal to
the higher of (i) the highest per-share price paid by the Interested Shareholder
in acquiring any of the Company's Common Shares during the two years prior the
announcement date of the Business Combination or in the transaction in which it
becomes an Interested Shareholder (the "Determination Date") whichever is higher
or (ii) the fair market value per share of Common Shares on the announcement
date or Determination Date, whichever is higher, in either case appropriately
adjusted for any stock dividend, stock split, combination of shares or similar
event (non-cash consideration is treated similarly) and (b) certain "procedural"
requirements are complied with, such as the solicitation of proxies pursuant to
the rules of the Securities and Exchange Commission and no decrease in regular
dividends (if any) after the Interested Shareholder becomes an Interested
Shareholder (except as approved by a majority of the Continuing Directors).
An "Interested Shareholder" is defined as anyone who is or has announced
the intention to become the beneficial owner of a 10% or more of the voting
shares and other than any employee share plan sponsored by the Company and
includes any person who is an affiliate of the Company and at any time within
the prior two-year period prior to the date in question and was the beneficial
owner of 10% or more of the voting shares. The term "beneficial owner" includes
person directly and indirectly owning or having the right to acquire or vote the
shares. Interested Shareholders participate fully in all shareholder voting.
A "Business Combination" includes the following transactions: (a) merger or
consolidation or amalgamation of the Company or any subsidiary with an
Interested Shareholder or with any other corporation or entity which is, or
after such merger or consolidation or amalgamation would be, an affiliate of an
Interested Shareholder; (b) the sale or other disposition by the Company or a
subsidiary of assets having a fair market value of $5,000,000 or more if an
Interested Shareholder (or an affiliate thereof) is a party to the transaction;
(c) the adoption of any plan or proposal for the liquidation or dissolution of
the Company or for amendment of the By-laws; or (d) any reclassification of
securities, recapitalization, merger with a subsidiary, or other transaction
which has the effect, directly or indirectly, of increasing the proportionate
share of any class of its outstanding stock (or securities convertible into
stock) of the Company or a subsidiary owned by an Interested Shareholder (or an
affiliate thereof). Determinations of the fair market value of non-cash
consideration are made by a majority of the Continuing Directors.
The term "Continuing Directors" means any member of the Board of Directors
of the Company while such person is a member of the Board of Directors, who is
not an Affiliate or Associate or representative of the Interested Shareholder
and was a member of the Board of Directors prior to the time that the Interested
Shareholder became an Interested Shareholder, and any successor of a Continuing
Director while such successor is a member of the Board of Directors, who is not
an Affiliate or Associate or representative of the
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<PAGE> 53
Interested Shareholder and is recommended or elected to succeed the Continuing
Director by a majority of Continuing Directors.
SHAREHOLDER PROPOSALS
Under the Companies Act the Company must circulate notice of a properly
supported shareholder requisition moving a resolution to be passed at the next
annual general meeting of the Company, together with a statement of up to 1,000
words in respect of the proposed resolution. The resolution must be supported by
the lesser of: 100 shareholders or shareholders representing 5% of the total
voting rights eligible at the meeting at which the resolution is proposed to be
passed. The resolution and notice will circulated at the expense of the
shareholders making the requisition, unless the Company otherwise resolves. The
requisition proposing a resolution must be deposited at the registered office of
the Company not less than six weeks before the general meeting.
AMENDMENT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
Under the Companies Act, the directors may amend the By-laws of a company
subject to the approval of the company's shareholders. The By-laws provide that
they may be amended in the manner provided under the Companies Act, provided
that the provisions set forth in the By-laws relating to the election and term
of directors, the indemnification rights of directors, the amendment of the
By-laws and the restrictions on certain business combinations may be amended
only by the directors, with the approval by affirmative vote of the holders of
at least 66.667% of the Voting Shares.
SHAREHOLDER 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.
At a meeting held on , the Board of Directors adopted the
Rights Agreement. 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 unless previously redeemed by the Company as
described below. When exercisable, each Right entities the owner to purchase
from the Company one-hundredth of a share of Series A Junior Participating
Preferred Stock at a purchase price of .
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 "Shares 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.
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
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<PAGE> 54
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-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 Shares 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 Shares
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.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder 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 shareholders or to the Company, shareholders 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 shareholders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Companies Act permits the Company to indemnify its directors or
officers in their capacity as such in respect of any loss arising or liability
attaching to them by virtue of any rule of law in respect of any negligence,
default, breach of duty or breach of trust of which a director or officer may be
guilty in relation to the Company other than in respect of his own fraud or
dishonesty.
50
<PAGE> 55
The By-laws provide that every director, officer, committee member and any
resident representative of the Company be indemnified against any liabilities,
loss, damage or expense incurred or suffered in such capacity, subject to
limitations imposed in the Companies Act.
