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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the Fiscal Year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _________ to_________
COMMISSION FILE NUMBER: 0-23012
POWERTEL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1944750
(State of incorporation) (I.R.S.Employer Identification No.)
1233 O.G. Skinner Drive, West Point, Georgia 31833
(Address of principal executive office) (Zip Code)
(Registrant's telephone number including area code): (706) 645-2000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
(Title of each class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference into Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of $23.97 on March 20, 1998, as
reported on the Nasdaq Stock Market's National Market, was approximately
$237,261,196. As of March 20, 1998, the Registrant had outstanding
26,945,863 shares of Common Stock.
DOCUMENTS INCOPORATED BY REFERENCE
Portions of the Company's Definitive Proxy Statement for the 1998 Annual Meeting
of Stockholders are incorporated by reference into Part III of this Report.
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INDEX TO FORM 10-K
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Page
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PART I
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Item 1. Business........................................................................................................... 1
Item 2. Properties......................................................................................................... 18
Item 3. Legal Proceedings.................................................................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders................................................................ 19
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........................................................... 20
Item 6. Selected Financial Data............................................................................................ 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 23
Item 7A. Quantitative and Qualitative Disclosures About Market Risks........................................................ 31
Item 8. Financial Statements and Supplementary Data........................................................................ 31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.............................. 32
PART III
Item 10. Directors and Executive Officers of the Registrant................................................................. 32
Item 11. Executive Compensation............................................................................................. 32
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................................... 32
Item 13. Certain Relationships and Related Transactions..................................................................... 32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................... 33
Signatures................................................................................................................... 39
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PART I
ITEM 1. BUSINESS
Unless otherwise indicated, all population data set forth herein is
based on the 1996 Paul Kagan Associates, Inc. Cellular/PCS POP Book, and all
industry data set forth herein is based upon information compiled by the
Cellular Telecommunications Industry Association ("CTIA") and/or Paul Kagan &
Associates, Inc. This Report contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act
of 1934, as amended (the "Exchange Act). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --Disclosure Regarding
Forward Looking Statements."
Powertel, Inc., a Delaware corporation ("Powertel" or the "Company"),
provides personal communications services ("PCS") in the southeastern United
States under the name "Powertel" and cellular telephone service in contiguous
portions of western Georgia and eastern Alabama under the name "InterCel." In
June 1997, the Company changed its name from InterCel, Inc. to Powertel, Inc.
Powertel's PCS licenses encompass a territory of approximately 246,000
contiguous square miles with a population of approximately 24.3 million people
and include licenses to serve the Major Trading Areas ("MTAs") of Atlanta,
Georgia; Jacksonville, Florida; Memphis, Tennessee/Jackson, Mississippi; and
Birmingham, Alabama (the "Current PCS Markets") and licenses to serve 13 Basic
Trading Areas ("BTAs") in Kentucky and Tennessee which the Company acquired in
the Federal Communications Commission ("FCC") "D," "E" and "F" block auctions
(the "D/E/F Auctions") in 1997.
In the D/E/F Auctions, the Company acquired both the 10 MHz "D" block
and the 10 MHz "E" block licenses for the BTAs of Evansville, Indiana;
Lexington, Louisville, Bowling Green-Glasgow, Corbin, Madisonville, Owensboro,
Paducah-Murray-Mayfield and Somerset, Kentucky; Nashville and Cookeville,
Tennessee; and Hopkinsville, Kentucky-Clarksville, Tennessee; and the 10 MHz "E"
block license in the Knoxville, Tennessee BTA (collectively, the
"Kentucky/Tennessee BTAs" and, together with the Current PCS Markets, the "PCS
Markets"). The aggregate purchase price for these licenses, which encompass an
area of approximately 66,000 square miles with a population of approximately 6.8
million people, was $31.2 million. With the addition of the Kentucky/Tennessee
BTAs, Powertel has one of the largest contiguous PCS licensed footprints in the
southeastern United States.
Powertel first introduced its PCS services in October 1996 in
Jacksonville, Florida and Montgomery, Alabama and, to date, has launched its PCS
services in a total of 25 markets in the Southeast. In all of these markets,
except Atlanta, Georgia where the Company acquired its license from GTE Mobilnet
Incorporated in 1996, the Company was the first to offer PCS services
commercially. Powertel intends to continue to rapidly build out its PCS network
and to launch its PCS services. As of December 31, 1997, the Company had
approximately 119,000 PCS subscribers.
Powertel provides cellular telephone service under the "InterCel"
brand name in contiguous portions of four Rural Service Areas ("RSAs") in
western Georgia and eastern Alabama (the "Cellular Market"). The Cellular Market
encompasses approximately 2,900 square miles with a population of approximately
296,000 persons. On May 1, 1997, the Company sold substantially all of its
assets related to its cellular telephone service in the State of Maine for $77.2
million. See "-- Cellular Operations -- Maine Disposition." As of December 31,
1997, the Company had approximately 26,000 cellular subscribers.
The Company's principal executive offices are located at 1233 O.G.
Skinner Drive, West Point, Georgia 31833, and its telephone number is (706)
645-2000.
THE WIRELESS TELECOMMUNICATIONS INDUSTRY
Overview. Wireless telecommunications networks use a variety of radio
frequencies to transmit voice and data in place of, or in addition to, standard
landline telephone networks. Wireless telecommunications technologies include
one-way radio applications, such as paging or beeper services, and two-way radio
applications, such as
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cellular telephone and enhanced specialized mobile radio ("ESMR") networks. Each
service operates on a distinct radio frequency block.
Since its initial introduction in 1983, commercial cellular telephone
service has grown dramatically and now dominates the wireless telecommunications
market. Service revenues for the wireless telephone industry set an annual
record of over $23.6 billion during 1996 (an increase from approximately $482
million in 1985). The number of wireless telephone subscribers nationwide has
grown from approximately 680,000 in 1986 to an estimated 44 million at December
31, 1996. This represents a penetration rate of approximately 16.6%.
In 1993, the FCC allocated a portion of the radio spectrum for the
provision of a new wireless communications service, commonly known as PCS. PCS
differs from traditional cellular telephone service principally in that PCS
systems operate at a higher frequency and employ advanced digital technology.
Relative to existing cellular service, these differentiating factors are
expected to enable PCS system operators to offer customers lower cost service
options, lighter handsets with longer battery lives and new and enhanced
services.
Most cellular services currently transmit voice and data signals over
analog-based systems, which use one continuous electronic signal that varies in
amplitude or frequency over a single radio channel. Digital systems, on the
other hand, convert voice or data signals into a stream of digits that is
compressed before transmission, enabling a single radio channel to carry
multiple simultaneous signal transmissions. This enhanced capacity, along with
enhancements in digital protocols, allows digital-based wireless technologies to
offer new and enhanced services, such as greater call privacy and single number
(or "find me") service, and more robust data transmission features, such as
"mobile office" applications (including facsimile, e-mail and connecting
notebook computers with computer/data networks).
While digital technology serves generally to reduce transmission
interference relative to analog technology, limitations in the 8 Kb cellular
digital handsets initially deployed in cellular systems by most digital wireless
operators also caused a perceptible decline in transmission quality. This gap in
transmission quality proved to be a barrier to cellular operators seeking to
switch their customers from analog to digital service. PCS providers, including
the Company, are currently utilizing enhanced 13 Kb digital handsets which
provide for significantly improved voice quality.
The Company believes the growth of the consumer market for wireless
telecommunications will accelerate due to anticipated declines in costs of
service, increased function versatility and increased awareness of the enhanced
productivity and convenience associated with such services. The Company also
believes the rapid growth of notebook computers and personal digital assistants,
combined with emerging software applications for wireless delivery of e-mail,
fax and database searching, will further stimulate demand for wireless service.
Moreover, the Company expects to see an increased demand for local residential
or fixed wireless telecommunications services as a replacement to wireline
products. The Company intends to continue to monitor the demand for wireline
replacement services and to supplement its current wireless service offerings in
the future as appropriate to address this market segment.
Operation of Wireless Systems. Two-way wireless service areas are
divided into multiple regions called "cells," each of which contains a base
station system consisting of a low-power transmitter, a receiver and signaling
equipment. The cells are typically configured on a grid in a honeycomb-like
pattern, although terrain factors (including natural and man-made obstructions)
and signal coverage patterns may result in irregularly shaped cells and overlaps
or gaps in coverage. Cellular system cells generally have a radius ranging from
two miles to 25 miles. PCS system cells generally have a radius ranging from
one-quarter mile to eight miles, depending on the PCS technology being used,
antenna type and configuration, local capacity requirements and terrain. The
base station system in each cell is connected by microwave, fiber optic cable or
telephone wires to a mobile switching center, which uses computers to control
the operation of the wireless telephone system for its entire service area. The
mobile switching center controls the transfer of calls from cell to cell as a
subscriber's handset travels, manages call delivery to handsets, allocates calls
among the cells within the system and connects calls to the local landline
telephone system or to a long distance telephone carrier. Wireless service
providers have interconnection agreements with various local exchange carriers
("LECs") and interexchange carriers, thereby integrating the
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wireless telephone system with landline telecommunications systems. Because
two-way wireless systems are fully interconnected with landline telephone
networks and long distance networks, subscribers can receive and originate both
local and long distance calls from their wireless telephones.
The signal strength of a transmission between a handset and a base
station system declines as the handset moves away from the base station, so the
mobile switching center and the base station controller monitor the signal
strength of calls in progress. When the signal strength of a call declines to a
predetermined level, the mobile switching center may "hand off" the call to
another base station that can establish a stronger signal with the handset. If a
handset leaves the service area of the wireless service provider, the call is
disconnected unless an appropriate technical interface is established to hand
off the call to an adjacent system.
Operators of wireless systems frequently agree to provide service to
subscribers from other compatible systems who are temporarily located in or
traveling through the service area. Such subscribers are called "roamers."
Agreements among system operators allocate revenues received from roamers. With
automatic roaming, wireless subscribers are preregistered in certain systems
outside their service area and receive service automatically while they are
roaming, without having to notify the switching office. Other roaming features
permit calls to a subscriber to "follow" the subscriber into different systems,
so that the subscriber will continue to receive calls in a different system just
as if the subscriber were within his or her service area. When wireless
operators provide service to roamers from other systems, they generally charge
roamer airtime usage rates, which usually are higher than standard airtime usage
rates for their own subscribers, and additionally may charge daily access fees.
Special, discounted rate roaming arrangements, often between neighboring
operators who desire to stimulate usage in their respective territories, provide
for reduced roaming fees and no daily access fees. The Company is a member of
the North American GSM Alliance (the "Alliance"), a consortium of seven major
PCS carriers which offer PCS service through the Global System for Mobile
Communications ("GSM") protocol throughout North America. Through the Alliance,
the Company allows its customers to roam in many major metropolitan areas in the
United States and Canada. Alliance members include the Company, Aerial
Communications, Inc. ("Aerial Communications"), BellSouth Mobility DCS, the PCS
subsidiary of BellSouth ("BellSouth Mobility DCS"), Microcell Connexions Inc.
("Microcell"), Omnipoint Communications, Inc. ("Omnipoint"), Pacific Bell Mobile
Services Corp. ("Pacific Bell Mobile Services") and Western Wireless Corporation
("Western Wireless"). The Company offers a single roaming rate to its customers
when roaming on any GSM network throughout the United States and Canada.
While PCS and cellular networks utilize similar technologies and
hardware, they operate on different frequencies and utilize different signaling
protocols. As a result, it generally will not be possible for users of one type
of system to "roam" on a different type of system outside of their service area,
or to hand off calls from one type of system to another, unless the handset is
capable of operating on multiple frequencies or technology platforms (i.e.,
dual-mode). This is also true for PCS subscribers seeking to roam in a PCS
service area served by operators using incompatible PCS signaling protocols. See
"-- Digital Technology." The Company expects to begin marketing dual-mode
handsets capable of receiving and transmitting over both analog cellular and
GSM-based PCS networks in mid-1998; however, the Company expects such handsets
to weigh and cost more than single-mode handsets. The Company expects its
dual-mode service offering to allow for automatic delivery of calls over analog
cellular systems to its PCS subscribers roaming in areas where GSM-based PCS
service is not available.
Wireless subscribers generally are charged separately for monthly
access, airtime, long distance calls and custom calling features (although many
custom calling features are included in monthly access charges in the Company's
pricing plans). Wireless system operators have been required to pay fees to LECs
for interconnection to their networks based on standard or negotiated rates.
However, pursuant to the Telecommunications Act of 1996, as amended (the "1996
Telecommunications Act"), such interconnection arrangements are now reciprocal
and cost-based, with each party compensating the other at the same rate for the
right to interconnect with such carrier's network. See "-- Regulation of
Wireless Telecommunications Systems." The Company has entered into
interconnection agreements for its cellular and PCS operations with BellSouth
Corporation ("BellSouth"), the LEC with which the Company primarily
interconnects in its service territory. Effective April 1, 1997, the mutual and
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reciprocal interconnection rates under these agreements range from $.003730 to
$.013853 per minute. These rates represent a decrease from the previous rates
paid by the Company to BellSouth of approximately $.024 per minute.
Digital Technology. Digital signal transmission is accomplished
through the use of frequency management technologies, or "protocols." These
protocols "manage" the radio channel either by dividing it into distinct time
slots (a method known as Time Division Multiple Access, or "TDMA") or by
assigning specific coding instructions to each packet of digitized data that
comprises a signal (a method known as "CDMA"). While the FCC has mandated that
licensed cellular systems in the United States utilize compatible analog
signaling protocols, at present there is no required universal digital signaling
protocol, and there can be no assurance that the FCC or industry organizations
will not mandate a universal digital switching protocol in the future.
Currently, three principal competing, incompatible signaling protocols are
offered by various vendors for use in PCS systems: GSM; CDMA; and IS-136. The
GSM protocol is an updated, up-banded version of the TDMA-based protocol widely
used in European and other countries. IS-136 is an up-banded version of the
TDMA-based digital cellular protocol now used by cellular operators in the
United States. Because IS-136 is based on current TDMA-based cellular protocols,
the dual-mode (analog cellular/PCS) handset using IS-136 technology was the
first dual-mode handset to become commercially available. Because the three
protocols are incompatible, a subscriber of a system that relies on GSM
technology, for example, will be unable to use his handset when traveling in an
area served only by CDMA or IS-136-based wireless operators unless he carries a
dual-mode handset that permits him to use one of the analog cellular carriers'
systems in that area. See "-- PCS Operations -- PCS System."
PCS OPERATIONS
Overview. The Company provides PCS services in the southeastern
United States under the "Powertel" name. The Company's licenses to provide PCS
services cover contiguous portions of 12 southeastern states. The Company
believes that by expanding its presence in the southeastern United States
through the acquisition of the licenses for the Kentucky/Tennessee BTAs, it will
be able to build upon its experience and reputation in the southeastern
telecommunications markets, benefit from the region's positive demographics and
capitalize on its relationships with other telecommunications providers in the
Southeast.
PCS Markets. The PCS Markets encompass approximately 246,000
contiguous square miles in portions of the following 12 states: Alabama;
Arkansas; Florida; Georgia; Illinois; Indiana; Kentucky; Louisiana; Mississippi;
Missouri; South Carolina; and Tennessee. Approximately 24.3 million people
reside in, and over 10,250 miles of highway are located in, the Company's PCS
Markets. As of December 31, 1997, the Company had approximately 119,000 PCS
subscribers in 25 metropolitan areas in Alabama, Florida, Georgia, Mississippi,
South Carolina and Tennessee.
The Company currently provides PCS services in 25 markets that
include the following cities: Atlanta, Augusta, Brunswick, Columbus, LaGrange,
Macon, Savannah and West Point, Georgia; Memphis and Jackson, Tennessee; Jackson
and Tupelo, Mississippi; Florence, Huntsville, Anniston, Gadsden, Birmingham,
Tuscaloosa, Montgomery, Decatur, Auburn-Opelika and Dothan, Alabama; Panama
City, Tallahassee, Jacksonville, St. Augustine and Gainesville, Florida; and
Aiken and Hilton Head, South Carolina. The Company also offers service along the
major highway corridors connecting such areas, and the Company has completed the
initial buildout of its PCS system in such areas. Generally, the Company's
"initial buildout" of a licensed territory includes the construction of cell
sites: (i) in metropolitan areas with a population greater than 100,000 people;
(ii) in certain smaller cities that, due to location or demographics, the
Company considers to be strategically important; and (iii) along the major
highway corridors connecting such areas. The Company completed the initial
buildout of its PCS system in the Current PCS Markets (the "Current PCS System")
in late 1997 (excluding Albany, Georgia and Chattanooga, Tennessee). The Company
has commenced the initial buildout of its PCS system in the Kentucky/Tennessee
BTAs (the "Kentucky/Tennessee PCS System" and, together with the Current PCS
System, the "PCS System") and expects to begin offering service in certain of
these BTAs in late 1998. Thereafter, based on customer demand and competitive
factors, Powertel intends to continue the buildout of its PCS System to enhance
and expand its coverage.
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PCS Strategy. Powertel's PCS strategy is to: (i) continue to rapidly
build out a high-quality PCS system and be among the first to offer PCS services
in the remaining PCS Markets; (ii) offer a broad range of services, including
enhanced services; (iii) expand its subscriber base by providing wireless
services of the highest quality, functionality and value; (iv) expand the
Company's regional market presence by managing and affiliating with other PCS
licensees, as well as potentially acquiring additional strategic PCS licenses;
and (v) provide its customers with the ability to receive PCS service in areas
outside of the Company's service area through the implementation of roaming
agreements. Because the Company believes that being among the first to offer PCS
services in its PCS Markets is a significant competitive advantage, it plans to
continue to rapidly build out the metropolitan areas, certain secondary cities
and connecting highway corridors in its PCS Markets. The Company intends to
achieve significant market penetration by aggressively marketing competitively
priced PCS services, including enhanced services not currently provided by
analog or digital cellular operators, and by providing superior customer
service. The Company intends to remain a low-cost provider of PCS services by
generating economies of scale through operating in contiguous market areas and
focusing on customer acquisition and retention, as it has done in its cellular
business. The Company has entered into roaming agreements with several GSM
operators in North America and internationally, including all members of the
Alliance. In addition, the Company is currently negotiating roaming agreements
with analog cellular providers in areas where GSM coverage does not exist to
facilitate dual-mode roaming. These agreements will be necessary to allow the
Company to offer dual-mode service.
PCS Services. The Company's PCS service offerings consist primarily
of wireline enhancement products in which PCS supplements a customer's landline
communications. Powertel currently offers a full range of wireless
telecommunications services, including certain enhanced features and services
not currently provided by analog or digital cellular operators. These enhanced
features and services include secure communications, sophisticated call
management (incorporating services such as caller I.D. and call forwarding),
enhanced battery life and a short message service which allows subscribers to
send and receive alphanumeric and text messages on their handsets. The Company
is also currently offering two special long distance plans which are intended to
provide its customers with a landline long distance replacement option. For $15
per month (in addition to airtime and other monthly charges), the Company offers
its customers unlimited long distance calling to all 12 states where the Company
holds PCS licenses (the "Twelve State Region"). For $5 per month (in addition to
airtime and other monthly charges), a customer can have unlimited long distance
calling to any one state in the Company's Twelve State Region. In addition, the
Company intends to expand its current offerings of wireless telecommunications
services to include international roaming, single number service, enhanced
pre-pay service plans, data and information services, alternative line service,
wireless e-mail, home zone billing, virtual private network and fixed wireless
services that could serve as the customer's primary mode of telecommunication.
PCS Roaming. The Company's PCS subscribers may roam outside their
"home" markets anywhere within the Company's PCS coverage area without being
assessed daily access fees or increased airtime usage rates. In addition, the
Company has reciprocal roaming agreements in place with GSM-based PCS providers,
including Aerial Communications, Airadigm Communications Inc. ("Airadigm"),
American Personal Communications, Inc., BellSouth Mobility DCS, DigiPH PCS
Incorporated, Microcell, Omnipoint, Pacific Bell Mobile Services, Third Kentucky
Cellular and Western Wireless. The Company began offering its customers roaming
capabilities in the third quarter of 1997 in the service areas where these
providers were operational. The Company provides GSM roaming services outside of
its service areas to its customers at a single roaming rate which is lower than
rates traditionally offered by most cellular providers. In addition, several
other PCS licensees (including winning bidders in the D/E/F Auctions) have
announced that they intend to deploy GSM-based PCS systems. The Company intends
to pursue roaming arrangements with these parties in order to maximize its
customers' ability to roam throughout the United States and Canada on GSM
networks. Certain of these licensees own licenses in MTAs and BTAs that are
contiguous to the PCS Markets which will continue to increase the size of the
contiguous geographic area where a customer of the Company can roam using his
GSM handset. The Company has also entered into roaming agreements with
international GSM providers (primarily through its membership in the Alliance)
which will enable subscribers to roam internationally through the use of
Subscriber Identity Module ("SIM") cards. Once dual-mode roaming becomes
commercially available, the Company's subscribers will be able to roam in
markets where the GSM protocol is not in use through the use of a dual-mode
telephone that would permit the use of the existing analog cellular system where
the Company has a dual-mode roaming agreement in place. This dual-mode
capability
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is expected to be available to the Company's customers in mid-1998, and the
Company has signed several, and is actively seeking additional, roaming
agreements with other analog cellular carriers.
PCS System. The Company's PCS System utilizes the GSM digital
protocol. Industry predictions indicate that there will be approximately 100
million GSM customers worldwide before the end of 1998. Over 70 million
customers worldwide subscribed for GSM services in 1997 -- approximately twice
that of the previous year. The Company chose GSM because it: (i) has been
operating successfully in European and other countries for over six years; (ii)
offers enhanced features such as call encryption and short messaging; and (iii)
utilizes an open system architecture between the mobile switching center and
base station systems, thereby allowing the Company to purchase equipment from a
variety of vendors and improving the Company's ability to reduce equipment
costs. The system design primarily utilizes high-powered sites to provide wide
area coverage of the most dense population centers, surrounding communities and
connecting traffic corridors. Smaller, low-power sites provide enhanced coverage
and supplemental capacity in heavy usage areas.
The Company has completed the initial buildout of its PCS System in
the Current PCS Markets and is currently acquiring sites and building the
Kentucky/Tennessee PCS System. Sites are selected on the basis of their coverage
of targeted customers, cost to construct the site and on frequency propagation
characteristics. In many cases, the Company may be required to obtain zoning
approval. For new sites, the Company's experience is that the site acquisition
process can take three to twelve months. Once sites are acquired and the
requisite governmental approvals are obtained, preparation of each site,
including grounding, ventilation and air conditioning, equipment installation,
testing and optimization, generally requires an additional two to four months.
In addition to frequency planning, system design and site acquisitions, the
implementation of the Kentucky/Tennessee PCS System requires construction and
equipment procurement, installation and testing. The infrastructure of a PCS
system generally consists of digital switches, base station transmitters and
receivers, and related equipment. Additional costs are attributable to site
acquisition and preparation and installation services. The Company has entered
into an equipment purchase agreement (the "Ericsson Agreement") with Ericsson
Inc. ("Ericsson") and a $265.0 million credit agreement (the "Equipment
Financing Agreement") with various lenders including Ericsson to finance
equipment purchases under the Ericsson Agreement. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company's ability to proceed with the buildout of its
PCS System may be subject to successful negotiation of site acquisitions or
leases, the availability of equipment and financing, and the receipt of
necessary governmental approvals. In addition, the timing of the scheduled
buildout will be subject to normal construction and other possible delays. Thus,
the Company's buildout schedule may be revised from time to time as a result of
changing circumstances.