The By-laws further provide that to the extent that any director, officer,
committee member or resident representative of the Company is successful in
defending any proceedings, whether civil or criminal, the Company will indemnify
the individual for all liabilities incurred in such capacity.
By-law 151 stipulates that each shareholder and the Company agree to waive
any claim or right of action against any director, officer or committee member,
in respect of any failure to act or any action taken by such director, officer
or committee member in the performance of his duties with or for the Company.
The waiver does not extend to claims, rights of action arising from the fraud of
the director, officer, committee member or to recover any gain, personal profit
or advantage to which such individual is not legally entitled.
The By-laws permit the Company to advance the expenses incurred in
defending any civil or criminal action for which indemnification is required
against an undertaking of the indemnified party to repay the amount advanced if
it is ultimately determined that the indemnified party is not entitled to be
indemnified under the By-laws and subject to a determination by the Board of
Directors or, in specified situations, independent legal counsel or a majority
vote of the shareholders, that indemnification would be proper in the
circumstances.
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.
INTERESTED DIRECTORS
The By-laws provide that any transaction entered into by the Company in
which a director has an interest is not voidable by the Company nor can such
director be liable to the Company for any profit realized pursuant to such
transaction provided the nature of the interest is disclosed at the first
opportunity at a meeting of director, or in writing to the directors.
MERGERS AND SIMILAR ARRANGEMENTS
The Company may acquire the business of another Bermuda company similarly
exempt from Bermuda taxes or a company incorporated outside Bermuda and carry on
such business when it is within the objects of its Memorandum of Association.
The Company may also amalgamate with another Bermuda company or with a body
incorporated outside Bermuda upon the approval of the board of directors and the
holders of 75% of the outstanding shares of the Company, including any shares
that would otherwise be non-voting shares. In the case of an amalgamation, a
shareholder may apply to a Bermuda court for a proper valuation of such
shareholder's shares if such shareholder is not satisfied that fair value has
been paid for such shares. The court ordinarily would not set aside the
transaction on that ground absent evidence of fraud or bad faith.
TAKEOVERS
Bermuda law provides that where an offer is made for shares of another
company and, within four months of the offer, the holders of not less than 90%
of the shares which are the subject of the offer accept, the offeror may by
notice require the non-tendering shareholders to transfer their shares on the
terms of the offer. Dissenting shareholders may apply to the court within one
month of the notice objecting to the transfer. The burden is on the dissenting
shareholders to show that the court should exercise its discretion to enjoin the
required transfer, which the court will be unlikely to do unless there is
evidence of fraud or bad faith or collusion between the offeror and the holders
of the shares who have accepted the offer as a means of unfairly forcing out
minority shareholders.
51
<PAGE> 56
SHAREHOLDER'S SUIT
A shareholder who considers that the affairs of the Company are being
conducted in a manner which is unfairly prejudicial or oppressive to the
interests of some of the shareholders may apply to the Bermuda court for relief
under the Act. The court may grant such relief as it considers fit. Class
actions and derivative actions are generally not available to shareholders under
the laws of Bermuda. However, the Bermuda courts ordinarily would be expected to
follow English case law precedent, which would permit a shareholder to commence
an action in the name of the Company to remedy a wrong done to the Company where
the act complained of is alleged to be beyond the corporate power of the Company
or is illegal or would result in the violation of the Memorandum of Association
or By-laws. Furthermore, consideration would be given by the court to acts that
are alleged to constitute a fraud against the minority shareholders or where an
act requires the approval of a greater percentage of the Company's shareholders
than actually approved it. The winning party in such an action generally would
be able to recover a portion of attorneys' fees incurred in connection with such
action.
INSPECTION OF CORPORATE RECORDS
Members of the general public have the right to inspect the public
documents of the Company available at the office of the Registrar of Companies
in Bermuda, which will include the Memorandum of Association (including its
objects and powers) and any alteration to the Memorandum of Association and
documents relating to any increase or reduction of authorized capital. The
shareholders have the additional right to inspect or obtain copies of the
By-laws, minutes of general meetings and audited financial statements of the
Company, which must be presented to the annual general meeting of shareholders.
The register of shareholders of the Company is also open to inspection by
shareholders without charge, and to members of the public for a fee. The Company
is required to keep at its registered office a register of its directors and
officers which is open for inspection by members of the public without charge.
Bermuda law does not, however, provide a general right for shareholders to
inspect or obtain copies of any other corporate records.
BERMUDA TAXATION
Under current Bermuda law, there is no Bermuda income tax, withholding tax,
capital gains tax or capital transfer tax levied on the Company or its
shareholders.
The Company and its Bermuda subsidiaries have obtained a written
undertaking from the Minister of Finance of Bermuda under the Exempted
Undertakings Tax Protection Act 1966 (as amended) that, in the event of there
being enacted in Bermuda any legislation imposing tax computed on profits or
income, or computed on any capital asset, gain or appreciation, or any tax in
the nature of estate duty or inheritance tax, such tax shall not, until March
28, 2016, be applicable to the Company or any of its operations, or to the
shares, debentures or other obligations of the Company, except insofar as such
tax applied to persons ordinarily resident in Bermuda and holding such shares,
debentures or other obligations of the Company or to any land leased or let to
the Company.
52
<PAGE> 57
INDEPENDENT AUDITORS
The Company has appointed Ernst & Young LLP as the Company's independent
auditors to audit the Company's financial statements as of and for the year
ending December 31, 1998. Ernst & Young LLP has audited the Company's
consolidated balance sheet as of March 31, 1998 and OCOM's financial statements
as of December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
10 (the "Registration Statement," which term shall include any amendments or
supplements thereto) under the Exchange Act with respect to the shares of
CoreComm Common Stock being received by CCPR stockholders in the Distribution.
This Information Statement does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. With respect to each contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
such exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto filed by the Company
with the Commission may be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
Regional Offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, 13th
Floor, New York, New York 10048. The Commission maintains a web site that
contains reports, proxy statements, registration statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov.
Following the Distribution, the Company intends to furnish to its
stockholders annual reports containing consolidated financial statements audited
by an independent public accounting firm accompanied by an opinion expressed by
such independent public accounting firm and quarterly reports for the first
three quarters of each fiscal year containing unaudited consolidated financial
information, in each case prepared in accordance with generally accepted
accounting principles.
53
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CORECOMM LIMITED
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheet.................................. F-3
Notes to Consolidated Balance Sheet......................... F-4
OCOM CORPORATION TELECOMS DIVISION
Condensed Balance Sheet -- March 31, 1998 (Unaudited)....... F-7
Condensed Statements of Operations -- Three Months Ended
March 31, 1998 and 1997 (Unaudited)....................... F-8
Condensed Statement of Parent's Investment -- Three Months
Ended March 31, 1998 (Unaudited).......................... F-9
Condensed Statements of Cash Flows -- Three Months Ended
March 31, 1998 and 1997 (Unaudited)....................... F-10
Notes to Condensed Financial Statements (Unaudited)......... F-11
Report of Independent Auditors.............................. F-12
Balance Sheets -- December 31, 1997 and 1996................ F-13
Statements of Operations -- Years ended December 31, 1997,
1996 and 1995............................................. F-14
Statement of Parent's Investment (Deficiency) -- Years ended
December 31, 1997, 1996 and 1995.......................... F-15
Statements of Cash Flows -- Years ended December 31, 1997,
1996 and 1995............................................. F-16
Notes to Financial Statements............................... F-17
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
CoreComm Limited
We have audited the accompanying consolidated balance sheet of CoreComm
Limited and subsidiaries as of March 31, 1998. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of CoreComm Limited and
subsidiaries at March 31, 1998 in conformity with generally accounting
principles.
ERNST & YOUNG LLP
New York, New York
June 2, 1998
F-2
<PAGE> 60
CORECOMM LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Due from Digicom, Inc. ..................................... $ 2,000,000
Deferred costs.............................................. 185,000
LMDS auction bid............................................ 25,241,000
-----------
Total assets................................................ $27,426,000
===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accrued LMDS auction bid.................................. $ 5,251,000
Shareholder's equity
Series preferred stock -- $.01 par value; authorized
1,000,000 shares; issued and outstanding none
Common stock, $.01 par value; authorized 75,000,000
shares; issued and outstanding 1,200,000 shares........ 12,000
Additional paid in capital................................ 22,173,000
-----------
Total shareholder's equity.................................. 22,185,000
-----------
Total liabilities and shareholder's equity.................. $27,426,000
===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 61
CORECOMM LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
1. ORGANIZATION
CoreComm Limited (the "Company"), a wholly-owned subsidiary of Cellular
Communications of Puerto Rico Inc. ("CCPR"), was formed in March 1998 in order
to provide an appropriate vehicle to pursue new telecommunications opportunities
outside of Puerto Rico and the U.S. Virgin Islands in an entrepreneurial
corporate environment. All of the Company's net assets were contributed by CCPR
in March 1998. CCPR intends to distribute to its stockholders 100% of the
outstanding shares of the Company on a one-for-one basis (the "Distribution").
As of March 31, 1998, the Company had not yet commenced operations.
After the completion of the acquisitions as described in Note 3, the
Company holds, through directly and indirectly wholly owned subsidiaries,
entities which operate or hold licenses or applications to operate in the
competitive local exchange carrier ("CLEC") business, cellular long distance
resale business, landline long distance resale business, prepaid cellular
service resale business, centralized telecommunications services ("CTS")
business and local multipoint distribution services ("LMDS") business. Aside
from the cellular long distance resale business, which has been operating for
approximately seven years, these businesses are in early stages of development.