In general, the frequency spectrum licensed by the FCC for PCS use
was partially occupied by private and common carrier fixed microwave users. Many
of these microwave incumbents provide services that could or would have
interfered with or received interference from the operation of the PCS System
and, as a result, had to be relocated. In an effort to balance the competing
interests of existing microwave users and newly authorized PCS licensees, the
FCC adopted a transition plan to relocate such microwave operators to other
spectrum blocks. In most cases where the Company has displaced a microwave
incumbent in the Current PCS Markets, the Company has been responsible for
paying the microwave incumbent's relocation expenses and for any actions
necessary to put the microwave incumbent's new facility into operation. The
Company has been successful in relocating the necessary microwave links for the
initial buildout of its Current PCS Markets. As of March 1, 1998, the Company
had signed microwave relocation agreements for 95 microwave links at a cost of
$26.5 million and estimates that it may be required to relocate between 10 and
12 additional microwave links in the PCS Markets. It may be necessary for the
Company to relocate additional microwave links as it enhances and expands its
coverage following the initial buildout of its PCS System.
The FCC has a cost-sharing plan to allocate the costs of microwave
relocations among PCS licensees where a PCS licensee's relocation efforts and
expense has benefitted another. Under the approved plan, a PCS licensee is not
required to contribute to the relocation costs of a particular microwave link
unless that link, by application of the FCC's objective interference test, is
determined to cause interference to or receive interference from the PCS
licensee's system. However, a PCS licensee's cost-sharing obligation is
generally limited to $250,000 per microwave link unless a new or modified tower
is required, in which case the cost-sharing obligation is limited to
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$400,000. In addition to the microwave relocation expenses incurred by the
Company as a result of direct negotiations with incumbent microwave licensees,
the Company has incurred a limited number of cost-sharing obligations; however,
it is also entitled to recoup certain of its costs due to cost-sharing
obligations imposed upon other licensees under the plan. Two non-profit
clearinghouses have been established to administer the FCC's cost-sharing plan.
The Company has been required to increase the capacity of its PCS
System in certain markets due to usage patterns and customer demand. In general,
system capacity has been expanded by installing additional transmitters at
existing sites and by site "splitting," a process whereby a single large cell is
divided into two or more smaller cells by using, in some cases, lower-powered
transmitters and towers with lower elevations. Additionally, the Company
upgraded its Ericsson switching equipment to Ericsson's Release 3 Software which
enabled increased network capacity. In the future, additional capacity typically
will be added in response to anticipated demand and may be at substantially less
than the proportionate cost of the initial system. The Company believes the cost
of this additional capacity will be competitive with the cellular industry's
cost of adding capacity for additional subscribers.
PCS Customer Service. The Company recognizes that superior customer
service is vital to minimizing customer churn and to contributing to the
long-term success of its business. Accordingly, the Company strives to ensure
that its PCS customers are fully introduced to its service offerings, that they
understand how to use the Company's equipment and its features and that they
receive prompt and reliable service from the Company's customer service
representatives. The Company currently provides PCS subscribers with toll-free
access to its customer service representatives 24 hours a day, seven days a
week. In addition, PCS subscribers can reach a customer service representative
from their handsets (with no airtime charge) by dialing 611.
PCS Sales, Marketing and Distribution. The Company markets its PCS
service offerings primarily through: (i) a direct sales force; (ii) 27
Company-operated retail stores; (iii) a network of independent agents, each of
which has a retail store presence; and (iv) mass merchandisers, such as Radio
Shack, Office Depot and Circuit City. In addition to traditional distribution
channels, the Company is considering marketing its PCS products and services
through non-traditional distribution channels, including the internet,
telemarketing and direct mail. The Company supports its marketing activities
with local and regional advertising.
The Company's direct and retail store PCS sales force currently
consists of approximately 370 employees. The Company's sales employees
understand the Company's PCS System, products and services, so that they, in
turn, can provide extensive information to prospective customers. Sales
commissions generally are linked both to subscriber revenue and subscriber
retention. The Company expects that it will increase its PCS sales force to
approximately 460 employees by the end of 1998.
The Company also negotiates volume discounts from vendors of PCS
telephone equipment and passes on a substantial portion of the discount on, and
further subsidizes the cost of, such telephone equipment to its subscribers,
sales agents and distributors. The Company offers service for a fixed monthly
charge (accompanied by varying allotments of unbilled or "free" minutes), plus
additional variable charges per minute of use. A high volume caller might find
an option with a higher monthly access charge and lower per-minute charges to be
most advantageous. A lower volume user might choose a different package,
featuring a lower access fee and higher per-minute charges. Voicemail, caller
ID, caller ID blocking, call waiting and text messaging are included in all rate
plans. The Company's current rate plans do not differentiate between "peak" and
"off-peak" airtime minutes, unlike many of its cellular competitors. The Company
charges a $.10 per minute toll charge for all long distance calls terminating
within the PCS Markets and a $.15 per minute toll charge for all calls
terminating outside of the PCS Markets. The Company also offers two special long
distance plans. For $15 per month (in addition to airtime and other monthly
charges), the Company offers its customers unlimited long distance calling to
the Company's Twelve State Region. For $5 per month (in addition to airtime and
other monthly charges), a customer can have unlimited long distance calling to
any one state in the Twelve State Region. Optional features available at an
additional charge include custom call service, call forwarding, enhanced
voicemail, alphanumeric short messaging, fax management and message management.
The Company is currently testing a wireless e-mail product which would allow its
customers to send and receive e-mail messages from their PCS handsets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
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The Company offers over-the-air activation whereby a customer can
initiate service by purchasing a handset from any of the Company's distribution
channels and pressing any key on the handset to reach Powertel customer service.
During this call, the customer service representative can obtain all necessary
customer information and conduct a credit scoring assessment. The customer's
telephone can be activated within minutes following this call. The Company does
not require its PCS customers to sign long-term service contracts. The Company
currently subsidizes a portion of most PCS handset purchases, but even after
such subsidy, such handsets are generally more expensive to subscribers than
cellular handsets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
In marketing its PCS services, the Company emphasizes the enhanced
features and favorable pricing of its services. The Company also promotes the
improved call security of its PCS System, which the Company believes encourages
users to make confidential calls that they might not otherwise make on an analog
cellular telephone. The Company anticipates offering certain bundled services
with other service providers in the future, such as long distance, cable
television and internet access companies. As prices decline for PCS service and
as the Company is able to provide a broader array of bundled services, the
advantages of mobility together with customized combinations of PCS services
will make PCS services increasingly attractive for telephonic communications and
may result in penetration into the landline telephone market. This potential for
increased PCS penetration of the landline market was enhanced by the 1996
Telecommunications Act, which requires LECs to interconnect with other
telecommunications providers such as the Company at just and reasonable rates
that are based on costs. The Company expects that the services offered by PCS
operators will initially serve to enhance traditional landline telephone
services and will eventually be capable of replacing some traditional landline
telephone services.
CELLULAR OPERATIONS
Cellular Market. Powertel provides cellular telephone service in
contiguous portions of four RSAs in western Georgia and eastern Alabama under
the name "InterCel." The Cellular Market has a population of approximately
296,000 persons and encompasses approximately 2,900 square miles. Since the
Company commenced service in late 1990, the number of Company subscribers in the
Cellular Market has grown to 26,000 at December 31, 1997 (a penetration of
approximately 8.7% of the total population in the Cellular Market). While the
Company faces significant competition in its Cellular Market, including
competition from the Company's PCS subsidiary which launched Powertel service in
mid-1997 in the Cellular Market, the Company believes that the Cellular Market
provides a competitive advantage by enabling the Company to serve many
significant areas desired by subscribers and travelers, including approximately
100 miles of Interstate Highway 85 and 40 miles of Interstate Highway 185,
Auburn University, Callaway Gardens and West Point Lake. The cost of acquiring a
new customer is substantial, and the Company is continually monitoring customer
churn and taking steps to minimize it. Customer churn generally tends to
increase as the customer base grows and more competition enters the marketplace.
The Company believes that a more focused and proactive customer retention
process has resulted in a decreased churn rate in the Cellular Market.
Maine Disposition. In May 1997, the Company sold its cellular
operations in the State of Maine (the "Maine Disposition") to MRCC, Inc., a
subsidiary of Rural Cellular Corporation ("Rural Cellular"), for an aggregate
price of $77.2 million. In addition, Rural Cellular reimbursed the Company
approximately $250,000 for capital expenditures made prior to the closing of the
transaction. The Company acquired its Maine cellular operations in 1994 for
$36.4 million.
Cellular Strategy. Powertel's cellular strategy is to: (i) add new
subscribers and, through an emphasis on superior customer service, retain its
existing subscriber base; (ii) maintain a competitive wireless service as new
technologies and products enter its markets; (iii) continue to upgrade its
cellular switching systems to capture roaming revenues from digital cellular
users roaming into its Cellular Market and to offer digital services to its own
customers; and (iv) provide superior product features tailored to its customers'
needs at competitive prices.
Cellular Services. The Company provides a variety of cellular
services and products designed to match a range of consumer, business and
personal security needs. In addition to mobile voice and data transmission, the
Company offers ancillary services such as voice message and facsimile storage
and retrieval, group ring and single number
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service, personal 800 service, call forwarding, call waiting, three party
conference calling and no-answer transfer. The Company offers cellular service
for a fixed monthly charge (accompanied by varying allotments of unbilled or
"free" minutes), plus additional variable charges per minute of use. Various
pricing programs (some of which are based on multi-year service contracts) are
available. Ancillary services are included in some service package offerings and
are otherwise priced on a stand-alone basis.
Cellular Roaming. In order to make using its wireless service more
convenient and, in some instances, more affordable, the Company has negotiated
automatic and special rate roaming agreements with other cellular providers.
Currently, the Company's cellular subscribers enjoy automatic call delivery in
most of the United States through a feature known as "Follow Me Roaming Plus."
The Company has special discounted roaming arrangements with certain other
cellular carriers in areas near the Cellular Market, which provide the Company's
subscribers with reduced rates when roaming in these surrounding areas. In most
cases, these rates approximate the local per-minute rates with no daily charge.
The Company believes that expanded, discounted rate calling areas attract
customers and promote roaming by wireless telecommunications users traveling
within the Company's Cellular Market.
Cellular System. The main switching office for the Cellular Market is
located in Huguley, Alabama, and the Company's cellular system consists of 22
cell sites. The Company's existing cell sites use a combination of
omnidirectional, directional, sectored and reflected antennas. The Company uses
a Company-owned microwave transmission system, in conjunction with leased
capacity on fiber optic systems and traditional landline facilities, to connect
the cells to the main switching offices in the Cellular Market. The Company
plans to add approximately six new cell sites during the next year in order to
accommodate anticipated subscriber and usage growth and to improve transmission
quality throughout the Cellular Market.
The Company has completed the initial upgrade of its analog cellular
system to provide digital service. Customers may obtain enhanced services
similar to those provided by digital PCS operators, including improved call
security and battery life. The Company's cellular system is a dual-mode
analog/TDMA digital system. In order to receive digital service, the Company's
current cellular subscribers must exchange their analog handsets for new digital
handsets. The Company expects that some analog customers will switch to digital
handsets over time according to their personal service needs. Currently,
however, the quality of digital cellular voice transmissions experienced in the
Company's Cellular Market is inferior to that provided by analog systems. The
Company is currently marketing its digital service in a limited manner. The
Company has identified the investment required to enhance the quality of digital
service and has prepared preliminary marketing programs to promote digital
service. Once market demand for digital service increases, the Company is
prepared to implement these plans in order to encourage usage of its digital
cellular system and to retain cellular subscribers. Because its digital switches
are capable of handling both analog and digital transmissions, the Company will
be able to continue to offer analog cellular service to those customers who do
not transfer to digital service and to capture roaming revenues from users of
both analog and digital service.
By deploying TDMA, the Company has positioned itself to provide
digital services to enable it to compete with other digital wireless
telecommunications providers as they enter the market. The Company recognizes,
however, that compatibility with other cellular providers is a significant
factor in subscriber growth and revenue generation from roamers. Accordingly,
the equipment that the Company has installed, while TDMA-ready, is also
CDMA-capable with the addition of CDMA equipment at the cell sites and a limited
software upgrade to the existing digital cellular switch. If market conditions
justify the investment of substantial additional capital for the CDMA equipment
at the cell sites and switch upgrade, the Company can be in the position of
providing cellular service to analog, TDMA and/or CDMA digital subscribers.
The infrastructure and subscriber equipment used in the Company's
cellular system generally is available from multiple sources, and the Company
believes that such equipment will continue to be readily available in the
foreseeable future.
Cellular Customer Service. The Company believes superior customer
service is integral to the success of its cellular operations. The Company
provides toll-free access with no airtime charges to its cellular customer
service representatives on a 24-hour basis, seven days a week. In addition,
account representatives proactively contact
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<PAGE> 12
cellular subscribers at regular intervals in order to assist management in
evaluating and measuring, on an ongoing basis, the quality and competitiveness
of the Company's cellular services.
Cellular Sales, Marketing and Distribution. The Company markets its
cellular service offerings primarily through: (i) its direct sales force; (ii)
retail stores and kiosks; and (iii) a network of dealers and other agents, such
as electronics stores, car dealerships and paging service companies. The
Company's direct and retail cellular sales force currently consists of
approximately 30 cellular employees.
The Company supports its marketing activities with local and regional
advertising. The Company also negotiates volume discounts from vendors of
cellular telephone equipment and, as a means of stimulating demand for cellular
service, passes on a substantial portion of the discount on such telephone
equipment to its subscribers and sales agents. In addition, the Company offers
pricing programs (generally based on service contracts extending up to three
years) in which subscribers receive a credit on their bill toward the cost of a
cellular telephone and auxiliary equipment or the customer's cellular service
charges.
COMPETITION; OTHER TELECOMMUNICATIONS TECHNOLOGIES
General. The wireless telecommunications industry is experiencing
significant technological change, as evidenced by the increasing pace of
improvements in the capacity and quality of digital technology, shorter cycles
for new products and enhancements, and changes in consumer preferences and
expectations. Accordingly, the Company expects competition in the wireless
telecommunications business to be dynamic and intense as a result of the
entrance of new competitors and the development of new technologies, products
and services.
Each of the markets in which the Company competes is or will be
served by multiple other two-way wireless service providers, including cellular,
PCS and ESMR operators and resellers. Many of these competitors have been
operating for a number of years, currently serve a substantial subscriber base
and have significantly greater financial and technical resources than those
available to the Company. Some competitors are expected to market other
services, such as cable television access, with their wireless telecommunication
service offerings. Several of the Company's competitors are operating through
joint ventures and affiliation arrangements, creating wireless
telecommunications systems that encompass most of the United States.
The Company also will face competition from other current or
developing technologies, such as paging, ESMR, global satellite networks,
wireless communications services ("WCS") and local multipoint distribution
systems ("LMDS"). As a result of advances in digital technology, ESMR operators
have begun to design and deploy digital mobile networks that increase the
frequency capacity of ESMR systems to a level that may be competitive with that
of cellular and PCS systems. A limited number of ESMR operators have recently
begun offering short messaging, data services and interconnected voice telephony
services on a widespread basis. Nextel Communications, Inc. operates digital
mobile networks in most major United States markets, including the Atlanta,
Birmingham and Jacksonville markets. Another ESMR operator, Southern
Communications Services, Inc., offers ESMR service in Georgia, Alabama, northern
Florida and southeastern Mississippi.
PCS Markets. The Company's PCS business competes directly with
several other PCS providers, including PrimeCo Personal Communications, L.P.
("PrimeCo"), Sprint Spectrum, L.P. ("Sprint PCS") and AT&T Wireless, in its PCS
Markets. Additionally, the FCC auctioned five other PCS licenses in each of the
Company's markets, and each licensee has the ability to sell or transfer a
portion of its licenses to others. See "-- Regulation of Wireless
Telecommunications Systems -- Licensing of PCS." The Company expects that
existing wireless service providers in the PCS Markets, some of which have been
operational for a number of years and have significantly greater financial and
technical resources than those available to the Company, will continue to
upgrade their systems to provide comparable services in competition with its PCS
System. These wireless competitors include AT&T Wireless, AirTouch
Communications, Inc., BellSouth Mobility, GTE Mobilnet Incorporated, Alltel
Communications, Inc. and Price Communications Wireless, Inc.
PCS licensees choosing IS-136 technology, including AT&T Wireless,
are expected to serve territories that include the entire U.S. population
because IS-136 handsets are currently capable of operating at both cellular and
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PCS frequencies. PrimeCo, Sprint PCS and others have announced commercial
service of CDMA-based PCS systems in multiple markets. Together, CDMA-based PCS
providers will cover approximately 100% of the U.S. population. The fact that
these major PCS providers have chosen digital protocols other than GSM as their
PCS technology may adversely affect the Company's ability to establish a PCS
customer base and to successfully compete in the PCS business with those PCS
operators offering greater roaming capabilities. See "-- PCS Operations -- PCS
System."
The retail price of the Company's PCS handsets initially have not
been as low as the price of analog cellular handsets. Whereas cellular providers
often subsidize fully the sale of analog cellular handsets in return for
subscribers signing a long-term service contract, the price of PCS handsets are
generally higher because the Company does not require subscribers to sign such
contracts.
Cellular Market. In the Cellular Market, the Company currently has
one cellular competitor and competes against its own PCS service. The Company
expects to compete with several other PCS licensees, resellers and one or more
ESMR providers in the future, and such competition may be intense. The Company
expects to address the competition from other wireless providers in its markets
by upgrading its cellular system to provide comparable services and features,
continuing to expand its automatic and discounted rate roaming service areas,
and competitively pricing its products and services.
Other Developments. Pursuant to recent changes in FCC regulations,
existing PCS licensees have the ability to partition their licenses (transfer a
portion of their licensed geographic territory) or disaggregate their licenses
(transfer a portion of their spectrum allocation) to other qualified entities,
thus creating the potential for additional competitors in the marketplace. The
FCC has auctioned 30 MHz of spectrum located in the 2.3 GHz band, known as WCS.
These licenses were auctioned in 5 MHz and 10 MHz blocks in each license area.
The FCC has determined that WCS providers will be permitted to offer a broad
range of services, but has imposed certain restrictions which the FCC has
indicated will make the use of WCS spectrums for mobile applications
"prohibitively expensive" and "technologically infeasible." The FCC is currently
conducting an auction for two LMDS licenses (one 1,150 MHz block and one 150 MHz
block) in each BTA. These licenses will allow licensees to provide wireless
cable, telephony, video communications, data and other services. In addition,
several entities have received and several others are seeking FCC authorization
to construct and operate global satellite networks to provide domestic and
international mobile communications services from geostationary and low earth
orbit ("LEO") satellites. While geostationary orbiting satellites are subject to
transmission delays inherent in high earth orbit satellite communications, a
mobile satellite system could reduce transmission delays with LEO satellites and
could augment or replace communications with segments of land-based wireless
systems. Based on current technologies, however, satellite transmission services
are not expected to be competitively priced relative to wireless
telecommunications services. Finally, the Omnibus Budget Reconciliation Act of
1993 (the "Budget Act") requires, among other things, the allocation to
commercial use of a portion of 200 MHz of the spectrum currently reserved for
government use. It is possible that some portion of the spectrum that is
reallocated will be used to create new land-mobile services or to expand
existing land-mobile services.
Continuing technological advances in telecommunications and FCC
policies that encourage the development of new spectrum-based technologies make
it impossible to predict the extent of future competition. The 1996
Telecommunications Act alters regulatory and industry barriers which for years
deterred easy competition within and between telecommunications markets. The
amended statute and related FCC rulemakings are expected to continue to open new
avenues for competitive offerings of wireless, wireline and hybrid services.
Among the statutory provisions are requirements that telecommunications
providers interconnect with each other and employ common technical standards and
features.
The 1996 Telecommunications Act also permits regional Bell operating
companies ("RBOCs") and their affiliates to provide commercial mobile services
between a Local Access and Transport Area ("LATA") and points outside that area.
Such "interLATA" services may be offered outside of a RBOC's local exchange
service states immediately. RBOCs may offer such services inside such states
("in-region") once certain conditions have been satisfied.
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The Company expects to compete with other communications technologies
that now exist, such as mobile, cellular, ESMR and paging, and with resellers of
such services. In the future, cellular service and PCS will also compete more
directly with traditional landline telephone service providers and with cable
operators who expand into the offering of two-way communications services over
their cable systems. In addition, the Company may face competition from
technologies that may be introduced in the future, such as WCS or LMDS.
Since the introduction of PCS and ESMR, the two-way wireless services
industry has experienced a downward trend in market prices. The Company
anticipates that this trend may continue in the future based upon increased
competition. The Company competes to attract and retain customers principally on
the basis of its service offerings and pricing, its customer service and its
large contiguous footprint. The Company's ability to compete successfully will
also depend, in part, on its ability to anticipate and respond to various
competitive factors affecting the industry, including new services that may be
introduced, changes in consumer preferences, demographic trends, economic
conditions and discount pricing strategies by competitors, which could adversely
affect the Company's operating margins.
REGULATION OF WIRELESS TELECOMMUNICATIONS SYSTEMS
The FCC regulates the licensing, construction, operation and
acquisition of wireless telecommunications systems in the United States pursuant
to the Communications Act of 1934, as amended (the "Communications Act"), and
the rules, regulations and policies promulgated by the FCC thereunder.
Additional regulatory authority over PCS providers is granted to the FCC by the
Budget Act and the 1996 Telecommunications Act.
Under the Communications Act, the FCC is authorized to establish
regulations governing the interconnection of PCS and cellular systems with
wireline and other wireless carriers, allocate channels and frequencies, grant
or deny license renewals and applications for transfer of control or assignment
of PCS and cellular licenses, and impose fines and forfeitures for any
violations of FCC regulations. The 1996 Telecommunications Act and ongoing FCC
rulemakings have led to new regulations concerning interconnection of networks.
See "-- Competition; Other Telecommunications Technologies." The 1996
Telecommunications Act also permits the FCC to lift regulations where they are
no longer necessary in the public interest.
Licensing of PCS. The FCC has divided the United States and its
possessions and territories into PCS markets made up of 493 BTAs and 51 MTAs.
Each MTA consists of at least two BTAs. Numerous licensees may compete in each
PCS service area. The FCC has allocated 120 MHz of radio spectrum in the 2 GHz
band for licensed broadband PCS services. The FCC divided the 120 MHz of
spectrum into six individual blocks, each of which is allocated to serve either
MTAs or BTAs. The spectrum allocation includes two 30 MHz blocks ("A" and "B"
blocks) licensed for each of the 51 MTAs, one 30 MHz block ("C" block) licensed
for each of the 493 BTAs, and three 10 MHz blocks ("D", "E" and "F" blocks)
licensed for each of the 493 BTAs. A PCS license has been or will be awarded for
each MTA and BTA in every block, for a total of more than 2,000 licenses. Under
the FCC's rules, a broadband PCS licensee may own combinations of licenses
(e.g., one MTA (30 MHz) and one BTA (10 MHz)) with total aggregate spectrum
coverage of up to 45 MHz in a single geographic area. The FCC has also relaxed
its limitation on cellular cross-ownership of PCS licenses in the same area,
permitting existing cellular licensees to acquire up to 20 MHz of broadband PCS
spectrum in overlapping markets. Thus, no entity may hold licenses for more than
45 MHz of commercial mobile radio spectrum ("CMRS") in a single geographic area,
unless, in the case of overlapping cellular licenses, such overlapping licenses
cover less than 10% of the population of the PCS territory. See "-- Commercial
Mobile Radio Spectrum Limit."