The Company's customers are located throughout the United States. The Company
does not own its own facilities, instead it purchases capacity on a wholesale
basis and sells it at retail rates to end users.
Since a substantial portion of the Company's revenues will be derived from
long distance service provided to cellular telephone users, the Company's
business is currently dependent on the trends in the use of cellular telephone
service. Competition continues to increase in the long distance, local and
cellular (or wireless) telecommunications markets. Increased competition has
resulted in pricing pressure, which contributes to lower revenues per customer
and higher customer acquisition costs.
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 Company consolidates its wholly-owned subsidiaries and those entities
where the Company's interest is greater than 50%. Significant intercompany
accounts and transactions are eliminated in consolidation.
DEFERRED COSTS
Deferred costs include legal and other costs incurred in connection with
the LMDS auction and application for LMDS licenses from the Federal
Communications Commission ("FCC") and with applications for approvals to operate
as a CLEC in various states. These costs will be amortized on a straight-line
basis over the term of the license or license-equivalent upon the commencement
of operations.
LONG-LIVED ASSETS
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 the carrying value of the asset.
F-4
<PAGE> 62
CORECOMM LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
3. LMDS AUCTION AND ACQUISITIONS
A subsidiary of the Company, Cortelyou Communications Corp., was the
successful bidder, for an aggregate of $25,241,000, for 15 Block A 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 Area 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 Digicom,
Inc., a reseller of Centrex services in Cleveland, Ohio for an aggregate
purchase price of $2,000,000. The acquisition was subject to regulatory
approval, which was received in April 1998.
In April 1998, the Company acquired for cash of approximately $400,000 all
of the operating assets of the Wireless Outlet which operates prepaid cellular
and paging businesses on a resale basis in Ohio and other locations in the
United States.
In June 1998, the Company acquired for cash of approximately $1,312,000,
subject to adjustments, certain operating assets and related liabilities of OCOM
Corporation.
4. 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 has adopted SFAS No. 130, which had no effect on
the consolidated balance sheet.
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 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, and is evaluating the effect of SFAS No. 131 on its
financial statements.
5. THE DISTRIBUTION
RELATED PARTY TRANSACTIONS
Certain officers and directors of the Company are also officers or
directors of NTL Incorporated ("NTL"). NTL intends to provide management,
financial, legal and technical services to the Company. Amounts charged to the
Company by NTL will consist of salaries and direct costs where identifiable and
indirect costs to be allocated to the Company.
The Company's relationship with CCPR is expected to be governed by
agreements to be entered into in connection with the Distribution, including a
Distribution Agreement and a Tax Disaffiliation Agreement. The
F-5
<PAGE> 63
CORECOMM LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
Distribution Agreement will provide for, among other things, the amount of the
Company's common stock to be issued in the Distribution. The Tax Disaffiliation
Agreement will detail the respective obligations concerning various tax
liabilities and will provide for cooperation with respect to certain tax
matters, the exchange of information and the retention of records.
DESCRIPTION OF CCPR FUNDING OF THE COMPANY
Prior to the Distribution, CCPR intends to make a capital contribution to
the Company of $150,000,000 in cash. CCPR's ability to make the capital
contribution is contingent upon the closing of a bank loan to CCPR Services,
Inc. ("Services"), a wholly-owned indirect subsidiary of CCPR. Services has a
commitment from The Chase Manhattan Bank dated May 14, 1998 for senior secured
credit facilities in an aggregate amount of up to $160,000,000, which are
subject to customary closing conditions.
STOCK OPTIONS
CCPR has granted options to purchase shares of common stock to officers,
employees and directors. As of June 1, 1998, CCPR had options to purchase
approximately 3,768,000 shares of common stock outstanding. In connection with
the Distribution, each holder of CCPR stock options will receive options to
purchase shares of the Company's common stock on a one-for-one basis. The
exercise prices of the CCPR and the Company's stock options will be equitably
adjusted to reflect the Distribution.
F-6
<PAGE> 64
OCOM CORPORATION TELECOMS DIVISION
CONDENSED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets
Accounts receivable-trade, less allowance for doubtful
accounts of $66,000.................................... $ 459,000
Inventory................................................. 66,000
Other..................................................... 339,000
----------
Total current asset......................................... 864,000
Fixed assets, net........................................... 1,361,000
Deferred costs, net of accumulated amortization of
$109,000.................................................. --
----------
$2,225,000
==========
LIABILITIES AND PARENT'S INVESTMENT
Current liabilities
Accounts payable.......................................... $ 20,000
Accrued expenses.......................................... 1,012,000
----------
Total current liabilities................................... 1,032,000
Parent's investment......................................... 1,193,000
----------
$2,225,000
==========
</TABLE>
See accompanying notes.