The FCC's rules allow broadband PCS licensees in the "A," "B," "D"
and "E" blocks the flexibility to divide and sell portions of any size of their
licenses at any time. Under these rules, any of such licensees may divide their
licenses through geographic partitioning (dividing spectrum by geographic area)
or through spectrum disaggregation (dividing license by amount of spectrum) to
any entity that otherwise is qualified to hold a common carrier license. The
rules apply special restrictions to license holders in the "C" and "F" blocks,
which are restricted to entrepreneurs and small businesses, by limiting
partitioning or disaggregation for five years.
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The FCC has completed the auctions for licensing of the PCS allocated
spectrum. The "A" and "B" block licenses were granted on June 23, 1995. The
auction for the "C" block licenses was completed on May 6, 1996, and the winning
bidders' licenses have been granted (with some grants being on a conditional
basis subject to required changes in ownership structure, for example) on a
case-by-case basis over the past several months, with the exception of certain
winning bidders who subsequently defaulted on payment obligations. Certain of
these defaulted "C" block licenses have been subsequently re-auctioned to
qualified bidders and others are still subject to re-auction in the future at
the discretion of the FCC. The D/E/F Auctions were completed by the FCC on
January 14, 1997. After receiving several requests for relief associated with
the installment payment program for such licenses, the FCC halted payment
obligations during its review of the issues and is currently considering certain
alternative financing arrangements for the C and F-block licensees. These
alternative arrangements include: (i) resumption of interest payments on the
licenses; (ii) disaggregation of 15 MHz to be surrendered to the FCC for
re-auction; (iii) surrender of all licenses in exchange for amnesty from any
further penalties; and (iv) a prepayment option with penalties. The date on
which affected licensees will have to choose among the options has not yet been
set.
All PCS licenses are granted for a 10-year period, at the end of
which they must be renewed. Licenses may be revoked at any time for cause. All
30 MHz broadband PCS licensees, including the Company, must construct facilities
that offer coverage to one-third of the population of their service area within
five years of their initial license grants and to two-thirds of the population
within 10 years. For the 10 MHz broadband PCS licenses (i.e., "D" and "E" block
licenses), licensees including the Company must service with a signal level
sufficient to provide adequate service to at least one-quarter of the population
in their licensed area within five years of being licensed, or make a showing of
substantial service in their licensed area within the same time frame. Licensees
that fail to meet the coverage requirements may be subject to forfeiture of the
license. The FCC will conduct random audits to ensure that licensees are in
compliance with the FCC's holding period and attribution rules. Rule violations
could result in license revocations, forfeitures or fines. The Company has
satisfied the FCC's five-year buildout requirements for each of the Current PCS
Markets.
Licensing of Cellular Systems. The FCC grants licenses to operate
cellular systems in defined market areas. The United States and its possessions
and territories have been divided into 734 cellular markets, consisting of 306
MSAs and 428 RSAs. Each cellular service area is served by two licensees, a
block "A" licensee and a block "B" licensee.
Following notice of completion of construction, a cellular operator
obtains initial operating authority. Cellular authorizations are issued
generally for a 10-year term beginning on the date of the grant of an initial
construction permit and are renewable upon application to the FCC for periods of
up to 10 years. The FCC may revoke a license prior to the end of its term in
extraordinary circumstances (such as when serious violations of FCC rules have
occurred).
Under the Communications Act, the authorized service area of a
cellular provider in each of its markets is referred to as the Cellular
Geographic Service Area or "CGSA." A cellular licensee has the exclusive right
to serve the entire area that falls within the licensee's MSA or RSA for a
period of five years after grant of the licensee's construction permit. At the
end of the five-year period, however, the licensee's CGSA rights become limited
to the area actually served by the licensee as of that time, as determined
pursuant to a formula adopted by the FCC. After the five-year period, any entity
may apply to serve portions of the MSA or RSA outside the licensee's CGSA.
The five-year fill-in periods for Alabama RSA 5, Alabama RSA 8 and
the Company's portions of Georgia RSAs have expired. There were no unserved
areas remaining in Alabama RSA 5 and Alabama RSA 8 at the time their respective
fill-in periods expired. As of March 1998, only a minute portion of Georgia RSA
5 located in the extreme northwest corner of Heard County remains unserved. The
Company has determined that it would not be prudent for the Company to invest in
extending its cellular service into that area at this time.
Near the conclusion of the license term (the year 2000, in the case
of the Company's current licenses for the Cellular Market), licensees must file
applications for renewal of licenses to obtain authority to operate for up to an
additional 10-year term. Applications for license renewal may be denied if the
FCC determines that the grant of
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an application would not serve the public interest, convenience and necessity.
In addition, at license renewal time, other parties may file competing
applications for the authorization. In the event that qualified competitors
file, the FCC may be required to hold a hearing to determine whether the
incumbent or the competitor will receive the license. The FCC will grant a
preference, or "renewal expectancy," to the existing cellular licensee upon a
showing that it has (i) provided "substantial" service during its past license
term and (ii) substantially complied with applicable FCC rules and policies and
the Communications Act.
Character and Citizenship Requirements. Applications for FCC
authority may be denied, and in extreme cases licenses may be revoked, if the
FCC finds that an entity lacks the requisite "character" qualification to be a
licensee. In making that determination, the FCC considers whether an applicant
or licensee has been the subject of adverse findings in a judicial or
administrative proceeding involving, among other things, the possession or sale
of unlawful drugs, fraud, antitrust violations or unfair competition.
Under the Communications Act, non-U.S. citizens or their
representatives, foreign governments or their representatives, or corporations
organized under the laws of a foreign country may not own, in the aggregate,
more than 20% of a common carrier licensee; or more than 25% of the parent of a
common carrier licensee if the FCC determines that the public interest would be
served by prohibiting such ownership. However, the FCC has recently adopted an
open entry standard that includes a presumption in favor of foreign ownership by
applicants of the World Treaty Organization Member Countries ("WTO Members").
The new standard sets forth a rebuttable presumption that will permit foreign
investment in U.S. wireless carriers by entities from WTO Members. Specifically,
the FCC stated that applications for indirect foreign ownership of common
carrier licenses do not pose competitive concerns that would justify denial of
an application on such grounds. While the FCC retained its requirement that
licensees must seek approval prior to acceptance of indirect foreign ownership
that would exceed the 25% benchmark, its adoption of a rebuttable presumption in
favor of entry will streamline the application process.
Failure to comply with these requirements may still result in the FCC
issuing an order to the entity requiring divestiture of alien ownership to bring
the entity into compliance with the Communications Act. In addition, fines, a
denial of renewal or revocation of the license are possible. The Company's Third
Restated Certificate of Incorporation permits the redemption of the Company's
Common Stock from stockholders where necessary to protect the Company's
regulatory licenses.
Transfers and Assignments of PCS Licenses. The Communications Act
requires the FCC's prior approval of the assignment or transfer of control of a
PCS license. In addition, the FCC has established transfer disclosure
requirements that require licensees who transfer control of or assign a PCS
license within the first three years to file associated contracts for sale,
option agreements, management agreements or other documents disclosing the total
consideration that the applicant would receive in return for the transfer or
assignment of its license. Non-controlling interests in an entity that holds a
PCS license or PCS system generally may be bought or sold without prior FCC
approval.
Transfers and Assignments of Cellular Licenses. The Communications
Act requires the FCC's prior approval of the assignment or transfer of control
of a construction permit or license for a cellular system. Subject to FCC
approval, a license or permit granted to a nonwireline entity may be transferred
or assigned to a wireline entity, and vice versa. Non-controlling interests in
an entity that holds a cellular license or cellular system generally may be
bought or sold without prior FCC approval. In the case of a sale proposed to
occur before the expiration of certain holding periods, the FCC may prohibit or
impose limitations on such a sale, or require the seller to make certain
representations as a condition precedent to such a sale. For RSAs, the minimum
holding period generally expires upon completion of initial construction. Any
acquisition by the Company of cellular interests may also require the prior
approval of state or local regulatory authorities having jurisdiction over the
cellular telephone industry.
Interconnection Requirements. The 1996 Telecommunications Act imposes
an affirmative duty upon all telecommunications carriers, including the Company,
to connect their networks to each other. It also imposes a duty to negotiate in
good faith and requires interconnection at any technically feasible point of the
network on just, reasonable and nondiscriminatory terms and in a manner equal in
quality to that provided by the incumbent
14
<PAGE> 17
telephone company to itself and any affiliate. The incumbent must also offer
access to a minimum number of unbundled elements of its network necessary for
the provision of local service, which a competitor may select in any
combination. The 1996 Telecommunications Act requires the incumbent to resell
its local service and to provide for access to rights-of-way (including poles,
ducts, conduits) to carriers seeking to offer a competitive local service.
On August 8, 1996, the FCC issued a decision promulgating rules
relating to the interconnection requirements imposed by the 1996
Telecommunications Act (the "Interconnection Order"). The Interconnection Order:
(i) requires that interconnection compensation between CMRS providers and LECs
be mutual and reciprocal; (ii) establishes that charges for transport and
termination services be cost-based based on the LEC's forward looking total
element long-run incremental costs (with a default range of $.002 to $.004 per
minute for switching and end office termination and a default price ceiling of
$.0015 per minute for tandem switching and termination for these states that
have not imposed their own pricing methodology); (iii) gives state regulatory
commissions jurisdiction over the implementation of the LEC-CMRS interconnection
agreements, with the FCC retaining certain separate and independent jurisdiction
under the 1996 Telecommunications Act; (iv) gives CMRS carriers the opportunity
to renegotiate existing non-reciprocal LEC interconnection agreements; (v)
declines to require "bill and keep" for CMRS carriers but permits the states to
impose such arrangements where traffic between carriers is roughly balanced or
where carriers voluntarily negotiate such an agreement; (vi) explicitly states
that most traffic between a CMRS provider and the LEC is not subject to
interstate access charges, except in limited circumstances; and (vii) refrains
from treating CMRS providers for most regulatory purposes as local exchange
carriers, which could have subjected CMRS providers to the stricter regulatory
requirements imposed on incumbent LECs on issues such as interconnection, access
to unbundled elements and resale. The default rates set forth in the
Interconnection Order represent a substantial reduction from rates in place
prior to the order, which rates generally ranged from $.03 to $.05 per minute.
In addition, such rates previously were not mutual and reciprocal, so a CMRS
provider could not charge a LEC for minutes of use originated by the LEC's
network and delivered to and terminated on the CMRS provider's network.
The FCC's Interconnection Order is currently the subject of judicial
review. On July 18, 1997, the United States Court of Appeals for the Eighth
Circuit issued an Order holding that certain portions of the FCC's
Interconnection Order exceeded the FCC's authority. In the same Order, the
Eighth Circuit upheld the FCC's Interconnection Order with respect to sections
relating to interconnection between CMRS carriers and LECs. Specifically, the
Eight Circuit upheld the portions of the FCC's Interconnection Order which
require: (i) that LECs negotiate with wireless carriers for reciprocal and
mutual compensation arrangements for transport and termination of local
telecommunications traffic terminating on either of the parties' networks; (ii)
that wireless carriers shall have the right to re-negotiate interconnection
arrangements established prior to August 8, 1996, which provide for
non-reciprocal compensation for local telecommunications traffic with any local
exchange carrier; and (iii) that the definition of "local telecommunications
traffic" to which the above requirements apply consists of calls that originate
and terminate within the same MTA, a geographic area which is not directly
related to, but is generally much larger than, a local exchange carrier's
defined local calling area.
On January 26, 1998, the Supreme Court of the United States granted
petitions to review orders issued by the Eighth Circuit Court on issues relating
to the FCC's Interconnection Order. At this time, it is not possible to predict
the ultimate decision of the Supreme Court on these issues, which decision could
have an impact on the Company's interconnection agreements with LECs.
Universal Service Reform. The FCC has recently established the
mechanism by which telecommunications providers will contribute to the reformed
Universal Service Fund. Money from this Fund will be spent on several distinct
programs to subsidize service to low-income individuals, service in high-cost
areas and service to schools, libraries and rural health care providers.
Wireless service providers are required to contribute to this Fund beginning
January 1, 1998. Under the FCC's rules, carriers may pass-through the charges to
its end-user customers to recoup the carrier's contributions to the Fund. The
Company intends to implement a "Universal Service Fund Surcharge" with respect
to all of its PCS and cellular customers to recoup its contributions to the
Fund. The Company may be in a position to draw from the Fund in the future,
particularly with respect to the provision of subsidized wireless services to
eligible schools, libraries and rural health care providers. In addition to the
federal Universal Service Fund, each state may require wireless carriers to
contribute to a separate state support fund based
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<PAGE> 18
on intrastate revenues. None of the states in which the Company is currently
offering service has a state support fund in place at this time; however, the
Company expects that such programs are likely to be put in place in the future.
Other Federal Regulations. Wireless systems are subject to certain
Federal Aviation Administration regulations respecting the location, lighting
and construction of cellular transmitter towers and antennas and may be subject
to regulation under the National Environmental Policy Act and the environmental
regulations of the FCC. The Company uses common carrier point-to-point microwave
and traditional landline facilities to connect cell sites and to link them to
their respective main switching offices. These facilities are separately
licensed by the FCC and are subject to regulation as to technical parameters and
service.
Wireless providers also must satisfy a variety of FCC requirements
relating to technical and reporting matters. One such requirement is the
coordination of proposed frequency usage with adjacent wireless users,
permittees and licensees in order to avoid electrical interference between
adjacent systems. In addition, the height and power of base station transmitting
facilities and the type and strength of signals they emit must fall within
specified parameters. Also, under the 1996 Telecommunications Act, wireless
equipment must be accessible to and usable by persons with disabilities. The FCC
also regulates wireless service resale practices and the terms under which
certain ancillary services may be provided through wireless facilities. For
example, all CMRS system operators are required to provide service to
"resellers." These resellers buy blocks of telephone numbers from licensees and
resell service through their own distribution network to the public. CMRS system
operators cannot unreasonably restrict the resale of their services.
Wireless carriers are also subject to certain requirements imposed by
the Communications Assistance for Law Enforcement Act of 1994 ("CALEA"). Under
CALEA, Congress intended to provide a four-year transition period during which
the government would notify the wireless industry of its capacity requirements
for electronic surveillance of wireless communications, and the wireless
industry would develop capabilities for deployment in future network technology.
Existing equipment, including such equipment deployed during the compliance
transition period, would either be grandfathered or retrofitted at government
expense. However, due to inability to reach agreement between the Federal Bureau
of Investigation ("FBI") and the wireless industry, CALEA compliant capability
requirements were published only in late 1997, and capacity requirements are not
yet available. In addition, serious questions still exist with respect to the
reimbursement of industry expenses in meeting the revised compliance guidelines
and which carriers are entitled to such reimbursement. Thus, the transition
period has taken longer than anticipated and the upcoming deployment deadline
for compliant equipment (October 25, 1998) is in jeopardy. Legislation has been
recently introduced to delay the October 1998 deadline for a period of two
years.
Local number portability was mandated by the 1996 Telecommunications
Act as a way to level the playing field for new local service competitors.
Current FCC rules require wireless carriers to provide local number portability
in the 100 largest MSAs and to be able to support nationwide roaming by June 30,
1999. CTIA has petitioned the FCC to eliminate this requirement, making the
argument that such a requirement is not necessary to provide additional
competition in the wireless arena and compliance would require an unexpectedly
large number of technically difficult and expensive changes to a carrier's
network and the capital dollars required to address such changes would be better
spent in building out systems, in marketing and in addressing other competitive
issues.
Commercial Mobile Radio Spectrum Limit. The FCC has limited the
amount of PCS, cellular and ESMR spectrum that an investor may aggregate in a
given geographic area to 45 MHz. The Company's ability to invest in wireless
services providers in certain geographic areas is likely to be limited by this
restriction. In addition, the FCC may amend its rules to include other types of
mobile services in this spectrum aggregate limit.
State and Local Regulation. In 1993, Congress amended the
Communications Act to preempt state or local regulation of the entry of, or the
rates charged by, any commercial or private mobile radio service provider.
Notwithstanding such preemption, a state may petition the FCC for authority to
begin regulating or to continue regulating commercial mobile radio service
rates. Petitioners must demonstrate that existing market conditions cannot
protect consumers from unreasonable and unjust rates or that the service is a
replacement for traditional wireline telephone service for a substantial portion
of the wireline service within the state. Eight states petitioned
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<PAGE> 19
the FCC for authority to regulate, or continue regulating, commercial mobile
radio service rates and entry. The FCC denied seven of these petitions and one
was withdrawn. As of the date hereof, the states in which the Company currently
provides or plans to provide service (Alabama, Arkansas, Florida, Georgia,
Illinois, Indiana, Kentucky, Louisiana, Mississippi, Missouri, South Carolina
and Tennessee) either have not sought to regulate such matters or, in the case
of Louisiana, have had their petition to regulate denied by the FCC.
States are not, however, prohibited from regulating other terms and
conditions of CMRS, such as service quality, billing procedures and consumer
protection standards. In addition, the siting and construction of transmitter
towers, antennas and equipment shelters are often subject to state or local
zoning, land use and other regulations. Under the 1996 Telecommunications Act,
states may not restrict cell siting or modification based upon the environmental
effects of radio frequency emissions if those emissions meet the standards which
the FCC imposed in 1996. However, state and local governmental authorities
continue to impose regulations that expressly prohibit the construction of
additional tower sites, including several governmental authorities in the
Company's PCS Markets. These governmental moratoria are the subject of two
separate Petitions for Declaratory Ruling filed with the FCC by the CTIA and 360
Communications. The Petitions generally argue that these restrictions
effectively impede market entry of new telecommunications services and providers
and are in violation of the Communications Act and federal preemption of state
and local siting and zoning moratoria regulation. Several congressional letters
have been sent to the FCC asking the FCC to terminate the moratoria and
conflicting radio frequency proceedings at the local level; however, other
members of Congress have proposed legislation that seeks to preserve state and
local authority to regulate tower siting issues. It is unclear whether the FCC
will act on these petitions to provide relief from such local restrictions.
Recent Events. The 1996 Telecommunications Act precludes the FCC from
requiring CMRS providers to hand off long distance traffic to the long distance
carrier chosen by the subscriber (i.e., the provision of "equal access"). The
1996 Telecommunications Act provides, however, that if the FCC receives
complaints that consumers are not receiving access to the long distance carrier
or carriers of their choice, then the FCC may require provision of access to
those carriers through an access code or similar mechanism.
The 1996 Telecommunications Act also eliminates, to a large extent,
restrictions on the RBOCs' provision of interLATA long distance services and, if
certain conditions are satisfied, permits the restrictions to be lifted in their
entirety. See "-- Competition; Other Telecommunications Technologies." The
Company cannot predict the outcome of FCC implementation of the 1996
Telecommunications Act or the effect of the 1996 Telecommunications Act or any
resulting regulations or policies on cellular or PCS operations, and there can
be no assurance that such regulations or policies will not adversely affect the
Company's business or financial condition.
On July 26, 1996, the FCC released a report and order which mandates
the implementation of widespread emergency 911 services available by PCS and
other CMRS providers, including enhanced 911 ("E911") services that provide the
caller's telephone number, location, and other useful information. By April
1998, PCS providers must be able to transmit to a Public Safety Answering Point
("PSAP") 911 calls from a PCS handset (without call validation), including those
from callers with speech or hearing disabilities, with the automatic number
identification. Assuming that a cost recovery mechanism is in place, by mid-1998
such providers must be able to relay to a PSAP both the caller's automatic
number identification and cell site identification, and by 2001 they must be
able to identify the location of a 911 caller within 125 meters in 67% of all
cases. These proceedings have also raised questions concerning the potential
liability of wireless operators providing E911 services. While most landline
telephone companies are protected by their tariffs or are covered expressly by
state or local statutes, CMRS providers generally do not file tariffs and many
states have no indemnity provisions or only limited indemnity provisions
relating to the provision of E911 services by a wireless operator. The wireless
industry as a whole has been active in addressing this issue through the
introduction and support of proposed legislation in many of the states. In
addition, many states are individually addressing the issue of cost recovery
mechanisms to support both the wireless and wireline implementation of E911
services. The FCC rules state that wireless carriers are entitled to fully
recover their costs of E911 implementation. The Company believes it is currently
capable of meeting any requests for functionality required by the April 1998
deadline.
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<PAGE> 20
In August 1996, the FCC revised its rules to permit CMRS operators,
including PCS licensees, to use their licensed spectrum to provide fixed as well
as mobile services. Such fixed services include, but are not limited to,
"wireless local loop" services. The FCC has not yet determined whether such
fixed services should be subject to universal service obligations or how they
should be regulated, although it has proposed a presumption that they be
regulated as CMRS services.
EMPLOYEES AND AGENTS
As of February 28, 1998, the Company had approximately 1,000
employees. The Company anticipates that the continued development of its PCS
System will require the hiring of a substantial number of new employees. None of
the Company's employees is represented by a labor organization, and the
Company's management considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company maintains its 28,000 square foot corporate headquarters
and network operations center in West Point, Georgia and leases an additional
10,000 square feet of office space from KNOLOGY Holdings, Inc., an affiliate of
ITC Holding Company, Inc. Additionally, the Company's information technology
center is located in leased space in Atlanta, Georgia. In connection with its
PCS System, the Company leases space for regional headquarters and switch
facilities in the following cities: Birmingham, Alabama for the Birmingham MTA;
Memphis, Tennessee for the Memphis MTA; Jacksonville, Florida for the
Jacksonville MTA; Atlanta, Georgia for the Atlanta MTA; Nashville, Tennessee for
the Nashville BTA; and Louisville, Kentucky for the Kentucky/Tennessee BTAs. The
Atlanta MTA leases two separate switching facilities, both of which are located
in the city of Atlanta but in separate locations. The Memphis MTA leases
additional space in Jackson, Mississippi to accommodate its sales and operations
personnel. The Birmingham, Memphis, Jacksonville and Atlanta MTAs currently
lease warehouse space for network equipment and cell site equipment related to
the buildout of the PCS System in each respective MTA. The Kentucky/Tennessee
BTAs will lease similar warehouse space as the Company builds out those areas of
its PCS System.
The Company also currently leases retail space for seven Powertel
retail stores in the Birmingham MTA, five in the Memphis MTA, six in the
Jacksonville MTA and nine in the Atlanta MTA. By the end of 1998, the Company
anticipates increasing the number of Powertel retail stores to more than 35 with
the majority of the new Powertel retail store additions being related to the
Atlanta MTA and the Kentucky/Tennessee BTAs. The Company has recently brought
its inventory and distribution activities in-house and has leased a 55,500
square foot building in LaGrange, Georgia with both warehouse and office space.
The Company also leases land, rooftop space or tower space for a significant
number of its approximately 900 PCS cell sites.
In connection with its cellular system, the Company maintains sales
and administrative offices for its Cellular Market in Lanett, Alabama. The lease
for the Lanett space was renewed in October 1996, and the current lease term
expires in October 2001. In its Cellular Market, the Company operates four
retail stores (located in Lanett and Opelika, Alabama and Newnan and LaGrange,
Georgia), and two sales kiosks (located in shopping malls in LaGrange, Georgia
and Auburn, Alabama). All of the Company's cellular retail sites are leased. As
part of its cellular system, the Company leases space for its switch facility in
Huguley, Alabama from Interstate Telephone Company, an affiliate of ITC Holding
Company, Inc., and maintains 22 tower sites. The Company owns 11 of its tower
sites and has long-term leases on its remaining tower sites.
The Company believes that all of its properties are well maintained.
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<PAGE> 21
ITEM 3. LEGAL PROCEEDINGS
The Company, through its subsidiary Powertel/Birmingham, Inc.
("Powertel/Birmingham"), was served with a complaint filed on April 4, 1997 by
American Page One, Inc. d/b/a American Mobile Wireless Communications in the
Circuit Court of Macon County, Alabama. Plaintiff claims that
Powertel/Birmingham has breached its agency contract and has committed other
torts with respect to Plaintiff by failing to accurately track Plaintiff's
account with respect to inventory invoicing and commissions, failing to pay
timely commissions, failing to provide services to Plaintiff's customers in a
competent and accurate manner, billing Plaintiff's customers inaccurately and in
excessive amounts, and making false representations with regard to its customer
service and operational capabilities. Plaintiff is seeking unspecified damages.
While the Company believes that the claims are without merit and intends to
vigorously defend itself, there can be no assurance that these claims or the
loss of its agency relationship with Plaintiff will not result in a loss of
customers acquired from such agency relationship or otherwise have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company received a Civil Investigative Demand from the U.S.
Department of Justice Antitrust Division (the "Antitrust Division") requiring
the Company to produce certain documents and answer certain interrogatories in
connection with the Antitrust Division's investigation of possible bid rigging
and market allocation for licenses auctioned by the FCC for broadband PCS
frequency blocks. The Company has cooperated with the Antitrust Division's
requests.
The Company is also a party to routine filings and customary
regulatory proceedings with the FCC relating to its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The only matters submitted to a vote of the Company's stockholders
were those considered and voted upon at the 1997 annual meeting of stockholders
held on May 21, 1997. Such matters were previously reported on by the Company.
See the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 filed with the SEC on August 13, 1997.
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<PAGE> 22
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock. The Company's Common Stock is currently
traded on the Nasdaq Stock Market's National Market (the "Nasdaq National
Market") under the symbol "PTEL." As of March 20, 1998, there were approximately
474 holders of record of the Company's Common Stock.
The high and low sales prices for each full quarterly period of 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 HIGH LOW
- ---- ----------- -----------
<S> <C> <C>
First quarter......................................................... $ 17.00 $ 9.75
Second quarter........................................................ 14.63 9.50
Third quarter......................................................... 20.00 12.50
Fourth quarter........................................................ 22.88 16.63
<CAPTION>
1996 HIGH LOW
- ---- ----------- -----------
<S> <C> <C>
First quarter......................................................... $ 23.25 $ 15.00
Second quarter........................................................ 26.25 19.50
Third quarter......................................................... 22.25 15.50
Fourth quarter........................................................ 21.75 11.75
</TABLE>
Dividend Policy. The Company has never declared or paid any cash
dividends on its capital stock and does not anticipate paying cash dividends in
the foreseeable future. It is the present policy of the Company's Board of
Directors to retain earnings to finance the expansion of the Company's
operations. Moreover, the Company will effectively be prohibited from paying
cash dividends for the foreseeable future pursuant to restrictions contained in
the indenture relating to the 12% Senior Discount Notes Due 2006 issued in
February 1996 (the "February 1996 Indenture"), the indenture relating to the 12%
Senior Discount Notes Due 2006 issued in April 1996 (the "April 1996
Indenture"), the indenture relating to the 11.125% Senior Notes Due 2007 issued
in June 1997 (the "June 1997 Indenture" and, together with the February 1996
Indenture and April 1996 Indenture, the "Indentures"), any future indenture to
which the Company might be a party and the Equipment Financing Agreement.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial information
for the Company as of and for each of the years in the five-year period ended
December 31, 1997. The financial information as of and for each of the years in
the five-year period ended December 31, 1997 is derived from the consolidated
financial statements and notes thereto of the Company, which have been audited
by Arthur Andersen LLP, independent public accountants.
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The selected historical financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto and other financial and operating information included
elsewhere in this Report.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenues ................................. $ 62,745 $ 31,875 $ 25,384 $ 18,903 $ 8,228
Equipment sales .................................. 16,171 7,250 3,928 2,859 1,121
----------- ----------- -------- -------- --------
Total revenues and sales ....................... 78,916 39,125 29,312 21,762 9,349
----------- ----------- -------- -------- --------
Cost of services ................................. 28,277 5,811 2,394 1,921 574
Cost of equipment sales .......................... 45,318 11,653 3,127 2,391 1,010
Operations expenses .............................. 23,989 9,927 3,596 2,722 1,333
Selling and marketing expenses ................... 41,409 13,301 4,280 3,405 1,353
General and administrative expenses .............. 25,742 16,963 4,218 3,651 1,562
Depreciation ..................................... 42,747 5,887 2,741 2,130 953
Amortization ..................................... 6,535 4,214 2,360 1,543 890
----------- ----------- -------- -------- --------
Total operating expenses ....................... 214,017 67,756 22,716 17,763 7,675
----------- ----------- -------- -------- --------
Operating (loss) income ..................... (135,101) (28,631) 6,596 3,999 1,674
Interest expense (income), net(a) ................ 42,564 (3,175) 1,657 635 46
Gain on sale of subsidiary ....................... (41,912) -- -- -- --
Miscellaneous (income) expense ................... (585) 1,226 (295) (48) 48
----------- ----------- -------- -------- --------
(Loss) income before income taxes .............. (135,168) (26,682) 5,234 3,412 1,580
Income tax (benefit) provision ................... -- (1,654) 2,230 1,535 567
----------- ----------- -------- -------- --------
Net (loss) income before cumulative effect ..... (135,168) (25,028) 3,004 1,877 1,013
Cumulative effect of change in accounting
principle, net of tax(b) ....................... -- (2,583) -- -- --
----------- ----------- -------- -------- --------
Net (loss) income ........................... $ (135,168) $ (27,611) $ 3,004 $ 1,877 $ 1,013
=========== =========== ======== ======== ========
Earnings per share:
Basic net (loss) income before cumulative effect
of change in accounting principle ............ $ (5.04) $ (1.00) 0.30 0.20 0.16
Basic cumulative effect of change in
accounting principle ......................... -- (0.10) -- -- --
----------- ----------- -------- -------- --------
Basic (loss) income per common share ........... $ (5.04) $ (1.10) $ 0.30 $ 0.20 $ 0.16
=========== =========== ======== ======== ========
Diluted (loss) income per common share ......... $ (5.04) $ (1.10) $ 0.29 $ 0.19 $ 0.16
=========== =========== ======== ======== ========
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(c) ........................................ $ (22,282) $ (2,466) $ 11,992 $ 7,720 $ 3,469
Ratio of earnings to fixed charges(d) ............ -- -- 3.9x 5.5x 27.3x
Capital expenditures ............................. $ 291,849 $ 233,551 $ 7,661 $ 2,866 $ 1,105
Cellular subscribers at end of period(e) ......... 25,848 47,617 38,582 28,624 10,590
Net cellular population equivalents(f) ........... 295,600 737,800 732,900 728,200 281,800
PCS subscribers at end of period ................. 118,757 14,892 -- -- --
Net PCS population equivalents(f) ................ 24,292,400 17,460,000 -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital .................................. $ 313,722 $ 256,349 $ 977 $ 2,710 $ 547
Property and equipment, net ...................... 491,750 251,269 18,066 13,262 5,545
Licenses, goodwill and other intangibles, net .... 416,252 388,634 24,904 23,903 --
Total assets ..................................... 1,378,592 947,117 74,330 50,812 10,517
Long-term obligations ............................ 969,014 504,065 29,411 11,030 2,019
Retained earnings (deficit) ...................... (157,934) (22,766) 4,845 1,841 (36)
Stockholders' equity ............................. 317,816 407,007 36,674 33,374 5,983
</TABLE>
(footnotes on following page)
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<PAGE> 24
- ---------------------
(a) For the years ended December 31, 1997 and 1996, interest income was
$21.0 million and $17.3 million, respectively. The Company had no
interest income for the years ended December 31, 1993, 1994 and 1995.
This excludes capitalized interest of $22.1 million and $29.0 million
for the years ended December 31, 1997 and 1996, respectively. During
the construction of the PCS System, the cost of the PCS licenses and
the costs related to the construction expenditures are considered to
be assets qualifying for interest capitalization under FASB Statement
No. 34 "Capitalization of Interest Cost."
(b) During 1996, the Company changed its method of accounting for costs
incurred in connection with certain promotional programs under which
customers receive discounted cellular equipment or airtime usage
credits. Under its previous accounting method, all such costs were
deferred and amortized over the life of the related non-cancelable
cellular telephone service agreement. Under the new accounting
method, the costs are expensed as incurred.
(c) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA is provided because it is a
measure commonly used in the industry. EBITDA is not a measurement of
financial performance under generally accepted accounting principles
and should not be considered an alternative to net income as a
measure of performance or to cash flow as a measure of liquidity.
(d) For the years ended December 31, 1997 and 1996, earnings were
insufficient to cover fixed charges by $157.4 million and $56.2
million, respectively. Earnings consist of income before income
taxes, plus fixed charges, except where capitalized. Fixed charges
consist of interest charges and amortization of debt issuance costs,
in each case whether expensed or capitalized, and the portion of rent
expense under operating leases representing interest.
(e) Cellular subscribers at end of period include 14,216, 20,288 and
25,456 subscribers of Unity Cellular Systems, Inc. ("Unicel") in the
State of Maine for the periods ended December 31, 1994, 1995 and
1996, respectively.
(f) Net population equivalents means the estimated population of the
license market area multiplied by the percentage ownership of the
license. The estimated population for all years presented is based on
the Paul Kagan Associates, Inc. Cellular/PCS POP Book. For the
periods ended December 31, 1994, 1995 and 1996, net cellular
population equivalents include 441,900, 442,000 and 442,200
population equivalents, respectively, from Unicel's license market
areas.
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<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Powertel provides personal communication services in the southeastern
United States under the name "Powertel" and cellular telephone service in
contiguous portions of western Georgia and eastern Alabama under the name
"InterCel." The Company formerly provided cellular telephone service in the
State of Maine under the name "Unicel." On May 1, 1997, the Company sold
substantially all the assets of Unicel for approximately $77.2 million. The
Common Stock of the Company, par value $.01 per share, is traded on the Nasdaq
Stock Market under the symbol "PTEL."
Powertel's PCS licenses encompass a territory of approximately
246,000 contiguous square miles with a population of approximately 24.3 million
people in the MTAs of Atlanta, Georgia; Jacksonville, Florida; Memphis,
Tennessee/Jackson, Mississippi; and Birmingham, Alabama and in 13 BTAs in
Kentucky and Tennessee. Powertel first introduced its PCS services in October
1996 in Jacksonville, Florida and Montgomery, Alabama and, to date, has launched
its PCS services in a total of 25 markets in the Southeast. In all of these
markets, except Atlanta, Georgia where the Company acquired its licenses from
GTE Mobilnet Incorporated in 1996, the Company was the first to offer PCS
services commercially. Powertel intends to continue to rapidly build out its PCS
network and to launch its PCS services. As of December 31, 1997, the Company had
approximately 119,000 PCS subscribers.
Average revenues per subscriber in the wireless industry have
declined during recent years and are expected to continue to gradually decline
in the future. The Company believes this downward trend is the result of the
addition of lower usage customers who utilize wireless service for personal
convenience, security or as a backup for their traditional landline telephones.
In addition, the Company expects that revenue per minute will continue to
decline as competition within the wireless industry intensifies. The Company
believes the effect of this trend on the Company's earnings will be mitigated by
corresponding increases in the number of wireless subscribers and the use of
enhanced services that will be offered to PCS subscribers.
As a result of: (i) the significant costs required to build out and
maintain the PCS System, hire and manage the required personnel to operate the
PCS business and market its services; (ii) the subsidization of PCS handsets to
customers; and (iii) the depreciation of PCS equipment and amortization of the
PCS licenses, the Company incurred a net loss of $135.2 million for the year
ended December 31, 1997. The Company expects to continue subsidizing the cost of
PCS handsets to customers for the foreseeable future and expects that negative
PCS equipment margins will continue to negatively impact future operating
results. The Company expects to continue incurring significant operating losses
during 1998 and thereafter as it continues to build out its PCS System and build
its PCS customer base.
Minimizing customer attrition, or "churn," becomes a greater
challenge as the subscriber base grows and the wireless marketplace becomes more
competitive. The Company achieved an average monthly churn rate of 1.6% and 2.6%
for its cellular and PCS businesses, respectively, for 1997. The Company is
focused on improving its PCS churn rate in the near future through more focused
collections efforts, stricter credit evaluation policies and a proactive
customer retention program. The Company expects that PCS churn rates could be
higher than comparable churn rates for cellular carriers because the Company
does not require long-term service contracts. Additionally, the ability of PCS
subscribers to activate service via the phone ("over the air activation")
without any face to face contact with Company representatives increases the
Company's susceptibility to subscription fraud, which ultimately results in
churn.
The Company is a member of the Alliance, a consortium of seven major
PCS carriers which offer GSM service throughout North America. All members of
the Alliance have executed roaming agreements with each other, thereby allowing
GSM customers to roam throughout many major metropolitan areas in the United
States and Canada. Additionally, the Company has signed several roaming
agreements and expects to sign numerous others with international GSM carriers
to facilitate international roaming.
23
<PAGE> 26
RESULTS OF OPERATIONS
The following table reflects the composition of the Company's
cellular and PCS service revenue and equipment sales, and related gross margins,
as well as overall operating and other costs and margins. The Company's
historical results of operations, particularly in view of the Maine Disposition
and the start-up costs associated with the Company's PCS business, will not be
comparable with future periods.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1997 1996 1995
---------------------------------- ---------------------------------- --------
COMBINED COMBINED
CELLULAR CELLULAR
AND AND
CELLULAR PCS PCS CELLULAR PCS(A) PCS
-------- ---------- ---------- -------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUE & COST ANALYSIS:
Service revenue
Local customers -
Access revenue ....................... $ 10,607 $ 25,866 $ 36,473 $ 14,653 $ 402 $ 15,055 $ 12,244
Airtime revenue ...................... 4,667 5,965 10,632 6,109 88 6,197 4,938
Toll revenue ......................... 421 4,425 4,846 803 51 854 627
-------- ---------- ---------- -------- ---------- ---------- --------
15,695 36,256 51,951 21,565 541 22,106 17,809
-------- ---------- ---------- -------- ---------- ---------- --------
Roamers -
Access & airtime revenue ............. 4,190 145 4,335 6,680 -- 6,680 5,541
Toll revenue ......................... 1,479 44 1,523 1,821 -- 1,821 1,399
-------- ---------- ---------- -------- ---------- ---------- --------
5,669 189 5,858 8,501 -- 8,501 6,940
-------- ---------- ---------- -------- ---------- ---------- --------
Other -
Installation and connection .......... 101 2,207 2,308 243 440 683 394
Other ................................ 680 1,948 2,628 540 45 585 241
-------- ---------- ---------- -------- ---------- ---------- --------
781 4,155 4,936 783 485 1,268 635
-------- ---------- ---------- -------- ---------- ---------- --------
Total service revenue .............. 22,145 40,600 62,745 30,849 1,026 31,875 25,384
Cost of services ......................... 2,992 25,285 28,277 3,535 2,276 5,811 2,394
-------- ---------- ---------- -------- ---------- ---------- --------
Gross margin ........................... $ 19,153 $ 15,315 $ 34,468 $ 27,314 $ (1,250) $ 26,064 $ 22,990
======== ========== ========== ======== ========== ========== ========
EQUIPMENT SALES & COST ANALYSIS:
Equipment sales .......................... $ 773 $ 15,398 $ 16,171 $ 3,803 $ 3,447 $ 7,250 $ 3,928
Cost of equipment sales .................. 2,241 43,077 45,318 2,890 8,763 11,653 3,127
-------- ---------- ---------- -------- ---------- ---------- --------
Gross margin ........................... $ (1,468) $ (27,679) $ (29,147) $ 913 $ (5,316) $ (4,403) $ 801
======== ========== ========== ======== ========== ========== ========
OPERATING MARGIN ANALYSIS:
Total revenues ........................... $ 22,918 $ 55,998 $ 78,916 $ 34,652 $ 4,473 $ 39,125 $ 29,312
-------- ---------- ---------- -------- ---------- ---------- --------
Operating expense -
Cost of services and equipment sales ... 5,233 68,362 73,595 6,425 11,039 17,464 5,521
Operations ............................. 2,700 21,289 23,989 4,189 5,738 9,927 3,596
Selling and marketing .................. 3,269 38,140 41,409 4,637 8,664 13,301 4,280
General and administrative ............. 2,282 23,460 25,742 2,940 14,023 16,963 4,218
Depreciation ........................... 2,331 40,416 42,747 2,722 3,165 5,887 2,741
Amortization ........................... 262 6,273 6,535 3,380 834 4,214 2,360
-------- ---------- ---------- -------- ---------- ---------- --------
Total operating expenses ............. 16,077 197,940 214,017 24,293 43,463 67,756 22,716
-------- ---------- ---------- -------- ---------- ---------- --------
Operating (loss) income .................. $ 6,841 $ (141,942) (135,101) $ 10,359 $ (38,990) (28,631) 6,596
======== ========== ======== ==========
Interest expense (income), net ........... 42,564 (3,175) 1,657
Gain on sale of subsidiary ............... (41,912) -- --
Miscellaneous (income) expense ........... (585) 1,266 (295)
---------- ---------- --------
(Loss) income before income taxes ........ (135,168) (26,682) 5,234
Income tax (benefit) provision ........... -- (1,654) 2,230
---------- ---------------------
(Loss) income before cumulative effect ... (135,168) (25,028) 3,004
Cumulative effect of change in
accounting principle ................... -- (2,583) --
---------- ---------- --------
Net (loss) income ........................ $ (135,168) $ (27,611) $ 3,004
========== ========== ========
</TABLE>
- ----------------
(a) The Company did not commence PCS operations until fourth quarter 1996.
24
<PAGE> 27
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The following discussion reflects the Company's results of operations
for its PCS and cellular lines of business. All general corporate costs have
been allocated to those lines of business based on management's estimates of
actual expenses incurred related to such lines of business. The Company sold
substantially all of its cellular assets in the State of Maine in 1997.
Service revenue from local customers increased $29.8 million or 135.0%
for 1997, as compared to 1996. Cellular service revenue from local customers
decreased $5.9 million, or 27.2%, primarily as a result of the Maine Disposition
during the second quarter of 1997 and the corresponding reduction in customers
(to approximately 26,000 at December 31, 1997 from approximately 48,000 at
December 31, 1996). PCS service revenue from local customers, which was $36.3
million in 1997, was the result of the continued increase in subscribers (to
approximately 119,000 at December 31, 1997 from approximately 15,000 at December
31, 1996).
The average monthly service revenue per local cellular subscriber
(excluding roaming revenue and equipment sales) decreased to $38.33 in 1997 from
$41.70 for 1996. This decrease reflects the previously mentioned lower usage
patterns of new cellular customers, as well as price competition from competing
wireless carriers. The average monthly service revenue per local PCS subscriber
was $57.81, which is substantially higher than cellular due mainly to the higher
monthly access fees paid by the majority of the Company's subscribers for
bundled airtime minutes and the long distance revenue generated by those
subscribers.
Cellular roamer revenue (including roamer long distance) decreased $2.8
million, or 33.3%, in 1997 as compared to 1996. This decrease is attributable to
the Maine Disposition, as well as the Company's amended agreement with BellSouth
Cellular Corp, operating as BellSouth Mobility ("BellSouth Mobility"), effective
January 16, 1997, under which the parties agreed to per-minute reductions to the
rates charged to BellSouth Mobility for roaming incurred by its customers in the
Company's service territory. The Company generated $.2 million in roaming
revenue from its PCS business under roaming agreements with Alliance partners
that became effective during the last five months of 1997.
Other revenue, which includes activation and installation fees, fees
from optional features and interconnection fees billed to LECs for connections
to the Company's PCS System, increased $3.7 million, or 289.3%, for 1997 as
compared to 1996. This increase is due to the activation fees associated with
the addition of PCS subscribers noted above and interconnection fees, which
previously had not been reciprocal between LECs and wireless carriers.
Cost of services includes the cost of: (i) interconnection with LEC
facilities; (ii) direct cell site costs (e.g., property taxes and insurance,
site lease costs and electric utilities); (iii) PCS and cellular roaming
validation (provided by a third-party clearinghouse); (iv) long distance toll
costs; (v) cellular cloning and fraud; and (vi) supplementary services (such as
voice mail). Cellular cost of services decreased $.5 million, or 14.1%, in 1997
as compared to 1996. This decrease is attributable to the Maine Disposition but
was partially offset by an increase in costs associated with cloning and
subscription fraud during the first six months of 1997. The cost of cellular
fraud was significantly reduced during the third and fourth quarters. PCS cost
of services, which was $25.3 million in 1997, primarily reflects interconnection
and tower lease costs associated with the approximately 500 cell sites placed in
service during 1997 in the Company's expanding PCS System.
The Company generated a negative cellular equipment margin of 189.9% on
$.8 million of sales in 1997, as compared to a positive margin of 24.0% on $3.8
million of sales in 1996. This decrease in margin is due to the Company's change
in its method of accounting for certain promotional costs (primarily equipment
credits). Under the new method of accounting, all cellular equipment subsidies
are expensed as incurred. Such subsidies were deferred and amortized over the
life of the related cellular contract in prior periods. For its PCS operations,
the Company generated a negative equipment margin of 179.8% on $15.4 million of
sales in 1997, as compared to 154.2% on $3.4 million of sales in 1996. The
increase in negative PCS equipment margins is the result of the
25
<PAGE> 28
Company's continued subsidization of the cost of PCS handsets. The Company
expects to continue subsidizing the cost of PCS and cellular handsets to
consumers for the foreseeable future.
Operations costs, which include the costs of maintaining the cellular
and PCS systems, customer service, credit and collections and inventory
management totaled $24.0 million for 1997, which represented an increase of
$14.1 million, or 141.7%, from 1996. Cellular operations costs totaled $2.7
million in 1997, a 35.5% decrease from 1996, which is attributable primarily to
the Maine Disposition. PCS operations costs totaled $21.3 million in 1997, which
represented a 271.0% increase from 1996 and were comprised primarily of salaries
and benefits, bad debt provisions, credit and collection costs and ongoing
maintenance of existing sites.