F-7
<PAGE> 65
OCOM CORPORATION TELECOMS DIVISION
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
REVENUES
Telecommunications.......................................... $ 826,000 $ 986,000
Telephone equipment......................................... 27,000 --
----------- ----------
853,000 986,000
COSTS AND EXPENSES
Cost of telephone equipment sold............................ 20,000 --
Operating................................................... 415,000 437,000
Selling, general and administrative......................... 1,766,000 1,255,000
Depreciation................................................ 142,000 45,000
Amortization................................................ 2,000 3,000
----------- ----------
2,345,000 1,740,000
----------- ----------
OPERATING (LOSS)............................................ (1,492,000) (754,000)
OTHER INCOME (EXPENSE)...................................... -- --
----------- ----------
NET (LOSS).................................................. $(1,492,000) $ (754,000)
=========== ==========
</TABLE>
See accompanying notes.
F-8
<PAGE> 66
OCOM CORPORATION TELECOMS DIVISION
CONDENSED STATEMENT OF PARENT'S INVESTMENT
(UNAUDITED)
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1998.................................... $ 321,000
Capital contributions..................................... 2,364,000
Net loss for the three months ended March 31, 1998........ (1,492,000)
-----------
BALANCE, MARCH 31, 1998..................................... $ 1,193,000
===========
</TABLE>
See accompanying notes.
F-9
<PAGE> 67
OCOM CORPORATION TELECOMS DIVISION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss).................................................. $(1,492,000) $(754,000)
Adjustments to reconcile net (loss) to net cash used in
operating activities:
Depreciation and amortization............................. 144,000 48,000
Provision for losses on accounts receivable............... 49,000 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (176,000) 6,000
Inventory.............................................. 14,000 --
Other current assets................................... (291,000) (3,000)
Accounts payable....................................... (328,000) (157,000)
Accrued expenses....................................... (50,000) 10,000
----------- ---------
Net cash (used in) operating activities..................... (2,130,000) (850,000)
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (234,000) (153,000)
Proceeds from disposals of fixed assets..................... -- 3,000
----------- ---------
Net cash (used in) investing activities..................... (234,000) (150,000)
FINANCING ACTIVITIES
Capital contributions from OCOM Corporation................. 2,364,000 1,000,000
----------- ---------
Net cash provided by financing activities................... 2,364,000 1,000,000
----------- ---------
Net increase (decrease) in cash............................. $ -- $ --
=========== =========
</TABLE>
See accompanying notes.
F-10
<PAGE> 68
OCOM CORPORATION TELECOMS DIVISION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
OCOM Corporation Telecoms Division (the "Company") is a division of OCOM
Corporation ("OCOM"). OCOM is a wholly-owned subsidiary of NTL Incorporated
("NTL"). The accompanying unaudited condensed financial statements include the
financial position and results of operations of the Company and are prepared on
the basis of historical cost from the accounting records of OCOM. The condensed
financial statements are presented as if the Company had operated as an
independent, stand alone entity for the periods presented.
As of June 1, 1998, the Company was sold to a subsidiary of CoreComm
Incorporated ("CoreComm"). The condensed financial statements do not give effect
to the sale.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. 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 months ended March 31, 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 financial
statements and footnotes thereto for the year ended December 31, 1997 included
herein.
NOTE 2. FIXED ASSETS
Fixed assets at March 31, 1998 consist of:
<TABLE>
<S> <C>
Computer equipment.......................................... $ 1,872,000
Office furniture............................................ 224,000
Leasehold improvements...................................... 162,000
Vehicles.................................................... 155,000
Cellular telephones......................................... 27,000
-----------
2,440,000
Accumulated depreciation.................................... (1,079,000)
-----------
$ 1,361,000
===========
</TABLE>
NOTE 3. ACCRUED EXPENSES
Accrued expenses at March 31, 1998 consist of:
<TABLE>
<S> <C>
Payroll and related......................................... $ 548,000
Toll expense................................................ 73,000
Excise and sales taxes...................................... 173,000
Other....................................................... 218,000
----------
$1,012,000
==========
</TABLE>
NOTE 4. RELATED PARTY TRANSACTIONS
The Company provides billing and software development services to other
subsidiaries of NTL and to subsidiaries of CoreComm. Certain officers and
directors of CoreComm are officers and directors of OCOM and NTL. Beginning in
1997, the Company charges an amount in excess of its costs to provide these
services. The Company's general and administrative expenses were reduced by
$82,000 and zero in the three months ended March 31, 1998 and 1997 as a result
of these charges.