Selling and marketing costs totaled $41.4 million for 1997, an increase
of $28.1 million, or 211.3%, from 1996. Substantially all of this increase is
attributable to ongoing PCS advertising costs, as well as the costs of all
direct and indirect sales channels, including commissions incurred as a result
of the continued rapid growth in the number of PCS subscribers.
General and administrative costs ("G&A") were $25.7 million for 1997,
an increase of $8.8 million, or 51.8%, from 1996. This increase is attributable
to PCS G&A costs, which totaled $23.5 million in 1997 and were comprised
primarily of costs (excluding depreciation) associated with the corporate and
regional facilities, such as salaries and benefits, data processing costs, rent
and communications costs.
Depreciation and amortization for 1997 totaled $49.3 million, as
compared to $10.1 million for 1996, and consist principally of the depreciation
of the cellular and PCS network and the amortization of PCS licenses.
Substantially all of the increase of $39.2 million in depreciation and
amortization for 1997 is due to depreciation of the PCS System and amortization
of PCS licenses, substantial portions of which were first placed in service in
late fourth quarter 1996 and continuing throughout 1997. The Company anticipates
these costs will continue to increase in future periods as additional portions
of the PCS System are completed and placed in service.
Net consolidated interest expense totaled $42.6 million for 1997, as
compared to $3.2 million of net consolidated interest income for 1996. The
change in interest primarily resulted from interest expense incurred on the $300
million principal amount of 11.125% Senior Notes due 2007 (the "1997 Notes"),
lower funds available for investment due to the buildout of the PCS System and a
reduction in capitalized interest ($22.1 million in 1997 compared to $29.0
million in 1996), which is attributable to the completion and placing in service
of substantial portions of the PCS System.
The effective income tax rates for 1997 and 1996 were 0% and 6.2% (tax
benefit), respectively. The tax benefit recognized in 1996 reflects the expected
realization of certain net operating loss carrybacks. The Company generated a
$135.2 million net loss for 1997 and expects to continue to incur significant
operating losses in 1998 and beyond. The tax benefit of these operating losses
will not be recognized until management determines that it is more likely than
not that such benefit is realizable.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The following discussion reflects the Company's results of operations
for its PCS and cellular lines of business. All general corporate costs have
been allocated to those lines of business based on management's estimates of
actual expenses incurred related to such lines of business. The Company entered
into an agreement to sell substantially all of its cellular assets in the State
of Maine in 1996 and completed the transaction in 1997.
In October 1996, the Company began providing PCS in Jacksonville,
Florida and Montgomery, Alabama. Throughout the remainder of 1996, the Company
launched PCS services in 13 additional markets within the Current PCS Markets
and, as of December 31, 1996, had approximately 15,000 PCS subscribers.
Service revenue from local customers increased $4.3 million or 24.1%,
for 1996, as compared to 1995. Cellular service revenue from local customers
increased $3.8 million or 21.1%, primarily as a result of a 23.4% increase in
the number of cellular subscribers (to approximately 48,000 at December 31, 1996
from approximately
26
<PAGE> 29
39,000 at December 31, 1995). This increase in subscribers is attributable to
the success of the Company's marketing efforts as well as the overall increase
in nationwide cellular penetration rates. The Company generated $.5 million in
service revenue from its PCS subscribers.
The average monthly revenue per local cellular subscriber (excluding
roaming revenue and equipment sales) decreased to $41.70 in 1996 from $43.95 for
1995. This decrease reflects the addition of customers who tend to use cellular
service less frequently and a slight decrease in cellular pricing. Substantially
all of the Company's PCS subscribers as of December 31, 1996 were participants
in the Prestige Partners Plan under which unlimited local calls could be made
for a flat monthly fee of $50.
Roamer revenue (including toll revenue) for 1996, which was generated
solely from the Company's cellular business, increased $1.6 million, or 22.5%,
as compared to 1995. This increase relates primarily to continued market
penetration by the cellular industry as a whole. Additionally, during the third
quarter of 1995, the Company entered into an agreement with BellSouth Mobility,
which operates cellular systems in markets contiguous to the Cellular Market,
for lower roaming rates. Increased 1996 roaming traffic in the Cellular Market
was partially a result of this agreement. Effective January 16, 1997, the
Company entered into an amended agreement with BellSouth Mobility under which
the parties agreed to a further per minute reduction to the rate charged to
BellSouth Mobility customers roaming in the Cellular Market. This agreement
resulted in decreased roaming revenue in 1997.
Cost of services includes the cost of: (i) interconnection with LEC
facilities; (ii) roaming validation (provided by a third-party clearinghouse);
(iii) long distance toll services; (iv) cloning and subscriber fraud; and (v)
supplementary services (such as voice mail). For 1996, cost of services
increased $3.4 million, or 142.7%, as compared to 1995, including a $1.1
million, or 47.7%, increase in cost of cellular services. This increase was due
to the costs associated with the increased 1996 roaming traffic discussed above,
including increased toll costs and an increase in costs associated with cellular
cloning in the Company's cellular operations. The Company, like other
participants in the cellular industry, experienced a dramatic increase in costs
associated with both cloning and subscription fraud during 1996. The Company's
total costs associated with fraud increased from $.1 million in 1995 to $.3
million in 1996. PCS cost of services totaled $2.3 million for the year and was
comprised primarily of cost of interconnection with LEC facilities required for
the PCS System.
The Company generated a cellular equipment margin of 24.0% on $3.8
million of sales in 1996 as compared to a 20.4% margin on $3.9 million in sales
in 1995. This increase in margin is attributable to a decrease in the cost of
cellular handsets during 1996. During 1996, the Company changed its method of
accounting for certain promotional costs (primarily equipment credits), which
resulted in the recognition of negative equipment margins in 1997. For its PCS
operations, the Company generated a negative equipment margin of 154.2% on $3.4
million in sales in 1996, as a result of the Company's subsidization of the cost
of PCS handsets. The Company expects to continue subsidizing the cost of PCS
handsets to consumers for the foreseeable future.
Operations costs, which include the costs of maintaining the cellular
and PCS systems, customer service, inventory management and in-house cellular
installations, totaled $9.9 million for 1996. Cellular operations costs totaled
$4.2 million in 1996, which represented a 16.5%, increase from 1995. The
increase was primarily attributable to the increased variable costs associated
with the increase in cellular subscribers. PCS operations costs totaled $5.7
million for the year and were comprised primarily of credit and collection costs
and salaries and benefits.
Selling and marketing costs, which consist primarily of advertising
expenses and the costs of all direct and indirect sales channels, totaled $13.3
million for 1996. Substantially all of the increase of $9.0 million, or 210.8%,
from 1995 is attributable to the promotional costs associated with PCS
operations, which began service in fourth quarter 1996.
G&A costs were $17.0 million for 1996, an increase of $12.7 million, or
302.2%, from 1995. This increase is attributable to PCS G&A costs, which totaled
$14.0 million in 1996 and were comprised primarily of costs (excluding
depreciation) associated with the corporate and regional facilities, such as
salaries and benefits, data
27
<PAGE> 30
processing costs, rent and communications costs. Certain costs (primarily
salaries and benefits costs) that were included in the cellular business unit in
1995 were reallocated to the PCS business unit during 1996, which resulted in a
decrease of $1.3 million, or 30.3%, in cellular G&A costs from 1995.
Depreciation and amortization for 1996 totaled $10.1 million and
consist principally of the depreciation of the cellular system and the
amortization of goodwill acquired in the 1994 acquisition of Unicel. Because the
majority of the Current PCS System and the related PCS licenses were either not
placed in service until late in the fourth quarter of 1996 or were under
construction and thus not yet depreciable, PCS depreciation and amortization
totaled only $4.0 million for 1996. These costs were substantially higher in
1997 ($46.5 million) as additional portions of the PCS System were placed in
service.
Net consolidated interest income totaled $3.2 million for 1996 as
opposed to net interest expense of $1.7 million in 1995. Net interest income
increased primarily as a result of investment of the proceeds from the sale of
the Company's Common Stock and the 1996 senior notes offerings. See "Liquidity
and Capital Resources." Additionally, $29.0 million of the interest costs
related to the 1996 borrowings were capitalized in 1996 during the construction
of the PCS System.
The effective income tax rates for 1996 and 1995 were 6.2% (benefit)
and 42.6% (provision), respectively. The decrease between the periods is
primarily attributable to the deferred tax asset valuation allowance required as
of December 31, 1996 ($16.4 million). The Company has recognized a $1.7 million
income tax benefit equal to available carry backs of operating losses to the
1994 and 1995 tax years (during which time income taxes totaling approximately
$1.7 million were paid). Management believes it is more likely than not that
this tax benefit will be realized. The Company generated a $25.0 million loss
from continuing operations during 1996 and incurred significant operating losses
during 1997. The tax benefit of these operating losses will not be recognized
until it is more likely than not that such benefit is realizable.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires significant amounts of capital for funding the
operations and expansion of its PCS business. Total capital expenditures,
including capital expenditures for information technology and the support of the
PCS business, totaled approximately $292 million for 1997. Costs associated with
the PCS System buildout include tower sites, leasehold improvements, base
station and switch equipment and labor expenses related to construction of
sites. The Company currently estimates that capital expenditures will total
approximately $230 million in 1998 relating to the initial buildout of the
Kentucky/Tennessee PCS System and the continued expansion of its other PCS
markets and its cellular system. By the end of 1998, the Company expects to be
able to offer PCS services in markets containing approximately 60% of the
population within its PCS Markets. Wireless coverage is expected to extend
across most metropolitan areas, certain secondary cities and major connecting
highway corridors within the PCS Markets. Thereafter, based on customer demand
and competitive factors, the Company intends to continue to build out its PCS
System to enhance and expand its coverage. The Company anticipates that it will
need to raise additional financing in the event it decides to make acquisitions
of additional licenses or businesses or expand and enhance the existing PCS
coverage in existing PCS Markets.
In May 1997, the Company sold its cellular operations in the State of
Maine to Rural Cellular. On May 1, 1997, Rural Cellular paid $71.8 million in
cash and paid $5.4 million into escrow. On November 3, 1997, the $5.4 million
was released from escrow to the Company. In addition, Rural Cellular reimbursed
the Company approximately $250,000 for capital expenditures made on their behalf
prior to the closing of the transaction.
On June 10, 1997, the Company issued $300 million principal amount of
the 1997 Notes in a private placement. In September 1997, the Company exchanged
substantially all of the private 1997 Notes for 11.125% Senior Notes due 2007
which were identical in terms to the private 1997 Notes except they were
registered under the Securities Act (the private and public notes are
collectively referred to as the "1997 Notes"). The Company used $89.6 million of
the net proceeds from the offering to purchase and pledge, for the benefit of
the holders of the 1997 Notes, certain U.S. government securities in an amount
sufficient to provide for the payment in full of the
28
<PAGE> 31
first six scheduled interest payments on the 1997 Notes. The 1997 Notes bear
interest at 11.125% per annum and have a scheduled maturity date of June 1,
2007.
On June 5, 1997, pursuant to separate Stock Purchase Agreements, dated
as of May 23, 1997, between the Company and The Huff Alternative Income Fund,
L.P. ("Huff") and the Company and SCANA Communications, Inc., a wholly owned
subsidiary of SCANA Corporation ("SCANA"), Huff and SCANA purchased 50,000
shares of Series C Convertible Preferred Stock and 50,000 shares of Series D
Convertible Preferred Stock (collectively, the "Preferred Stock"), respectively,
from the Company in private placements, each for an aggregate purchase price of
$22.5 million (the "Preferred Stock Sales"). Each share of Preferred Stock has a
liquidation preference over the Common Stock of $450 per share plus declared and
unpaid dividends in connection with a liquidation, dissolution or winding up of
the Company. The Preferred Stock rank, as to dividends, on parity with the
Common Stock. The Series C Preferred Stock and Series D Preferred Stock are
redeemable at the option of the Company on June 5, 2002, in whole or in part, on
a pro rata basis, at a redemption price of $450 per share plus declared and
unpaid dividends. The Series C Preferred Stock and Series D Preferred Stock
become convertible on December 5, 1998 and on March 14, 2002, respectively, at
the option of the holder, into Common Stock at a conversion price of $12.75,
subject to adjustment. The Company intends to use the net proceeds from the sale
of the 1997 Notes and the Preferred Stock Sales primarily to partially finance
the continued development, construction and operating costs and certain
acquisition expenses associated with the PCS System.
On March 4, 1996, Powertel PCS, Inc., a wholly owned subsidiary of the
Company ("Powertel PCS"), entered into the Ericsson Agreement which provides for
the purchase of PCS equipment and services and the Equipment Financing Agreement
with Ericsson to finance up to $125.0 million of such purchases. On October 31,
1996, March 31, 1997, June 26, 1997 and November 18, 1997, Powertel PCS and
Ericsson entered into amendments to the Equipment Financing Agreement, which
increased the equipment financing commitment to $165.0 million and amended
certain other provisions of the Equipment Financing Agreement. During the fourth
quarter of 1997, the $165.0 million commitment under the Equipment Financing
Agreement was syndicated to a group of lenders. On December 23, 1997, the
Equipment Financing Agreement was amended to increase the financing commitment
to $265.0 million. Finally, on February 6, 1998, Powertel PCS and the lenders
entered into an amended and restated agreement to incorporate the terms and
conditions of the original agreement and the subsequent amendments.
During the first quarter of 1996, the Company issued 7,124,322 shares
of its Common Stock in a public offering, resulting in net proceeds of
approximately $110.0 million. The Company also sold 35,747 units, consisting of
$357.5 million principal amount at maturity of 12% Senior Discount Notes due
2006 and 1,143,904 Warrants, for approximately $200.0 million gross proceeds. A
portion of the net proceeds from these offerings was used to repay all previous
outstanding borrowings.
During the second quarter of 1996, the Company issued $360.0 million
principal amount at maturity of 12% Senior Discount Notes due 2006 for
approximately $200.0 million gross proceeds. The Company also issued 100,000
shares of Series A Convertible Preferred Stock to Ericsson and 100,000 shares of
Series B Convertible Preferred Stock to SCANA for an aggregate purchase price of
approximately $150.0 million. The Company used a portion of the net proceeds
from the 1996 offerings and preferred stock sales to consummate the acquisition
of the Atlanta MTA and to partially finance the development, construction and
operating costs of the PCS System.
Although the Company is currently unable to predict with certainty the
amount of expenditures that may be made beyond 1998, the Company expects that it
will require additional capital. Sources of additional capital may include
vendor financing, cash flow from operations, public and private equity and debt
financing and asset dispositions by the Company. The Company may also require
additional financing in the event it decides to make acquisitions of additional
licenses or businesses. The extent of additional financing required will
partially depend on the success of the Company's businesses. The Company
currently has no other sources of income or cash flows other than its cellular
and PCS operations and the interest income earned from investing its cash and
the proceeds of the public and private debt and equity offerings which were
completed during 1997 and 1996. There can be no assurance that additional
financing will be available to the Company, or if available, that it can be
obtained on terms acceptable to the Company and within the limitations contained
in the Indentures, the Equipment Financing
29
<PAGE> 32
Agreement or any future financing arrangements. The restrictions on additional
indebtedness under the Indentures require the Company to satisfy specified
leverage ratios in order to incur indebtedness; however, they permit the Company
and its subsidiaries to incur an unlimited amount of additional indebtedness to
finance the acquisition of inventory or equipment.
The Company expects to incur significant operating losses and to
generate significant negative cash flow from operating activities in the future
while it develops and constructs its PCS System and builds a PCS customer base.
Cash interest will not be payable on the Company's senior discount notes prior
to 2001. Management believes that cash flow from operations may be insufficient
to repay the senior discount notes and the 1997 Notes or any additional
financing that the Company may obtain in full at maturity and that they may need
to be refinanced. There can be no assurance that any such refinancing could be
effected successfully or on terms acceptable to the Company.
During 1997, the Company used net cash of $57.0 million for operating
activities, as compared to $15.3 million for 1996. Operating activities for 1997
primarily included $135.2 million of net loss, $41.9 million of gain from the
Maine Disposition, $49.3 million of depreciation and amortization, $34.1 million
of bond accretion on the senior discount notes and $34.1 million related to
changes in assets and liabilities.
Cash used in investing activities was $248.7 million for 1997, as
compared to $489.1 million for the same period of 1996. Investing activities for
1997 included capital expenditures totaling $291.8 million (primarily related to
the buildout of the PCS System and support systems), license acquisition costs
of $31.3 million and microwave relocation costs of $9.3 million. The Company
also purchased $43.7 million of long-term investments to be used for payment of
certain interest costs related to the 1997 Notes. These costs were partially
offset by proceeds from the Maine Disposition totaling $77.2 million and the
liquidation of short-term investments totaling $42.3 million.
Cash provided from financing activities was $447.2 million for 1997, as
compared to $689.2 million for 1996. Financing activities consisted primarily of
the net proceeds from the 1997 Notes of $290.6 million, net proceeds from the
Preferred Stock Sales of $44.9 million, and additional borrowings of $110.4
million under the Equipment Financing Agreement.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 ("FAS 130"), "Reporting Comprehensive Income," and Statement
of Financial Accounting Standards No. 131 ("FAS 131"), "Disclosures About
Segments of an Enterprise and Related Information." Both statements are
effective for fiscal years beginning after December 15, 1997. The Company does
not anticipate that these statements will have a material impact on its
financial statements.
Effective with the quarter ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which
required the restatement of all prior period earnings per common share ("EPS")
amounts. See note 9 to the consolidated financial statements included elsewhere
in this Report for disclosure of restated EPS amounts.
OTHER
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g., "97" for 1997). On January 1, 2000, any
clock or date recording mechanism including date sensitive software which uses
only two digits to represent the year may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in
similar activities.
The Company is currently working to address and resolve this issue with
respect to its computerized information systems. The Company is also discussing
the Year 2000 issue with its significant suppliers to determine
30
<PAGE> 33
the extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 issues. The Company presently believes that with
conversions to new systems and modifications to existing software the Year 2000
issue can be mitigated. The Company is currently utilizing and will continue to
utilize internal and external resources to implement, reprogram, or replace and
test software and related assets affected by the Year 2000 issue. The Company
expects to complete the majority of its efforts in this area by early 1999
leaving adequate time to assess and correct any significant issues that may
materialize. However, if such modifications and conversions are not made, or are
not timely, or if systems from third parties on which the Company's systems rely
will not be converted on time or if such third parties fail to convert or if
such conversions are incompatible with the Company's systems, the Year 2000
issue could have a material adverse impact on the Company's business, financial
condition and results of operations.
Management does not believe that the costs to resolve its Year 2000
issues will be material to the Company. The costs of the project and the
timetable in which the Company plans to complete the Year 2000 compliance
requirements are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from these plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act and the
Exchange Act. These statements appear in a number of places in this Report and
include all statements which are not historical facts and which relate to the
intent, belief or expectations of the Company, its directors or its officers
with respect to, among other things: (i) the Company's financing plans,
including the Company's ability to obtain financing in the future; (ii) trends
affecting the Company's financial condition or results of operations; (iii) the
Company's growth strategy (including the Company's anticipated network buildout)
and operating strategy; (iv) the Company's anticipated capital needs and
anticipated capital expenditures; and (v) projected outcomes and effects on the
Company of litigation and investigations concerning the Company. Investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in forward-looking statements as a result
of: (i) factors affecting the availability, terms and cost of capital, risks
associated with the selection of the Company's PCS digital protocol and PCS
System implementation, competitive factors and pricing pressures, general
economic conditions, the failure of the market demand for the Company's products
and services to be commensurate with management's expectations or past
experience, the impact of present or future laws and regulations on the
Company's business, changes in operating expenses or the failure of operating
and buildout expenses to be consistent with management's expectations and the
difficulty of accurately predicting the outcome and effect of certain matters,
such as matters involving litigation and investigations; (ii) various factors
discussed herein; and (iii) those factors discussed in detail in the Company's
filings with the Securities and Exchange Commission, including the "Risk
Factors" section of the Company's Registration Statement on Form S-4
(Registration number 333-31399), as declared effective by the SEC on July 31,
1997.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Company, including the Company's
consolidated balance sheet as of December 31, 1997 and 1996 and consolidated
statements of income, consolidated statements of cash flows and consolidated
statements of changes in stockholders' equity for the years ended December 31,
1997, 1996 and 1995,
31
<PAGE> 34
together with the report thereto of Arthur Andersen L.L.P. dated February 6,
1998, and the schedule containing certain supporting information are attached
hereto as pages F-1 through F-21.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND FINANCIAL
DISCLOSURES
The Company had no disagreements on accounting or financial disclosure
matters with its accountants, nor did it change accountants, during the two
fiscal years ended December 31, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the caption "ELECTION OF DIRECTORS" in
the Definitive Proxy Statement for the 1998 Annual Meeting of Stockholders of
the Company (the "1998 Proxy Statement") is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "EXECUTIVE COMPENSATION" in
the 1998 Proxy Statement is incorporated herein by reference, except for those
portions entitled "Compensation/Stock Option Committee Report on Executive
Compensation" and "Comparative Company Performance."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "EXECUTIVE COMPENSATION -
Beneficial Ownership of Capital Stock" in the 1998 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "ELECTION OF DIRECTORS -
Certain Relationships and Related Transactions" in the 1998 Proxy Statement is
incorporated herein by reference.
32
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following financial statements of Powertel, Inc. are filed as a
part of this report and are attached hereto as pages F-1 through F-21:
Report of Independent Public Accountants on Financial Statements
Consolidated Balance Sheet as of December 31, 1997 and 1996
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995
Notes to Financial Statements
(A)(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules of Powertel, Inc. are filed
as a part of this report and are attached hereto as pages S-1 through
S-2:
Report of Independent Public Accountants on Schedules
Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 1997, 1996 and 1995
All other schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
(A)(3) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------- -------------------
<S> <C>
2(a) * Asset Purchase Agreement dated December 23, 1996, by and among
Rural Cellular Corporation, Unity Cellular Systems, Inc., InterCel
Licenses, Inc. and InterCel, Inc. (Filed as Exhibit 99.1 to the
Company's Form 8-K dated December 23, 1996 and incorporated herein
by reference.)
2(b) * Closing Memorandum dated May 1, 1997 by and between Rural Cellular
Corporation, MRCC, Inc., Unity Cellular Systems, Inc., InterCel
Licenses, Inc. and InterCel, Inc. (Filed as Exhibit 2.2 to the
Company's Form 8-K dated May 12, 1997 and incorporated herein by
reference.) **
3(a) * Third Restated Certificate of Incorporation of InterCel, Inc.
dated June 6, 1996. (Filed as Exhibit 10(yy) to the Company's Form
10-Q filed for the quarter ended September 30, 1996 (the "1996 Third
Quarter 10-Q"), and incorporated herein by reference.)
</TABLE>
33
<PAGE> 36
<TABLE>
<S> <C>
3(b) * Certificate of Amendment of Restated Certificate of Incorporation
of InterCel, Inc. dated June 23, 1997. (Filed as Exhibit 10(b) to
the Company's Form 8-K filed July 1, 1997, and incorporated herein
by reference.)
3(c) * Restated By-Laws of InterCel, Inc. (Filed as Exhibit 3(b) to
Registration Statement on Form S-1, File No. 33-72734 (the "1993
Form S-1"), and incorporated herein by reference.)