F-11
<PAGE> 69
REPORT OF INDEPENDENT AUDITORS
Owner
OCOM Corporation Telecoms Division
We have audited the accompanying balance sheets of OCOM Corporation
Telecoms Division as of December 31, 1997 and 1996, and the related statements
of operations, parent's investment (deficiency) and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of OCOM Corporation Telecoms
Division at December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Columbus, Ohio
April 24, 1998
F-12
<PAGE> 70
OCOM CORPORATION TELECOMS DIVISION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Accounts receivable-trade, less allowance for doubtful
accounts of $46,000 (1997)............................. $ 332,000 $ 507,000
Inventory................................................. 80,000 --
Other..................................................... 48,000 127,000
---------- ----------
Total current assets........................................ 460,000 634,000
Fixed assets, net........................................... 1,269,000 270,000
Deferred costs, net of accumulated amortization of $107,000
(1997) and $96,000 (1996)................................. 2,000 13,000
---------- ----------
$1,731,000 $ 917,000
========== ==========
LIABILITIES AND PARENT'S INVESTMENT (DEFICIENCY)
Current liabilities
Accounts payable.......................................... $ 348,000 $ 179,000
Accrued expenses.......................................... 1,062,000 946,000
---------- ----------
Total current liabilities................................... 1,410,000 1,125,000
Parent's investment (deficiency)............................ 321,000 (208,000)
---------- ----------
$1,731,000 $ 917,000
========== ==========
</TABLE>
See accompanying notes.
F-13
<PAGE> 71
OCOM CORPORATION TELECOMS DIVISION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Telecommunications.................................. $ 3,565,000 $ 5,103,000 $ 4,001,000
Telephone equipment................................. 14,000 -- --
----------- ----------- -----------
3,579,000 5,103,000 4,001,000
COSTS AND EXPENSES
Cost of telephone equipment sold.................... 20,000 -- --
Operating........................................... 1,561,000 3,065,000 2,478,000
Selling, general and administrative................. 5,934,000 3,119,000 5,798,000
Depreciation........................................ 428,000 138,000 126,000
Amortization........................................ 11,000 11,000 11,000
----------- ----------- -----------
7,954,000 6,333,000 8,413,000
----------- ----------- -----------
Operating (loss).................................... (4,375,000) (1,230,000) (4,412,000)
Other income (expense).............................. (4,000) 133,000 258,000
----------- ----------- -----------
NET (LOSS).......................................... $(4,379,000) $(1,097,000) $(4,154,000)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-14
<PAGE> 72
OCOM CORPORATION TELECOMS DIVISION
STATEMENT OF PARENT'S INVESTMENT (DEFICIENCY)
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1995.................................... $ 353,000
Capital contributions..................................... 4,008,000
Net loss for the year ended December 31, 1995............. (4,154,000)
-----------
BALANCE, DECEMBER 31, 1995.................................. 207,000
Capital contributions..................................... 682,000
Net loss for the year ended December 31, 1996............. (1,097,000)
-----------
BALANCE, DECEMBER 31, 1996.................................. (208,000)
Capital contributions..................................... 4,908,000
Net loss for the year ended December 31, 1997............. (4,379,000)
-----------
BALANCE, DECEMBER 31, 1997.................................. $ 321,000
===========
</TABLE>
See accompanying notes.
F-15
<PAGE> 73
OCOM CORPORATION TELECOMS DIVISION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss).......................................... $(4,379,000) $(1,097,000) $(4,154,000)
Adjustments to reconcile net (loss) to net cash used
in operating activities:
Depreciation and amortization....................... 439,000 149,000 137,000
(Gain) loss on disposal of fixed assets............. 4,000 (1,000) (11,000)
Provision for losses on accounts receivable......... 46,000 -- --
Inventory reserve................................... 78,000 -- --
Changes in operating assets and liabilities:
Accounts receivable............................... 129,000 129,000 (204,000)
Inventory......................................... (158,000) -- --
Other current assets.............................. 79,000 7,000 (102,000)
Accounts payable.................................. 169,000 82,000 74,000
Accrued expenses.................................. 116,000 230,000 421,000
----------- ----------- -----------
Net cash (used in) operating activities............. (3,477,000) (501,000) (3,839,000)
INVESTING ACTIVITIES
Purchase of fixed assets............................ (1,435,000) (183,000) (180,000)
Proceeds from disposals of fixed assets............. 4,000 2,000 11,000
----------- ----------- -----------
Net cash (used in) investing activities............. (1,431,000) (181,000) (169,000)
FINANCING ACTIVITIES
Capital contributions from OCOM Corporation......... 4,908,000 682,000 4,008,000
----------- ----------- -----------
Net cash provided by financing activities........... 4,908,000 682,000 4,008,000
----------- ----------- -----------
Net increase (decrease) in cash..................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
See accompanying notes.
F-16
<PAGE> 74
OCOM CORPORATION TELECOMS DIVISION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BUSINESS
OCOM Corporation Telecoms Division (the "Company") is a division of OCOM
Corporation ("OCOM"). OCOM is a wholly-owned subsidiary of NTL Incorporated
("NTL"). The Company provides long distance telephone service to cellular
telephone, residential and business customers, as well as calling card service
and cellular telephone service. The Company's customers are located throughout
the United States. The Company does not own its own facilities, instead it
purchases capacity on a wholesale basis and sells it at retail rates to end
users. In 1998, the Company commenced offering local exchange telephone service
in portions of Ohio to residential and business customers through a resale
arrangement with the incumbent local exchange company.
Since a substantial portion of the Company's revenues are derived from long
distance service provided to cellular telephone users, the Company's business is
currently dependent on the trends in the use of cellular telephone service.
Competition continues to increase in the long distance, local and cellular (or
wireless) telecommunications markets. Increased competition has resulted in
pricing pressure, which contributes to lower revenues per customer and higher
customer acquisition costs.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the financial position and
results of operations of the Company and are prepared on the basis of historical
cost from the accounting records of OCOM. The financial statements are presented
as if the Company had operated as an independent, stand alone entity for the
periods presented.
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.
FINANCIAL INSTRUMENTS
The carrying value of all financial instruments, including accounts
receivable-trade and current liabilities, approximates their fair value due to
the short maturity of the respective instruments.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined by
specific identification or the first-in, first-out method.
FIXED ASSETS
Fixed assets are 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 furniture -- 5 years, cellular
telephones -- 2 or 3 years, and all other fixed assets -- 3 years.
DEFERRED COSTS
One-time charges from telephone companies upon the commencement of resale
service were deferred and are amortized on a straight-line basis over
approximately ten years.
F-17
<PAGE> 75
OCOM CORPORATION TELECOMS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LONG-LIVED ASSETS
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 the carrying value of the asset.
INCOME TAXES
The Company has not recorded an income tax benefit in the periods presented
because there was no tax sharing arrangement between the Company and OCOM or NTL
during the periods. The Company is not a legal entity, therefore it has not
recorded a deferred tax asset for its tax losses since it will not be able to
utilize them in the future.
REVENUE RECOGNITION
Telecommunications revenue is recognized at the time the service is
provided to the customer. Telephone equipment revenue is recorded when the
customer takes possession of the telephone or accessories.
ADVERTISING EXPENSE
The Company charges the cost of advertising to expense as incurred.
Advertising expense for the years ended December 31, 1997, 1996 and 1995 was
$127,000, $350,000 and $1,669,000, respectively.
NOTE 3. FIXED ASSETS
Fixed assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Computer equipment.......................................... $1,640,000 $ 655,000
Office furniture............................................ 224,000 125,000
Leasehold improvements...................................... 160,000 73,000
Vehicles.................................................... 155,000 137,000
Cellular telephones......................................... 27,000 25,000
---------- ----------
2,206,000 1,015,000
Accumulated depreciation.................................... (937,000) (745,000)
---------- ----------
$1,269,000 $ 270,000
========== ==========
</TABLE>
F-18
<PAGE> 76
OCOM CORPORATION TELECOMS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- --------
<S> <C> <C>
Payroll and related......................................... $ 433,000 $231,000
Toll expense................................................ 66,000 116,000
Professional fees........................................... 204,000 273,000
Excise and sales taxes...................................... 108,000 9,000
Advertising................................................. 115,000 266,000
Other....................................................... 136,000 51,000
---------- --------
$1,062,000 $946,000
========== ========
</TABLE>
NOTE 5. RELATED PARTY TRANSACTIONS
The Company provides billing and software development services to other
subsidiaries of NTL and to subsidiaries of CoreComm Incorporated ("CoreComm").
Certain officers and directors of CoreComm are officers and directors of OCOM
and NTL. Beginning in 1997, the Company charges an amount in excess of its costs
to provide these services. The Company's general and administrative expenses
were reduced by $217,000 in 1997 as a result of these charges.
NOTE 6. 401(K) PLAN
The Company sponsors a 401(k) Plan in which all full-time employees who
have completed six months of employment and are 21 years of age may participate.
The Company's matching contribution is determined annually by the OCOM Board of
Directors. Participants may make salary deferral contributions of 1% to 15% of
their compensation not to exceed the maximum allowed by law. The Company's
expense for the years ended December 31, 1997, 1996 and 1995 was $126,000,
$46,000 and $32,000, respectively.
NOTE 7. COMMITMENTS
As of December 31, 1997, OCOM had leases for office space that expire in
1998. In 1998, OCOM entered into new leases for office space with terms that
expire in 2003. Total rent expense for the years ended December 31, 1997, 1996
and 1995 under operating leases was $131,000, $60,000 and $51,000, respectively.