4(a) * Indenture dated as of February 7, 1996 between InterCel, Inc. and
Bankers Trust Company, as Trustee, relating to the 12% Senior
Discount Notes Due 2006 of InterCel, Inc. (Filed as Exhibit 4(a) to
Registration Statement on Form S-1, File No. 33-96218 ("February
1996 Form S-1"), and incorporated herein by reference.)
4(b) * Warrant Agreement dated as of February 7, 1996 between InterCel,
Inc. and Bankers Trust Company, as Warrant Agent. (Filed as Exhibit
4(b) to the February 1996 Form S-1, and incorporated herein by
reference.)
4(c) * Form of Indenture (including form of Note) between InterCel, Inc.
and Bankers Trust Company, as Trustee, relating to the 12% Senior
Discount Notes Due 2006 of InterCel, Inc. (Filed as Exhibit 4(c) to
Registration Statement on Form S-1, File No. 333-2748 (the "April
1996 Form S-1"), and incorporated herein by reference.)
4(d) * Indenture (including form of Note) dated June 10, 1997 between
InterCel, Inc. and Bankers Trust Company, as Trustee, relating to
the 11-1/8% Senior Notes Due 2007 of InterCel, Inc. (Filed as
Exhibit 4(h) to Registration Statement on Form S-4, File No.
333-31399 (the "1997 Form S-4"), and incorporated herein by
reference.)
4(e) * Collateral Pledge and Security Agreement dated June 10, 1997
between InterCel, Inc. and Bankers Trust Company, as Trustee. (Filed
as Exhibit 4(j) to the 1997 Form S-4, and incorporated herein by
reference.) **
4(f) * Certificate of Designations, Powers, Preferences and Relative,
Participating or Other Rights, and the Qualifications, Limitations
or Restrictions Thereof, of Series A Convertible Preferred Stock of
InterCel, Inc. (Filed as Exhibit 10(tt) to the 1996 Third Quarter
10-Q, and incorporated herein by reference.)
4(g) * Certificate of Designations, Powers, Preferences and Relative,
Participating or Other Rights, and the Qualifications, Limitations
or Restrictions Thereof, of Series B Convertible Preferred Stock of
InterCel, Inc. (Filed as Exhibit 10(uu) to the 1996 Third Quarter
10-Q, and incorporated herein by reference.)
4(h) * Certificate of Amendment to the Certificate of Designations,
Powers, Preferences and Relative, Participating or Other Rights, and
the Qualifications, Limitations or Restrictions Thereof, of Series B
Convertible Preferred Stock of InterCel, Inc. (Filed as Exhibit 4(k)
to the 1997 Form S-4, and incorporated herein by reference.)
4(i) * Certificate of Designations, Powers, Preferences and Relative,
Participating or Other Rights, and the Qualifications, Limitations
or Restrictions Thereof, of Series C Convertible Preferred Stock of
InterCel, Inc. (Filed as Exhibit 4(f) to the Company's Form 10-K
filed for the year ended December 31, 1996 (the "1996 Form 10-K"),
and incorporated herein by reference.)
4(j) * Amended Certificate of Designations, Powers, Preferences and
Relative, Participating or Other Rights, and the Qualifications,
Limitations or Restrictions Thereof, of Series C Convertible
Preferred Stock of InterCel, Inc. (Filed as Exhibit 4(l) to the 1997
Form S-4, and incorporated herein by reference.)
</TABLE>
34
<PAGE> 37
<TABLE>
<S> <C>
4(k) * Certificate of Designations, Powers, Preferences and Relative,
Participating or Other Rights, and the Qualifications, Limitations
or Restrictions Thereof, of Series D Convertible Preferred Stock of
InterCel, Inc. (Filed as Exhibit 4(g) to the 1996 Form 10-K, and
incorporated herein by reference.)
4(l) * Amended Certificate of Designations, Powers, Preferences and
Relative, Participating or Other Rights, and the Qualifications,
Limitations or Restrictions Thereof, of Series D Convertible
Preferred Stock of InterCel, Inc. (Filed as Exhibit 4(m) to the 1997
Form S-4, and incorporated herein by reference.)
10(a) * Software License Agreement between InterCel, Inc. and Systematics
Telecommunications Services, Inc. dated July 24, 1992. (Filed as
Exhibit 10(aa) to the Company's Form 10-KSB filed for the year ended
December 31, 1992, and incorporated herein by reference
10(b) * Directors and Officers Insurance and Company Reimbursement Policy.
(Filed as Exhibit 10(ii) to the 1993 Form S-1, and incorporated
herein by reference.)
10(c) * Form of Indemnity Agreement. (Filed as Exhibit 10(jj) to the 1993
Form S-1, and incorporated herein by reference.)
10(d) * InterCel, Inc. 1995 Employee Restricted Stock Plan (as amended on
November 17, 1995). (Filed as Exhibit 10(e) to the February 1996
Form S-1, and incorporated herein by reference.)
10(e) * InterCel, Inc. Amended and Restated 1991 Stock Option Plan. (Filed
as Appendix A to the Company's Definitive Proxy Statement for the
1997 Annual Meeting of Shareholders, and incorporated herein by
reference.)
10(f) * InterCel, Inc. Amended Nonemployee Stock Option Plan. (Filed as
Exhibit 10(q) to the Company's Form 10-K filed for the year ended
December 31, 1994 (the "1994 Form 10-K"), and incorporated herein by
reference.)
10(g) * Directed Employee Benefit Trust Agreement between The Charles
Schwab Trust Company and InterCel, Inc. (Filed as Exhibit 10(jjjj)
to the 1994 Form 10-K, and incorporated herein by reference.)
10(h) * Second Amendment to InterCel, Inc. Pension Plan dated as of August
2, 1996. (Filed as Exhibit 10(ss) to the 1996 Third Quarter 10-Q,
and incorporated herein by reference.)
10(i) * InterCel, Inc. 401(k) Profit Sharing Plan. (Filed as Exhibit 10(j)
to the February 1996 Form S-1, and incorporated herein by
reference.)
10(j) * Defined Benefit Pension Plan and Trust Adoption Agreement (Unity
Telephone Company) dated as of January 15, 1984. (Filed as Exhibit
10(ss) to the 1993 Form S-1, and incorporated herein by reference.)
10(k) * Defined Benefit Pension Plan (Unity Telephone Company). (Filed as
Exhibit 10(tt) to the 1993 Form S-1, and incorporated herein by
reference.)
10(l) * Amendment to Unity Telephone Pension Plan dated June 29, 1992.
(Filed as Exhibit 10(uu) to the 1993 Form S-1, and incorporated
herein by reference.)
10(m) * ITC Holding Company Inc. Employees Pension Plan and Trust (as
amended on December 15, 1994). (Filed as Exhibit 10(zz) to the
February 1996 Form S-1, and incorporated herein by reference.)
10(n) * DMS-MTX Cellular Supply Agreement dated March 29, 1995 between
InterCel, Inc. and Northern Telecom Inc. (Filed as Exhibit 10(pp) to
the February 1996 Form S-1, and incorporated herein by reference.)
</TABLE>
35
<PAGE> 38
<TABLE>
<S> <C>
10(o) * Amendment No. 1 to DMS-MTX Cellular Supply Agreement between
InterCel, Inc. and Northern Telecom Inc. dated August 9, 1995.
(Filed as Exhibit 10(qq) to the February 1996 Form S-1, and
incorporated herein by reference.)
10(p) * Information and Network Products and Services Agreement dated June
16, 1994 between InterCel, Inc. and GTE Telecommunications Service
Incorporated. (Filed as Exhibit 10(uu) to the February 1996 Form
S-1, and incorporated herein by reference.)
10(q) * Credit Agreement dated as of March 4, 1996 among InterCel PCS
Services, Inc., as Borrower, Ericsson Inc., as Initial Lender, and
Ericsson Inc. as Agent. (Filed as Exhibit 10(nn) to the April 1996
Form S-1, and incorporated herein by reference.)
10(r) * Amendment No. 1 to the Credit Agreement by and among Powertel,
Inc., as Borrower, Ericsson Inc., as Initial Lender, and Ericsson
Inc., as Agent, dated as of October 31, 1996. (Filed as Exhibit
10(ww) to the 1996 Third Quarter 10-Q and incorporated herein by
reference.)
10(s) * Amendment No. 2 to the Credit Agreement by and among Powertel,
Inc., as Borrower, Ericsson Project Finance A.B., as Lender, and
Ericsson Inc., as Agent, dated as of March 31, 1997. (Filed as
Exhibit 10(e) to the 1997 Form S-4, and incorporated herein by
reference.)
10(t) * Amendment No. 3 to the Credit Agreement by and among Powertel PCS,
Inc., as Borrower, Goldman Sachs Credit Partners L.P., as Lender,
and Ericsson Inc., as Agent, dated as of June 26, 1997. (Filed as
Exhibit 10(f) to the 1997 Form S-4, and incorporated herein by
reference.)
10(u) Amendment No. 4 to the Credit Agreement by and among Powertel PCS,
Inc., as Borrower, Goldman Sachs Credit Partners L.P., as Lender,
and Ericsson Inc., as Agent, dated as of November 18, 1997.
10(v) Amendment No. 5 to the Credit Agreement by and among Powertel PCS,
Inc., as Borrower, Goldman Sachs Credit Partners L.P., as Lender,
and Ericsson Inc., as Agent, dated as of December 23, 1997.
10(w) * Acquisition Agreement dated as of March 4, 1996 between InterCel
PCS Services, Inc. and Ericsson Inc. (Filed as Exhibit 10(rr) to the
April 1996 Form S-1, and incorporated herein by reference.)
10(x) * Amendment No. 1 to the Acquisition Agreement for Ericsson CMS 40
Personal Communications Systems dated as of September 2, 1997
between Powertel PCS, Inc. and Ericsson Inc. (Filed as Exhibit 10(j)
to the Company's Form 10-Q filed for the quarter ended September 30,
1997, and incorporated herein by reference.)
10(y) * License Agreement between LHS Communications, Inc. and Powertel,
Inc. dated August 2, 1996. (Filed as Exhibit 10(vv) to the 1996
Third Quarter 10-Q, and incorporated herein by reference.)
10(z) * Agreement between BellSouth Telecommunications, Inc. and InterCel,
Inc. effective as of April 1, 1997. (Filed as Exhibit 10(pp) to the
Company's Form 10-Q filed for the quarter ended March 31, 1997 (the
"1997 First Quarter 10-Q"), and incorporated herein by reference.)**
10(aa) * Agreement between BellSouth Telecommunications, Inc. and Powertel,
Inc. effective as of April 1, 1997. (Filed as Exhibit 10(qq) to the
1997 First Quarter 10-Q, and incorporated herein by reference.)**
10(bb) * Stock Purchase Agreement dated as of March 14, 1997 between
InterCel, Inc. and SCANA Communications, Inc. (Filed as Exhibit
10(pp) to the 1996 Form 10-K, and incorporated herein by reference.)
</TABLE>
36
<PAGE> 39
<TABLE>
<S> <C>
10(cc) * Escrow Agreement dated as of March 14, 1997 between InterCel,
Inc., SCANA Communications, Inc. and Bankers Trust Company, as
Escrow Agent. (Filed as Exhibit 10(qq) to the 1996 Form 10-K, and
incorporated herein by reference.)
10(dd) * Stock Purchase Agreement dated as of March 14, 1997 between
InterCel, Inc. and The Huff Alternative Income Fund, L.P. (Filed as
Exhibit 10(rr) to the 1996 Form 10-K, and incorporated herein by
reference.)
10(ee) * Escrow Agreement dated as of March 14, 1997 between InterCel,
Inc., The Huff Alternative Income Fund, L.P. and Bankers Trust
Company, as Escrow Agent. (Filed as Exhibit 10(ss) to the 1996 Form
10-K, and incorporated herein by reference.)
10(ff) * Termination of Stock Purchase Agreement dated as of April 30, 1997
between InterCel, Inc. and The Huff Alternative Income Fund, L.P.
(Filed as Exhibit 10(nn) to the 1997 First Quarter 10-Q, and
incorporated herein by reference.)
10(gg) * Termination of Stock Purchase Agreement dated as of April 30, 1997
between InterCel, Inc. and SCANA Communications, Inc. (Filed as
Exhibit 10(oo) to the 1997 First Quarter 10-Q, and incorporated
herein by reference.)
10(hh) * Stock Purchase Agreement dated as of May 23, 1997 between
InterCel, Inc. and SCANA Communications, Inc. (Filed as Exhibit
10(c) to the 1997 Form S-4, and incorporated herein by reference.)
10(ii) * Escrow Agreement dated as of June 5, 1997 between InterCel, Inc.,
SCANA Communications, Inc. and Bankers Trust Company, as Escrow
Agent. (Filed as Exhibit 10(d) to the 1997 Form S-4, and
incorporated herein by reference.)
10(jj) * Stock Purchase Agreement dated as of May 23, 1997 between
InterCel, Inc. and The Huff Alternative Income Fund, L.P. (Filed as
Exhibit 10(a) to the 1997 Form S-4, and incorporated herein by
reference.)
10(kk) * Escrow Agreement dated as of June 5, 1997 between InterCel, Inc.,
The Huff Alternative Income Fund, L.P. and Bankers Trust Company, as
Escrow Agent. (Filed as Exhibit 10(b) to the 1997 Form S-4, and
incorporated herein by reference.)
10(ll) First Amendment to Interconnection Agreement between InterCel, Inc.
and BellSouth Telecommunications, Inc. effective as of April 1,
1997.
10(mm) First Amendment to Interconnection Agreement between Powertel, Inc.
and BellSouth Telecommunications, Inc. effective as of April 1,
1997.
10(nn) Powertel 401(k) Profit Sharing Plan (as amended and restated
effective January 1, 1997, and as renamed effective July 1, 1997).
12 Statements regarding Computation of Ratios
21 Subsidiaries of Powertel, Inc.
23 Consent of Arthur Andersen LLP
24 Powers of Attorney for the following individuals: Campbell B.
Lanier, III, Allen E. Smith, Fred G. Astor, Jr., Donald W. Burton,
Bert G. Clifford, O. Gene Gabbard, Lawrence M. Gressette, Jr.,
Maurice P. O'Connor, William H. Scott, III, William B. Timmerman and
Donald W. Weber (included on signature page hereto)
</TABLE>
37
<PAGE> 40
27 Financial Data Schedule (for SEC use only)
- ---------------------------------
* Previously filed.
** The Registrant agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the Securities and Exchange Commission upon
request, as provided in Item 601(b)(2) of Regulation S-K.
(b) REPORTS ON FORM 8-K
None.
38
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereto duly authorized.
POWERTEL, INC.
March 24, 1998 By:/s/ Allen E. Smith
--------------------------------------------
Allen E. Smith
President, Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Allen E. Smith and
Fred G. Astor, Jr., and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report (Form 10-K) and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchanges Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Campbell B. Lanier, III
March 24, 1998 ------------------------------------------
Campbell B. Lanier, III
Chairman of the Board of Directors
/s/ Allen E. Smith
March 24, 1998 ------------------------------------------
Allen E. Smith
Chief Executive Officer, President and Director
(principal executive officer)
/s/ Fred G. Astor, Jr.
March 24, 1998 ------------------------------------------
Fred G. Astor, Jr.
Chief Financial Officer and Executive Vice President
(principal financial and accounting officer)
/s/ Donald W. Burton
March 24, 1998 ------------------------------------------
Donald W. Burton
Director
/s/ Bert G. Clifford
March 24, 1998 ------------------------------------------
Bert G. Clifford
Director
39
<PAGE> 42
/s/ O. Gene Gabbard
March 24, 1998 ------------------------------------------
O. Gene Gabbard
Director
------------------------------------------
Lawrence M. Gressette, Jr.
Director
------------------------------------------
Maurice P. O'Connor
Director
March 24, 1998 /s/ William H. Scott, III
------------------------------------------
William H. Scott, III
Director
/s/ William B. Timmerman
March 24, 1998 ------------------------------------------
William B. Timmerman
Director
/s/ Donald W. Weber
March 24, 1998 ------------------------------------------
Donald W. Weber
Director
40
<PAGE> 43
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.......... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995............................. F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995......... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995............................. F-6
Notes to Consolidated Financial Statements............................ F-7
</TABLE>
F-1
<PAGE> 44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Powertel, Inc.:
We have audited the accompanying consolidated balance sheets of
POWERTEL, INC. (a Delaware corporation) as of December 31, 1997 and 1996 and the
related statements of operations, changes in stockholders' equity, and cash
flows for each of the years in the three-year 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 Powertel, Inc. and
its subsidiaries as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As more fully discussed in Note 2 of Notes to Consolidated Financial
Statements, effective January 1, 1996, the Company changed its method of
accounting for promotional costs.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 6, 1998
F-2
<PAGE> 45
POWERTEL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
ASSETS 1997 1996
----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 326,954 $ 185,525
Restricted Cash for Payment of Interest (Note 2) 33,375 0
Short-term Investments 0 75,659
Accounts Receivable, net of allowance for doubtful accounts of
$1,768 and $217 in 1997 and 1996, respectively 34,549 8,228
Inventories (Note 2) 3,975 7,805
Prepaid Expenses and Other 6,631 12,642
----------- ---------
405,484 289,859
----------- ---------
PROPERTY AND EQUIPMENT, AT COST (Note 2):
Land 907 1,222
Building and Towers 244,095 81,901
Equipment 247,432 74,419
Furniture and Fixtures 5,296 4,572
Assets Under Construction 43,719 99,137
----------- ---------
541,449 261,251
Less Accumulated Depreciation (49,699) (9,982)
----------- ---------
491,750 251,269
----------- ---------
OTHER ASSETS:
Licenses, net of accumulated amortization of $7,032 and $813 at
December 31, 1997 and 1996, respectively 416,252 365,964
Restricted Cash for Payment of Interest (Note 2) 43,710 0
Deferred Charges and Other, net of accumulated amortization of $3,294
and $1,569 at December 31, 1997 and 1996, respectively 21,396 17,355
Goodwill, net of accumulated amortization of $2,058 at
December 31, 1996 0 22,670
----------- ---------
481,358 405,989
----------- ---------
$ 1,378,592 $ 947,117
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable - Trade $ 46,133 $ 7,723
Accrued Construction Costs 23,092 15,214
Accrued Other 13,796 5,494
Accrued Taxes Other Than Income 6,056 3,609
Advance Billings and Customer Deposits 2,429 1,352
Current Portion of Long-Term Obligations (Note 5) 256 118
----------- ---------
91,762 33,510
----------- ---------
LONG-TERM OBLIGATIONS (Note 5):
12% Senior Discount Notes due February 2006 244,014 216,465
12% Senior Discount Notes due May 2006 244,344 217,345
11.125% Senior Notes due June 2007 300,000 0
Credit Agreement 179,961 69,514
Other 695 741
----------- ---------
969,014 504,065
----------- ---------
MINORITY INTEREST IN SUBSIDIARY (Note 2) 0 2,535
----------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 6):
Series A Convertible Preferred Stock; $.01 Par Value; 100,000 Shares
Issued and Outstanding at December 31, 1997 and 1996 1 1
Series B Convertible Preferred Stock; $.01 Par Value; 100,000 Shares
Issued and Outstanding at December 31, 1997 and 1996 1 1
Series C Convertible Preferred Stock; $.01 Par Value; 50,000 Shares
Issued and Outstanding at December 31, 1997 1 0
Series D Convertible Preferred Stock; $.01 Par Value; 50,000 Shares
Issued and Outstanding at December 31, 1997 1 0
Common Stock; $.01 Par Value; 55,000,000 Shares Authorized,
27,017,143 and 26,863,643 Issued and Outstanding in 1997 and
1996, respectively 270 269
Paid-In Capital 477,109 430,053
Accumulated Deficit (157,934) (22,766)
Deferred Compensation (1,288) (206)
Treasury Stock at cost - 52,483 shares at December 31, 1997 and 1996 (345) (345)
----------- ---------
317,816 407,007
----------- ---------
$ 1,378,592 $ 947,117
=========== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
<PAGE> 46
POWERTEL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES AND SALES (Note 2):
Monthly Access Revenue $ 36,473 $ 15,055 $ 12,244
Airtime Revenue 10,632 6,197 4,938
Roaming Revenue 4,335 6,680 5,541
Toll Revenue 6,369 2,675 2,026
Installation and Connection Revenue 2,308 683 394
Other Revenue 2,628 585 241
--------- -------- --------
Total Service Revenues 62,745 31,875 25,384
Equipment Sales 16,171 7,250 3,928
--------- -------- --------
Total Revenues and Sales 78,916 39,125 29,312
--------- -------- --------
OPERATING EXPENSES:
Cost of Services 28,277 5,811 2,394
Cost of Equipment Sold 45,318 11,653 3,127
Operations 23,989 9,927 3,596
Selling and Marketing 41,409 13,301 4,280
General and Administrative 25,742 16,963 4,218
Depreciation 42,747 5,887 2,741
Amortization 6,535 4,214 2,360
--------- -------- --------
Total Operating Expenses 214,017 67,756 22,716
--------- -------- --------
OPERATING (LOSS) INCOME (135,101) (28,631) 6,596
--------- -------- --------
OTHER (INCOME) EXPENSE:
Interest (Income) Expense, Net 42,564 (3,175) 1,657
Gain on Sale of Subsidiary (41,912) 0 0
Miscellaneous (Income) Expense (585) 1,226 (295)
--------- -------- --------
Total Other (Income) Expense 67 (1,949) 1,362
--------- -------- --------
(LOSS) INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (135,168) (26,682) 5,234
INCOME TAX (BENEFIT) PROVISION 0 (1,654) 2,230
--------- -------- --------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (135,168) (25,028) 3,004
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 0 (2,583) 0
--------- -------- --------
NET (LOSS) INCOME $(135,168) $(27,611) $ 3,004
========= ======== ========
PER SHARE DATA (Note 9):
BASIC (LOSS) INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE $( 5.04) $( 1.00) $ 0.30
BASIC CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 0 (0.10) 0
--------- -------- --------
BASIC (LOSS) INCOME PER COMMON SHARE $( 5.04) $( 1.10) $ 0.30
========= ======== ========
DILUTED (LOSS) INCOME PER COMMON SHARE $( 5.04) $( 1.10) $ 0.29
========= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 47
POWERTEL, INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON CONVERTIBLE
STOCK PREFERRED RETAINED TOTAL
$.01 PAR STOCK $.01 PAID-IN EARNINGS DEFERRED TREASURY STOCKHOLDERS'
VALUE PAR VALUE CAPITAL (DEFICIT) COMPENSATION STOCK EQUITY
-------- ---------- ------- --------- ------------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ 99 $0 $ 31,774 $ 1,841 $ 0 $(340) $ 33,374
Issuance of Common Stock Under
Stock Options 1 0 171 0 0 0 172
Issuance of Common Stock Under
Restricted Stock Agreement 0 0 495 0 (495) 0 0
Amortization of Deferred
Compensation 0 0 0 0 124 0 124
Net Income 0 0 0 3,004 0 0 3,004
---- -- -------- --------- ------- ----- ---------
BALANCE, DECEMBER 31, 1995 100 0 32,440 4,845 (371) (340) 36,674
Issuance of Common Stock Under
Stock Options 1 0 181 0 0 0 182
Issuance of Common Stock, in Connection
with Powertel Business Combination (Note 3) 97 0 129,943 0 0 0 130,040
Issuance of Common Stock, Net of
Issuance Expenses (Note 6) 71 0 109,919 0 0 0 109,990
Issuance of Warrants (Note 5) 0 0 6,092 0 0 0 6,092
Issuance of Series A Convertible
Preferred Stock, Net of Issuance
Expenses (Note 6) 0 1 75,739 0 0 0 75,740
Issuance of Series B Convertible
Preferred Stock, Net of Issuance
Expenses (Note 6) 0 1 75,739 0 0 0 75,740
Purchase of Treasury Shares 0 0 0 0 0 (5) (5)
Amortization of Deferred
Compensation 0 0 0 0 165 0 165
Net Loss 0 0 0 (27,611) 0 0 (27,611)
---- -- -------- --------- ------- ----- ---------
BALANCE, DECEMBER 31, 1996 269 2 430,053 (22,766) (206) (345) 407,007
Issuance of Common Stock Under
Stock Options 1 0 711 0 0 0 712
Issuance of Common Stock Under
Restricted Stock Agreement (Note 7) 0 0 1,455 0 (1,455) 0 0
Issuance of Series C Convertible
Preferred Stock, Net of Issuance
Expenses (Note 6) 0 1 22,445 0 0 0 22,446
Issuance of Series D Convertible
Preferred Stock, Net of Issuance
Expenses (Note 6) 0 1 22,445 0 0 0 22,446
Amortization of Deferred
Compensation 0 0 0 0 373 0 373
Net Loss 0 0 0 (135,168) 0 0 (135,168)
---- -- -------- --------- ------- ----- ---------
BALANCE, DECEMBER 31, 1997 $270 $4 $477,109 $(157,934) $(1,288) $(345) $ 317,816
==== == ======== ========= ======= ===== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 48
POWERTEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS (USED IN) PROVIDED FROM OPERATING ACTIVITIES:
Net (Loss) Income $(135,168) $ (27,611) $ 3,004
Adjustments to Reconcile Net (Loss) Income to Net Cash
(Used in) Provided From Operating Activities --
Gain on Sale of Subsidiary, Net (41,912) 0 0
Cumulative Effect of Change in Accounting Principle 0 2,583 0
Bond Accretion 34,061 12,089 0
Amortization of Offering Costs of Notes 2,039 1,251 0
Depreciation and Amortization 49,282 10,101 5,101
Other, Net 526 (275) 127
Changes in Assets and Liabilities:
Increase in Accounts Receivable (28,596) (3,975) (1,133)
(Increase) Decrease in Inventories 3,393 (6,974) (187)
(Increase) Decrease in Other Assets 8,613 (14,077) (3,050)
Increase in Accounts Payable, Accrued Expenses
and Other Current Liabilities 50,732 11,633 1,778
--------- --------- --------
Net Cash (Used in) Provided From Operating Activities (57,030) (15,255) 5,640
--------- --------- --------
CASH FLOWS (USED IN) PROVIDED FROM INVESTING ACTIVITIES:
Capital Expenditures (291,849) (233,551) (7,661)
Proceeds From Sale of Subsidiary 77,204 0 0
(Purchase) Liquidation of Short-Term Investments, Net 42,284 (75,659) 0
(Purchase) Liquidation of Long-Term Investments (43,710) 0 0
Payment for FCC Licenses (31,251) (195,242) 0
Microwave Relocation (9,266) (15,199) 0
Increase in Accrued Construction Costs 7,878 15,214 0
Cash Acquired in Powertel Business Combination 0 15,353 0
Investment in Powertel 0 0 (16,975)
Investment in RTFC Subordinated Capital Certificates 0 0 1,841
--------- --------- --------
Net Cash Used In Investing Activities (248,710) (489,084) (22,795)
--------- --------- --------
CASH FLOWS (USED IN) PROVIDED FROM FINANCING ACTIVITIES:
Proceeds From Issuance of 11.125% Senior Notes due June 2007 290,637 0 0
Proceeds From Sale of Preferred Stock, Net of Offering Expenses 44,892 151,480 0
Borrowings Under Credit Agreement 110,447 69,514 0
Proceeds From Sale of Common Stock, Net of Offering Expenses 0 109,990 0
Proceeds From Issuance of 12% Senior Discount Notes due February 2006 0 192,150 0
Proceeds From Issuance of 12% Senior Discount Notes due May 2006 0 193,152 0
Other, net 1,193 (27,052) 17,278
--------- --------- --------
Net Cash Provided From Financing Activities 447,169 689,234 17,278
--------- --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 141,429 184,895 123
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 185,525 630 507
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 326,954 $ 185,525 $ 630
========= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid During the Year for Interest, Net of Amounts Capitalized $ 24,453 $ 2,005 $ 1,296
Cash Paid During the Year for Income Taxes 213 103 1,557
Net Book Value of Assets Sold in Unicel Disposition 35,292 0 0
Noncash Investing and Financing Activities:
Total Capitalized Interest 22,093 29,039 0
Fair Value of Assets Acquired in Powertel Business Combination 0 130,041 0
Fair Value of Common Stock Purchased 0 (5) 0
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 49
POWERTEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. ORGANIZATION AND NATURE OF BUSINESS
Powertel, Inc. (the "Company") was incorporated in Delaware in April
1991 under the name InterCel, Inc. In June 1997, the Company formally changed
its name to Powertel, Inc. The Company provides personal communication services
("PCS") in the southeastern United States under the name "Powertel" and cellular
telephone service in contiguous portions of eastern Alabama and western Georgia
under the name "Intercel." Prior to May 1, 1997, the Company provided cellular
telephone service in the State of Maine under the name "Unicel" (Note 4).
The Company's PCS licenses encompass a territory of approximately
246,000 contiguous square miles with a population of approximately 24.3 million
people (according to industry publications) in the Major Trading Areas ("MTAs")
of Atlanta, Georgia; Jacksonville, Florida; Memphis, Tennessee/Jackson,
Mississippi; and Birmingham, Alabama; and in 13 Basic Trading Areas ("BTAs") in
Kentucky and Tennessee. The Company first introduced its PCS services in October
1996 in Jacksonville, Florida and Montgomery, Alabama and, to date, has launched
its PCS services in a total of 24 markets in the Southeast. The Company intends
to continue to rapidly build out its PCS network and to launch its PCS services.
The Company's cellular telephone service area has a population of approximately
296,000 people (according to the 1990 U.S. Census) and covers approximately 100
miles of Interstate Highway 85 and 40 miles of Interstate Highway 185 in the
Alabama/Georgia market.
The Company previously had a 13.396% ownership interest in Powertel PCS
Partners, L.P. ("Powertel PCS Partners"), a partnership formed to pursue
licenses in the Federal Communication Commission's PCS auction. On February 7,
1996, pursuant to a Business Combination Agreement dated August 23, 1995, among
the Company, Powertel PCS Partners, and the owners of Powertel PCS Partners,
such owners (other than the Company) exchanged their ownership interests in
Powertel PCS Partners for an aggregate of 9,686,410 shares of the Company's
Common Stock in a private placement (Note 3).
While there are numerous wireless telephone systems operating in the
United States and other countries, the wireless telecommunications industry has
only a limited operating history. Achieving profitable PCS operations will
require successfully competing with other PCS providers in all of its markets,
as well as with both existing and future wireless providers. In addition,
successful PCS operations will require the development of products that are at
least as commercially effective as its wireless competitors. Any failure to
anticipate and respond to changes to technology and customer wants could have an
adverse effect on the PCS business.
Management expects to incur significant operating losses and to
generate significant negative cash flows in future periods while it develops and
expands its PCS system and builds a PCS customer base. Management believes it
has adequate resources to fund these losses and negative cash flows during the
initial years of the PCS system buildout and operation or that additional
sources of funds are available via public and private debt and equity placements
or additional lines of credit. If such sources are needed but not available,
management will have to alter its current buildout and operating plans.
2. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements are prepared on the accrual basis
of accounting and include the accounts of the Company and all majority-owned
subsidiaries. All significant intercompany balances have been eliminated.
F-7
<PAGE> 50
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Source of Supplies
The Company relies on local telephone companies and other companies to
provide certain communications services. Although management feels alternative
telecommunications facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
Although the Company attempts to maintain multiple vendors for each
required product, its inventory and equipment, which are important components of
its operations, are each currently acquired from less than five sources. In
addition, some of the Company's suppliers have limited resources and production
capacity. If the suppliers are unable to meet the Company's needs as it builds
out its network infrastructure and sells services and equipment, then delays and
increased costs in the expansion of the Company's network infrastructure or
losses of potential customers could result, which would affect operating results
adversely.
Presentation
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, demand deposits, and
short-term investments with original maturities of three months or less.
Restricted Cash
Restricted cash consists of certain U.S. government securities with
varying maturities which have been purchased and pledged, for the benefit of the
holders of the 11.125% Senior Notes due June 2007, to provide for the payment of
the first six scheduled interest payments on such Notes (Note 5).
Credit Risk
The Company's accounts receivable potentially subject the Company to
credit risk. The Company extends credit to its customers based upon an
evaluation of the customer's financial condition and credit history and
generally does not require collateral. The Company maintains an allowance for
doubtful accounts based upon the expected collectibility of customers' accounts
receivable. The Company also bills certain services to customers in advance and
has the ability to terminate access on delinquent accounts. Management believes
these factors, as well as the large and geographically diverse number of
customers comprising the customer base, mitigate the risk of loss and the
concentration of credit risk.
The carrying amount of the Company's receivables approximates their
fair value.
Inventories
The Company maintains inventories for resale of wireless handsets and
accessory parts (i.e., antennae, batteries, cable, etc.). Inventory is valued at
the lower of average cost (which approximates first-in, first-out) or market and
is recorded net of a reserve for obsolescence of $1.2 million and $0.1 million
at December 31, 1997 and 1996, respectively.
F-8
<PAGE> 51
Investments
Investments having maturities of more than three months, but less than
one year, are categorized as held-to-maturity. Accordingly, they are carried at
cost, without recognition of gains or losses deemed to be temporary, because the
Company has both the intent and ability to hold these investments to maturity.
At December 31, 1996, the fair value of these investments approximated cost.
Property and Depreciation
Property and equipment are recorded at cost, including certain
engineering costs. The Company records depreciation using the straight-line
method over the estimated useful lives of the assets, which are 10 to 20 years
for towers, buildings, and improvements; 3 to 10 years for equipment; and 5 to
10 years for furniture and fixtures. The Company's policy is to remove the cost
and accumulated depreciation of retirements from the accounts and recognize the
related gain or loss upon the disposition of assets. Such gains and losses were
not material for any period presented.
Assets Under Construction
Expenditures to construct the Company's cellular network and PCS system
are recorded as assets under construction until the assets are placed in
service. When the assets are placed in service, they are transferred to the
appropriate property and equipment category and depreciated.
The Company capitalizes interest incurred on borrowings related to
assets under construction. Of the cumulative aggregate capitalized interest of
$51.1 million, $11.3 was attributed to property, plant and equipment, of which
$.8 million is included in assets under construction at December 31, 1997.
Licenses
Licenses consist of costs incurred to acquire PCS licenses, including
capitalized interest of $16.1 million and $23.7 million during 1997 and 1996,
respectively, and certain microwave relocation costs. Licenses are stated at
cost less accumulated amortization and are being amortized using the
straight-line method over 40 years.
Deferred Charges and Other
Deferred Charges and Other, which consist primarily of costs related to
the offerings of the Company's senior notes and senior discount notes (Note 5),
are being amortized over the 10-year lives of the related notes.
During the years ended December 31, 1997 and 1996, the Company
amortized $2.0 million and $1.3 million, respectively, related to these deferred
offering costs.
The Company offers certain promotional programs under which a cellular
customer can receive either a free cellular telephone, a substantial discount
toward a cellular telephone, or a credit toward future monthly service in return
for signing a noncancelable cellular telephone service agreement for a term of
one to three years. Should a customer cancel service prior to expiration of the
service agreement or be disconnected for nonpayment, the customer becomes liable
to the Company for the full original credit issued under this program. It is the
Company's policy to establish a full reserve for receivables that arise as a
result of such cancellations.
The Company had deferred costs associated with these programs and
amortized such costs over the specific terms of the contracts. Effective January
1, 1996, the Company changed its method of accounting for these deferred
promotional costs to immediate expensing as incurred to better align itself with
industry practice and to correspond with its treatment of similar promotional
costs for PCS. The cumulative effect of this change in accounting principle was
to increase the net loss for the year ended December 31, 1996 by $2.6 million,
or $(0.10) per share.
F-9
<PAGE> 52
Goodwill
In conjunction with the 1994 acquisition of Unity Cellular Systems,
Inc., the Company recorded goodwill of $24.7 million due to the purchase price
exceeding the value of the net assets acquired. Goodwill was stated at cost less
accumulated amortization and amortized using the straight-line method over 40
years. The unamortized portion of goodwill was included in the assets sold in
the Unicel Disposition (Note 4).
Impairment of Long-Lived Assets
The Company periodically reviews the value assigned to long-lived
assets, including property, goodwill, deferred charges and licenses, to
determine if any impairments are other than temporary. Management believes the
long-lived assets in the accompanying balance sheets are appropriately valued.
Minority Interest
Minority Interest, which represented the 49% ownership interest in the
Northern Maine Cellular Partnership, was sold as part of the Unicel Disposition
(Note 4).
Stock-Based Compensation Plans
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Effective in 1996, the Company adopted the disclosure
option of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") (Note 7) for all options granted
subsequent to January 1, 1995. SFAS 123 defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. SFAS 123 requires that companies which do not
choose to account for stock-based compensation as prescribed by this statement
shall disclose the pro forma effects on earnings and earnings per share as if
SFAS 123 had been adopted. Additionally, certain other disclosures are required
with respect to stock compensation and the assumptions used to determine the pro
forma effects of SFAS 123.
Revenue Recognition
The Company earns revenues by providing PCS and cellular service to
both local subscribers and subscribers of other PCS and cellular carriers
traveling ("roaming") through the Company's service area, as well as from sales
of PCS and cellular equipment. Service revenue from local subscribers consists
of the base monthly service fee and airtime revenue. Generally, base monthly
service fees are billed one month in advance, but are recognized when earned.
Airtime revenues are recognized when service is provided. Roamer revenues
consist of the airtime fees charged to the subscribers of other PCS and cellular
carriers for use of the Company's PCS and cellular network while traveling in
the Company's service area. Roamer revenues are recognized when the service is
rendered.
Long-distance revenues ("toll revenues") are charged to both local and
roamer users and are recognized when service is provided. Equipment sales are
recognized upon delivery of the equipment to the customer. Installation charges
and connection fees and other revenues, which consist of optional vertical
service features and interconnection fees charged to local exchange carriers,
are recognized when earned.
3. POWERTEL BUSINESS COMBINATION AND ATLANTA PCS LICENSE ACQUISITION
On February 7, 1996, pursuant to a Business Combination Agreement dated
August 23, 1995, among the Company, Powertel PCS Partners, and the owners of
Powertel PCS Partners, such owners (other than the Company) exchanged their
ownership interests in Powertel PCS Partners for an aggregate of 9,686,410
shares of the Company's Common Stock in a private placement. The combination was
recorded under the purchase method of accounting; accordingly, the results of
operations for the period from February 7, 1996 are included in the
F-10
<PAGE> 53
accompanying consolidated financial statements. The purchase price of $130.0
million was allocated to assets acquired and liabilities assumed based on fair
market value at the date of acquisition, as determined by an independent
appraisal, and is summarized as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
Licenses $113.4
Cash 15.4
Other, net 1.2
------
Total $130.0
======
</TABLE>
On June 28, 1996, pursuant to an asset purchase agreement, dated as of
March 5, 1996, between InterCel Atlanta Licenses, Inc. (since renamed Powertel
Atlanta Licenses, Inc.), a wholly-owned subsidiary of the Company, and GTE
Mobilnet Incorporated, the Company purchased GTE Mobilnet Incorporated's license
to provide PCS in the Atlanta MTA for approximately $195.2 million.
The following unaudited pro forma condensed statements of operations
(in millions, except per share data) assume the combination and acquisition of
the Atlanta MTA license occurred at the beginning of each period presented. In
the opinion of management, all adjustments necessary to present fairly such
unaudited pro forma condensed statements of operations have been made.
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Revenues $ 39.1 $ 29.3
Net (Loss) Income (27.8) 2.1
Net (Loss) Income per Share $(1.04) $ 0.06
</TABLE>
4. ASSET DISPOSITION
On May 1, 1997, pursuant to an Asset Purchase Agreement, dated as of
December 23, 1996, Unity Cellular Systems, Inc. (the "Seller") and InterCel
Licenses, Inc. (the "Licensee"), each a wholly owned subsidiary of the Company,
sold and assigned (the "Unicel Disposition") to MRCC, Inc., a wholly owned
subsidiary of Rural Cellular Corporation ("Rural Cellular"), (i) substantially
all the assets and rights of the Seller, including Seller's 51% general
partnership interest in the Northern Maine Cellular Partnership; and (ii) the
FCC licenses held by Licensee to provide cellular and microwave service in the
Bangor, Maine MSA and Maine RSA3 and to provide microwave service in Maine RSA2.
On the closing date, MRCC, Inc. paid the Seller $71.8 million in cash and paid
$5.4 million into escrow. This transaction resulted in a $41.9 million gain to
the Company. On November 3, 1997, the $5.4 million was released from escrow to
the Company. The following unaudited pro forma condensed consolidated statements
of operations (in millions, except per share data) assume the sale occurred at
the beginning of each period presented. In the opinion of management, all
adjustments necessary to present fairly such unaudited pro forma condensed
statements of operations have been made.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1997 1996 1995
--------------- --------------- --------------
<S> <C> <C> <C>
Revenues and Sales $ 74.0 $ 23.0 $ 15.3
Net (Loss) Income (Excluding Gain on Sale) (177.6) (27.4) 2.1
Basic Net (Loss) Income per Share $ (6.63) $ 1.09) $ 0.22
Diluted Net (Loss) Income per Share (6.63) (1.06) 0.21
</TABLE>
5. LONG-TERM OBLIGATIONS
On June 10, 1997, the Company issued $300 million principal amount of
11.125% Senior Notes due June 2007 in a private offering. In September 1997, the
Company exchanged substantially all of the private notes for 11.125% Senior
Notes due June 2007 which were identical in terms to the Private Notes except
that the new notes
F-11
<PAGE> 54
were registered under the Securities Act of 1933, as amended (the private notes
and the registered notes are collectively referred to as the "June Notes"). The
net proceeds were used to partially finance the development, construction and
operating costs associated with the Company's PCS system and the completion of
the digital upgrade of the Company's cellular system. The June Notes may be
redeemed at any time on or after June 1, 2002, at the option of the Company, at
105.5626% of their principal amount, plus accrued interest, declining to 100% of
their principal amount, plus accrued interest, on and after June 1, 2004. In
addition, at any time prior to June 1, 2000, up to 35% of the aggregate
principal amount of the June Notes may be redeemed from the proceeds of one or
more public equity offerings at 111.125% of their principal amount, provided
that after any such redemption at least $195.0 million aggregate principal
amount of the June Notes remains outstanding.
Interest on the June Notes is payable semiannually in cash on June 1
and December 1 of each year, commencing December 1, 1997.
The Company used $89.6 million of the proceeds from the June Notes to
purchase and pledge, for the benefit of the holders of the June Notes, certain
U.S. government securities to provide for the payment of the first six scheduled
interest payments on the June Notes. The remaining unpaid portion of such
amounts are classified as "Restricted Cash for Payment of Interest" in the
accompanying balance sheets (Note 2).
On April 16, 1996, the Company issued $360 million aggregate principal
amount at maturity of the Company's 12% Senior Discount Notes due 2006 (the
"April Notes") for approximately $200 million gross proceeds in a public
offering. The net proceeds were used to partially finance the development,
construction and operating costs associated with the Company's PCS system. The
April Notes may be redeemed at any time on or after May 1, 2001, at the option
of the Company, at 106% of their principal amount at maturity, plus accrued
interest, declining to 100% of their principal amount at maturity, plus accrued
interest, on and after May 1, 2003. In addition, at any time prior to May 1,
1999, up to 25% of the aggregate principal amount at maturity of the April Notes
may be redeemed from the proceeds of one or more public equity offerings at 112%
of their accreted value on the redemption date, provided that after any such
redemption at least $270 million aggregate principal amount at maturity of the
April Notes remain outstanding.
The April Notes will fully accrete to face value on May 1, 2001, at
which time they will bear interest, payable in cash, at a rate of 12% per annum
on each May 1 and November 1, commencing November 1, 2001.
On February 1, 1996, the Company issued 35,747 units consisting of $357
million principal amount at maturity of the Company's 12% Senior Discount Notes
due 2006 (the "February Notes") and 1,143,904 warrants to purchase an equal
number of shares of the Company's common stock at an exercise price of $18.15
per share (Note 6), subject to adjustment (the "Unit Offering"), for
approximately $200 million gross proceeds. The net proceeds were used to repay
all outstanding borrowings under previous lending arrangements, as well as to
partially finance the buildout and operating costs of the PCS system for the
Birmingham, Jacksonville and Memphis MTAs. The February Notes may be redeemed at
any time on or after February 1, 2001, at the option of the Company, at 106% of
their principal amount at maturity, plus accrued interest, declining to 100% of
their principal amount at maturity, plus accrued interest on and after February
1, 2003. In addition, at any time prior to February 1, 1999, up to 25% of the
aggregate principal amount at maturity of the February Notes may be redeemed
from the proceeds of one or more public equity offerings at 112% of their
accreted value on the redemption date, provided that after any such redemption
at least $268.1 million aggregate principal amount at maturity of the February
Notes remain outstanding.
The February Notes will fully accrete to face value on February 1,
2001, at which time they will bear interest, payable in cash, at a rate of 12%
per annum on each February 1 and August 1, commencing August 1, 2001.
Unamortized original issue discount on the February Notes and April
Notes is being amortized using effective interest rates of 12.35% and 12%,
respectively. During 1997 and 1996, total accretion of the original issue
discount was $54.5 million and $39.6 million, respectively, of which $20.4
million and $27.5 million, respectively,
F-12
<PAGE> 55
was capitalized and $34.1 million and $12.1 million, respectively, is included
in interest (income) expense in the accompanying consolidated statements of
operations.
On March 4, 1996, the Company entered into a $125 million credit
agreement (the " Credit Agreement") with Ericsson Inc. regarding the purchase of
and vendor financing for PCS equipment and services. On October 31, 1996, March
31, 1997, June 26, 1997 and November 18, 1997, Powertel and Ericsson entered
into amendments to the Credit Agreement, which increased the equipment financing
commitment to $165 million and amended certain other provisions of the Credit
Agreement. During the fourth quarter of 1997, the $165 million commitment under
the Credit Agreement was syndicated to a group of lenders. On December 23, 1997,
Powertel and Ericsson amended the Credit Agreement to increase the financing
commitment to $265 million. On February 6, 1998, Powertel and Ericsson entered
into an amended and restated Credit Agreement to incorporate the terms and
conditions of the original agreement and the subsequent amendments.