Future minimum annual lease payments under noncancellable operating leases for
the leases entered into in 1998 are: $159,000 in 1998, $275,000 in 1999,
$283,000 in 2000, $291,000 in 2001, $302,000 in 2002 and $124,000 in 2003.
As of December 31, 1997, commitments for purchases of inventory, fixed
assets and services were $374,000.
NOTE 8. SUBSEQUENT EVENT (UNAUDITED)
As of June 1, 1998, the Company was sold to a subsidiary of CoreComm. The
financial statements do no give effect to the sale.
F-19
<PAGE> 77
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
CoreComm Limited
By: /s/ GEORGE S. BLUMENTHAL
------------------------------------
Name: George S. Blumenthal
Title: Chairman of the Board
June 10, 1998
F-20
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1* Form of Distribution Agreement, dated as of ,
1998, between Cellular Communications of Puerto Rico, Inc.
("CCPR") and the Registrant.
3.1* Form of Memorandum of Association of the Registrant.
3.2* Form of By-Laws of the Registrant.
4.1* Form of Common Stock Certificate.
4.2* Rights Agreement between the Registrant and Continental
Stock Transfer & Trust Company, as Rights Agent.
10.1* Form of Tax Disaffiliation Agreement between CCPR and the
Registrant.
10.2* Form of CoreComm Limited 1998 Stock Option Plan.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule -- OCOM Corporation Telecoms
Division (predecessor) March 31, 1998.
27.2 Financial Data Schedule -- OCOM Corporation Telecoms
Division (predecessor) March 31, 1997.
27.3 Financial Data Schedule -- OCOM Corporation Telecoms
Division (predecessor) December 31, 1997.
27.4 Financial Data Schedule -- OCOM Corporation Telecoms
Division (predecessor) December 31, 1996.
27.5 Financial Data Schedule -- OCOM Corporation Telecoms
Division (predecessor) December 31, 1995.
27.6 Financial Data Schedule -- CoreComm Limited and Subsidiaries
March 31, 1998.
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Independent
Auditors" and "Selected Financial Data" and to the use of our report dated April
24, 1998 with respect to the financial statements of OCOM Corporation Telecoms
Division appearing in this Information Statement.
ERNST & YOUNG, LLP
Columbus, Ohio
June 10, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Independent
Auditors" and "Selected Financial Data" and to the use of our report dated June
2, 1998 with respect to the balance sheet of CoreComm Limited appearing in this
Information Statement.
ERNST & YOUNG, LLP
New York, New York
June 10, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 525,000
<ALLOWANCES> (66,000)
<INVENTORY> 66,000
<CURRENT-ASSETS> 339,000
<PP&E> 2,440,000
<DEPRECIATION> (1,079,000)
<TOTAL-ASSETS> 2,225,000
<CURRENT-LIABILITIES> 1,032,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,193,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,225,000
<SALES> 27,000
<TOTAL-REVENUES> 853,000
<CGS> 20,000
<TOTAL-COSTS> 435,000
<OTHER-EXPENSES> 1,766,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,492,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,492,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,492,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
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<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 986,000
<CGS> 0
<TOTAL-COSTS> 437,000
<OTHER-EXPENSES> 1,255,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (754,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (754,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (754,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 378,000
<ALLOWANCES> (45,000)
<INVENTORY> 80,000
<CURRENT-ASSETS> 48,000
<PP&E> 2,206,000
<DEPRECIATION> (937,000)
<TOTAL-ASSETS> 1,731,000
<CURRENT-LIABILITIES> 1,410,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 321,000
<TOTAL-LIABILITY-AND-EQUITY> 1,731,000
<SALES> 14,000
<TOTAL-REVENUES> 3,579,000
<CGS> 20,000
<TOTAL-COSTS> 1,581,000
<OTHER-EXPENSES> 5,934,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,379,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,379,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,379,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 507,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 127,000
<PP&E> 1,015,000
<DEPRECIATION> (745,000)
<TOTAL-ASSETS> 917,000
<CURRENT-LIABILITIES> 1,125,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 208,000
<TOTAL-LIABILITY-AND-EQUITY> 917,000
<SALES> 0
<TOTAL-REVENUES> 5,103,000
<CGS> 0
<TOTAL-COSTS> 3,065,000
<OTHER-EXPENSES> 3,119,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,097,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,097,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,097,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 4,001,000
<CGS> 0
<TOTAL-COSTS> 2,478,000
<OTHER-EXPENSES> 5,798,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,154,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,154,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,154,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,000,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,426,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,426,000
<CURRENT-LIABILITIES> 5,251,000
<BONDS> 0
0
0
<COMMON> 12,000
<OTHER-SE> 22,173,000
<TOTAL-LIABILITY-AND-EQUITY> 27,426,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