Under the terms of the Credit Agreement, advances are made as requested
by the Company to finance purchases from Ericsson pursuant to the terms of the
related Equipment Purchase Agreement (Note 10). The aggregate amount of the
advances made in each calendar year will be repaid in twenty equal quarterly
installments, commencing on the last day of the first calendar quarter to occur
three years after the end of the calendar year in which the advances were made
and continuing for a period of five years thereafter, with the last installment
in an amount necessary to repay in full the remaining unpaid principal amount of
all the cumulative advances.
The interest rate under the Credit Agreement is based on the applicable
Eurodollar Rate plus 3% (8.9375% at December 31, 1997) but can be converted to a
fluctuating interest rate per annum based on the higher of Citibank N.A.'s base
rate or .5% above the Federal Funds Rate, plus 1%, at the discretion of the
lender. Interest on the unpaid principal amount of each advance is payable in
arrears on the last day of each calendar quarter.
The Credit Agreement is secured by all the equipment purchased with the
proceeds therefrom, subject to the terms of the Equipment Purchase Agreement, as
well as a pledge of the stock of the Company's subsidiaries that hold the PCS
licenses.
The Company previously maintained revolving lending arrangements with
its former parent, ITC Holding Company, Inc. ("ITC"), and with the National Bank
for Cooperatives. All borrowings under these lending arrangements were repaid in
connection with the Powertel business combination (Note 3) with proceeds from
the 1996 common stock offering and unit offering.
Scheduled maturities of long-term obligations are as follows (in
millions):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 0.3
1999 0.3
2000 13.2
2001 33.1
2002 36.0
Thereafter 86.4
-------
Total $ 969.3
=======
</TABLE>
The indentures relating to the June Notes, February Notes and April
Notes (the "Indentures") and Credit Agreement contain certain restrictive
covenants, and any additional financing agreements may contain additional
restrictive covenants. The restrictions contained in the Indentures and the
Credit Agreement will affect, and in some cases will significantly limit or
prohibit, among other things, the ability of the Company to incur indebtedness,
make prepayments of certain indebtedness, pay dividends, make investments,
engage in transactions with stockholders and affiliates, issue capital stock,
create liens, sell assets and engage in mergers and consolidations. If the
Company fails to comply with the restrictive covenants in the Indentures, the
Company's obligation to repay the Notes may be accelerated. However, the
limitations set forth in the Indentures are subject to a number of important
qualifications and exceptions. In particular, while the Indentures restrict the
Company's ability to incur additional indebtedness by requiring compliance with
specified leverage ratios, they permit the Company and its subsidiaries to incur
an
F-13
<PAGE> 56
unlimited amount of additional indebtedness to finance the acquisition of
inventory or equipment and up to $25 million of additional indebtedness under
one or more revolving credit or working capital facilities and in each case to
secure such indebtedness. In addition to the restrictive covenants described
above, the Credit Agreement requires the Company to maintain certain financial
ratios. The failure of the Company and its subsidiaries to maintain such ratios
would constitute events of default under the Credit Agreement, notwithstanding
the ability of the Company to meet its debt service obligations. An event of
default under the Credit Agreement would allow the lenders thereunder to
accelerate the maturity of such indebtedness. In such event, a significant
portion of the Company's other indebtedness (including the June Notes, April
Notes and February Notes) may become immediately due and payable.
6. STOCKHOLDERS' EQUITY
On June 5, 1997, pursuant to a Stock Purchase Agreement, dated as of
May 23, 1997, between the Company and The Huff Alternative Income Fund, L.P.
("Huff"), the Company issued to Huff 50,000 shares of nonvoting Series C
Convertible Preferred Stock for an aggregate purchase price of $22.5 million.
Also, on June 5, 1997, pursuant to a Stock Purchase Agreement, dated as of May
23, 1997, between the Company and SCANA Communications, Inc. ("SCANA"), the
Company issued to SCANA 50,000 shares of nonvoting Series D Convertible
Preferred Stock for an aggregate purchase price of $22.5 million. Both series
are convertible, at the option of the holder, at a rate of 35.29 shares of the
Company's Common Stock per share of Preferred Stock. The Series C Convertible
Preferred Stock is convertible any time subsequent to December 5, 1998 and the
Series D Convertible Preferred Stock is convertible any time subsequent to March
14, 2002. Both series are redeemable, at the option of the Company, in whole or
in part, on a pro rata basis, at a redemption price of $450 per share plus
declared and unpaid dividends, anytime subsequent to June 5, 2002. Both series
have a liquidation preference of $450 per share plus unpaid dividends in the
event of a liquidation, dissolution or winding up of the Company.
In February 1996, the Company issued 7,124,322 shares of common stock
in a public offering at $16.50 per share. The net proceeds of the offering after
underwriting discount and offering expenses were approximately $110 million. The
Company used the proceeds of the offering to partially finance the buildout and
operating costs of the PCS system and to retire certain indebtedness.
In February 1996, in connection with the Unit Offering (Note 5), the
Company issued 1,143,904 warrants to purchase an equal number of shares of the
Company's common stock at an exercise price of $18.15 per share. The warrants
may be exercised at any time on or after August 1, 1996 and prior to February 1,
2006, after which any unexercised warrants will expire. Through December 31,
1997 no warrants had been exercised.
In February 1996, the Company issued 9,686,410 shares of common stock
at $13.42 per share in connection with the Powertel business combination (Note
3).
On June 28, 1996, pursuant to a Stock Purchase Agreement dated as of
March 4, 1996, between the Company and Ericsson Inc., the Company issued to
Ericsson 100,000 shares of nonvoting Series A Convertible Preferred Stock for an
aggregate purchase price of $75 million. Also, on June 28, 1996, pursuant to a
Stock Purchase Agreement dated as of March 4, 1996, between the Company and
SCANA, the Company issued to SCANA 100,000 shares of nonvoting Series B
Convertible Preferred Stock for an aggregate purchase price of $75 million. Both
series are convertible, at the option of the holder, at a rate of 45.45 shares
of the Company's Common Stock per share of Preferred Stock. The Series A
Convertible Preferred Stock is convertible any time subsequent to June 28, 1998,
and the Series B Convertible Preferred Stock is convertible any time subsequent
to March 14, 2002. Both series are redeemable, at the option of the Company, in
whole or in part, on a pro rata basis, at a redemption price of $750 per share
plus declared and unpaid dividends, anytime subsequent to June 28, 2001. Both
series have a liquidation preference of $750 per share plus unpaid dividends in
the event of a liquidation, dissolution or winding up of the Company.
The Company's certificate of incorporation empowers the Board of
Directors of the Company to redeem any of the Company's outstanding capital
stock at the lesser of fair market value or such holder's purchase price (if
F-14
<PAGE> 57
the stock was purchased within a year of such redemption) to the extent
necessary to prevent the loss or secure the reinstatement of any license or
franchise from any governmental agency.
The Company's certificate of incorporation authorizes the Board of
Directors to issue, from time to time and without further stockholder action,
one or more series of preferred stock and to fix the relative rights and
preferences of the shares, including voting powers, dividend rights, liquidation
preferences, redemption rights, and conversion privileges. The Company had 1
million shares of preferred stock authorized as of December 31, 1997, of which
300,000 shares were issued and outstanding.
7. STOCK OPTION PLANS
Under the Powertel, Inc. 1991 Stock Option Plan, as amended (the "Stock
Plan"), three million shares of Common Stock are reserved for issuance upon
exercise of options. Substantially all of the employees of the Company are
eligible to receive options under the Stock Plan. Management recommends to the
Compensation/Stock Option Committee the number of options to grant based on
management's analysis of the employee's performance and level of responsibility.
The Board of Directors also may include in each option granted under the Stock
Plan certain additional limitations on the recipient's right to exercise the
option. Options under the Stock Plan may be either "incentive stock options," as
defined under Section 422 of the Internal Revenue Code, or nonqualified options.
As of December 31, 1997, approximately 2.6 million options had been granted
under this plan.
Under the Company's Nonemployee Stock Option Plan (the "Nonemployee
Plan"), 400,000 shares of Common Stock are reserved for issuance upon exercise
of options. All nonemployee directors of the Company, and all employees of
affiliates of the Company, are eligible to receive options under the Nonemployee
Plan. Options to purchase 10,000 shares of common stock are granted to each
nonemployee director upon his or her election or appointment to the Board of
Directors. The Nonemployee Plan does not provide for discretionary option
grants. As of December 31, 1997, 248,200 options had been granted under this
plan.
Options granted under the Stock Plan and Nonemployee Plan generally
become exercisable as to 50% two years after the date of grant, 25% three years
after the date of grant, and 25% four years after the date of grant, but no
option may be exercised more than ten years after the date of grant. Options
generally are exercisable at a price established by the Compensation/Stock
Option Committee equal to at least 100% of the fair market value of the Common
Stock on the options' grant date, except that the exercise price with respect to
options granted to an individual who owns more than 10% of the combined voting
power of all classes of stock of the Company must be at least 110% of the fair
market value of the common stock on the date of grant. The full exercise price
for shares being purchased must be paid at the time of exercise in cash or, if
permitted by the particular option agreement, in whole or in part by delivery of
shares of Common Stock having a fair market value (on the delivery date) of not
less than the exercise price.
Statement of Financial Accounting Standards No. 123
The Company accounts for its stock-based compensation related to the
Stock Plan and the Nonemployee Plan under APB 25; accordingly, no compensation
expense has been recognized, as all options have been granted with an exercise
price equal to the fair value of the Company's stock on the date of grant. For
SFAS 123 pro forma purposes, the fair value of each option grant has been
estimated as of the date of grant using the Black-Scholes option pricing model
with the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Risk-free interest rate 5.92% 6.29% 5.53%
Expected dividend yield 0 0 0
Expected lives 8.2Yrs. 8.2Yrs. 7.3Yrs.
Expected volatility 55% 51% 52%
</TABLE>
F-15
<PAGE> 58
Using these assumptions, the fair value of the stock options granted in
1997, 1996 and 1995 is $10.3 million, $5.5 million and $4.7 million,
respectively, which would be amortized as compensation expense over the vesting
period of the options. Had compensation cost been determined consistent with the
provisions of SFAS 123, the Company's net loss and pro forma diluted net loss
per share for 1997 and 1996 and net income and pro forma diluted net income per
share for 1995 would have been as follows (in millions except per share
amounts):
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
Net (loss) income:
As Reported $(135.2) $ (25.0) $ 3.0
Pro Forma (139.6) (27.0) 2.4
Net (loss) income per share:
As Reported $ (5.04) $ (1.00) $ 0.29
Pro Forma (5.21) (1.08) 0.23
</TABLE>
Because SFAS 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that expected in future years.
A summary of the combined status of the Company's Stock and Nonemployee
Plans at December 31, 1995, 1996, and 1997 is presented in the following table:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Price per Share
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994 639,365 $ 6.50
Granted 440,200 14.04
Forfeited (45,124) 12.90
Exercised (39,671) 4.67
---------
Outstanding at December 31, 1995 994,770 9.89
Granted 788,398 18.63
Forfeited (49,707) 16.91
Exercised (41,308) 6.29
---------
Outstanding at December 31, 1996 1,692,153 13.78
Granted 921,344 13.27
Forfeited (175,926) 17.15
Exercised (67,293) 14.17
---------
Outstanding at December 31, 1997 2,370,278 13.39
=========
</TABLE>
The following table summarizes, as of December 31, 1997, for the number
of options outstanding, the exercise price range, weighted average exercise
price, and remaining contractual lives by year of grant:
<TABLE>
<CAPTION>
Weighted Average
Year of Number Exercise Weighted Remaining
Grant of Shares Price Range Average Price Contractual Life
- ------- --------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
1997 858,583 $10.00 - $21.40 $ 13.32 9.3 Years
1996 646,597 12.38 - 24.50 18.48 8.4 Years
1995 357,635 11.50 - 17.63 14.31 7.5 Years
Pre-1995 507,463 3.33 - 11.75 6.38 5.4 Years
</TABLE>
Total stock options exercisable at December 31, 1997 were 667,043 at a
weighted average exercise price of $8.42.
F-16
<PAGE> 59
Under the Company's 1995 Employee Restricted Stock Plan (the
"Restricted Stock Plan"), 200,000 shares of Common Stock are reserved for
issuance, of which 121,207 shares were issued and outstanding as of December 31,
1997. These restricted stock awards vest in three equal installments on the
first, second and third anniversaries of the date of grant. The compensation
associated with the restricted grants (i.e., the difference between the market
price of the Company's Common Stock on the date of grant and the exercise price)
is being amortized ratably over the three-year vesting period. Such compensation
expense totaled $372,728, $164,792 and $123,594 for the years ended December 31,
1997, 1996 and 1995, respectively. Any unamortized deferred compensation is
reflected as a reduction to stockholders' equity in the accompanying balance
sheets. The Restricted Stock Plan is administered by the Compensation/Stock
Option Committee of the Board of Directors.
8. INCOME TAXES
Prior to 1994, the Company was included in the consolidated income tax
return of ITC Holding Company, Inc. However, for 1994 and subsequent years, the
Company has filed a separate Federal income tax return, and utilization of all
credits and net operating loss and other tax carryforwards is evaluated on a
stand-alone basis.
The income tax (benefit) provision reflected in the accompanying
financial statements consists of the following (in millions):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Current:
Federal $ 0.0 $ 0.0 $ 1.4
State 0.0 0.0 0.2
------ ----- -----
0.0 0.0 1.6
Deferred:
Federal (0.0) (1.4) 0.5
State (0.0) (0.3) 0.1
------ ----- -----
(0.0) (1.7) 0.6
------ ----- -----
Total income tax (benefit) provision $ (0.0) $(1.7) $ 2.2
====== ===== =====
</TABLE>
The reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax (benefit) provision (35)% (34)% 34%
Increase (decrease) in tax (benefit)
provision resulting from -----
Goodwill amortization 0 1 4
Excess Original Issue Discount 0 1 0
State taxes, net of Federal benefit (7) (10) 5
Valuation Allowance 42 36 0
---- ---- ----
Actual income tax (benefit) provision (0)% 6% 43%
==== ==== ====
</TABLE>
F-17
<PAGE> 60
The significant components that gave rise to the net deferred tax asset
are as follows (in millions):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Deferred Assets:
Net Operating Loss Carryforwards $ 49.0 $ 7.1 $ 3.1
Start Up Costs Capitalized 15.9 9.9 0.0
Bond Accretion Capitalized 20.2 4.9 0.0
Other 1.5 0.4 0.6
------- ------ ------
86.6 22.3 3.7
Deferred Liabilities: ------- ------ ------
Depreciation (11.3) (3.6) (1.6)
Other (0.5) (0.1) (0.4)
------- ------ ------
(11.8) (3.7) (2.0)
------- ------ ------
Net Deferred Tax Asset Before Valuation Allowance 74.8 18.6 1.7
Valuation Allowance (73.5) (16.4) 0.0
------- ------ ------
Net Deferred Tax Asset 1.3 2.2 1.7
Less: Current Portion 1.3 0.0 0.3
------- ------ ------
Deferred Tax Asset - Non-Current Portion $ 0.0 $ 2.2 $ 1.4
======= ====== ======
</TABLE>
At December 31, 1997, the Company had available net operating loss
carryforwards for regular tax purposes of approximately $105.3 million, which
will expire in 2005 through 2012, and alternative minimum tax credit
carryforwards of $0.2 million, which have no expiration. The net operating loss
carryforwards will be used first to reduce the remaining income taxes paid in
1994 and 1995 ($1.3 million) and then to offset taxable income generated in
future years. The utilization of a portion of these carryforwards is subject to
limitations under the Internal Revenue Code.
Since management is currently unable to determine whether it is more
likely than not that some portion of the net deferred tax asset will be
realized, a valuation allowance of $73.5 million has been provided in the
accompanying consolidated financial statements. The valuation allowance
increased approximately $57.1 million and $16.4 million in 1997 and 1996,
respectively.
9. EARNINGS PER SHARE
Effective with the quarter ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), which requires the restatement of all prior period earnings per common
share ("EPS") amounts. The components of EPS and their derivation as required
under SFAS 128 are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Basic Earnings Per Share:
Net (Loss) Income Available to Common Shareholders $ (135,168) $ (27,611) $ 3,004
Average Common Shares Outstanding 26,834 25,087 9,904
Basic Earnings Per Share $ (5.04) $ (1.10) $ 0.30
Diluted Earnings Per Share:
Net (Loss) Income Available to Common Shareholders $ (135,168) (27,611) $ 3,004
Average Common Shares Outstanding 26,834 25,087 9,904
Dilutive Effect of Stock Options - - 377
Average Common Shares Outstanding Assuming Conversion 26,834 25,087 10,281
Diluted Earnings Per Share $ (5.04) $ (1.10) $ 0.29
</TABLE>
F-18
<PAGE> 61
Basic EPS was computed by dividing net income by the weighted average
number of shares of Common Stock outstanding during the year. Diluted EPS for
1997 and 1996 are the same as basic EPS due to the fact that all Common Stock
equivalents would have an antidilutive effect. Diluted EPS for 1995 includes the
dilutive effect of stock options as calculated under the treasury stock method.
As a result of the Company's adoption of SFAS 128, reported EPS for 1995 was
restated. The effect of this accounting change on previously reported EPS data
was a $0.01 increase in basic EPS and no effect on diluted EPS.
10. COMMITMENTS AND CONTINGENCIES
Leases
Lease expenses relate to the lease of office and warehouse space, land
for cell sites, cell sites, dedicated lines and trunk access facilities,
computer equipment, and billboards and include leases with affiliates (Note 11).
Rents charged to expense were approximately $10.5 million, $3.2 million and $0.5
million for the years ended December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997, future minimum lease payments under noncancelable
operating leases with initial remaining terms of more than one year are as
follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 13.1
1999 13.1
2000 12.9
2001 10.9
2002 6.8
Subsequent years 7.1
------
$ 63.9
======
</TABLE>
Equipment Purchase Commitments
On March 4, 1996, the Company entered into a five-year equipment
purchase agreement and related vendor financing agreement (Note 5) with Ericsson
Inc. for the purchase of certain equipment and services required for the initial
buildout and operation of the Company's PCS system. Under the terms of the
agreement and a subsequent amendment relating to the purchase of equipment for
the Company's BTA markets in Kentucky and Tennessee, the Company is required to
purchase its first $75 million worth of PCS equipment and services for the
Atlanta MTA and certain equipment for the Company's BTA markets in Kentucky and
Tennessee from Ericsson and utilize Ericsson as the exclusive provider of
certain PCS equipment until December 31, 2001 for all of its markets. The
Company's grant of exclusivity is conditioned upon Ericsson's ability to provide
sufficient quantities of PCS equipment to meet the Company's needs in the PCS
markets, provide commercial service for each PCS market by pre-defined dates,
and continue to provide "state of the art" equipment. The Company's cumulative
total purchases under the agreement were approximately $180 million at December
31, 1997.
During 1996, the Company entered into equipment purchase agreements
with several suppliers for the purchase of PCS handsets. Under the initial terms
of the agreements, the Company was committed to purchase a minimum number of
handsets from each supplier. As of December 31, 1997, the Company had no
enforceable purchase commitments under these agreements.
Litigation
The Company is subject to litigation related to matters arising in the
normal course of business. As of December 31, 1997, management is not aware of
any asserted or pending material litigation or claims against the Company. See
"Item 3. Legal Proceedings" on page 19 of the Company's annual report on Form
10-K.
F-19
<PAGE> 62
11. TRANSACTIONS WITH AFFILIATES
The Company leases certain dedicated and trunk telephone access lines,
as well as certain local and long-distance services, through its former parent,
ITC, and certain of ITC's other subsidiaries and related parties. ITC and its
subsidiaries also provide various staff and administrative support services for
the Company. The total expense recorded by the Company for these services was
approximately $5.8 million, $2.5 million and $0.6 million for 1997, 1996 and
1995, respectively.
The Company purchases certain equipment, inventory and services related
to the buildout and operation of its PCS line of business from preferred
stockholders and certain of their subsidiaries. The Company's total purchases
for equipment, inventory and services were $106.8 million and $74.5 million in
1997 and 1996, respectively.
12. BUSINESS SEGMENT DATA
The Company's operations for 1997 are classified into two business
segments: cellular and PCS. Prior to 1996, the Company's operations consisted
entirely of cellular operations. Certain corporate administrative expenses have
been allocated to the segments based upon the nature of the expense. Summarized
financial information by business segment for 1997 and 1996 is as follows (in
millions):
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ---------------------------------------
Cellular PCS Total Cellular PCS Total
-------- --------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues $23.0 $ 55.9 $ 78.9 $34.7 $ 4.4 $ 39.1
Operating Income (Loss) 5.9 (141.0) (135.1) 10.4 (39.0) (28.6)
Net Income (Loss) 6.1 (141.3) (135.2) 8.2 (35.8) (27.6)
Identifiable Assets 28.7 1,349.9 1,378.6 53.7 893.4 947.1
</TABLE>
F-20
<PAGE> 63
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1997 Quarters:
Revenues and Sales $ 19.1 $ 16.6 $ 18.5 $ 24.7
Operating Loss (24.6) (23.3) (32.7) (54.5)
Net (Loss) Income (29.6) 12.1 (45.9) (71.8)
Basic Earnings Per Common Share $ (1.10) $ 0.45 $ (1.71) $ (2.67)
Diluted Earnings Per Common Share (1.10) 0.42 (1.71) (2.67)
1996 Quarters:
Revenues and Sales $ 7.8 $ 8.5 $ 9.1 $ 13.7
Operating Income (Loss) 0.6 (1.2) (4.3) (23.7)
Net Income (Loss) Before Cumulative Effect of 0.5 (1.4) 0.1 (24.2)
Change in Accounting Principle
Cumulative Effect of Change in Accounting (2.6) 0.0 0.0 0.0
Principle
Net Loss (2.1) (1.4) 0.1 (24.2)
Basic Earnings Per Common Share Before $ 0.03 $ (0.05) $ 0.00 $ (0.90)
Cumulative Effect of Change in Accounting
Principle
Basic Cumulative Effect of Change in Accounting (0.13) - - -
Principle
Basic Earnings Per Common Share (0.10) (0.05) 0.00 (0.90)
Diluted Earnings Per Common Share (0.10) (0.05) 0.00 (0.90)
1995 Quarters:
Revenues and Sales $ 6.3 $ 7.1 $ 8.0 $ 8.0
Operating Income 1.1 1.7 2.0 1.7
Net Income 0.7 0.9 0.8 0.6
Basic Earnings Per Common Share $ 0.07 $ 0.09 $ 0.08 $ 0.06
Diluted Earnings Per Common Share 0.07 0.09 0.08 0.06
</TABLE>
F-21
<PAGE> 64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE
We have audited in accordance with generally accepted auditing standards, the
financial statements of POWERTEL, INC. included in this Form 10-K and have
issued our report thereon dated February 6, 1998. Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in the index is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 6, 1998
S-1
<PAGE> 65
POWERTEL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------ ------------ ----------- ------------ ------------
BALANCE AT ADDITIONS WRITEOFFS, BALANCE AT
BEGINNING CHARGED NET OF END OF
CLASSIFICATION OF PERIOD TO INCOME RECOVERIES PERIOD
- ------------------------------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997
Allowance for Doubtful Accounts $ 217,000 $ 7,610,741 $ (6,059,547) $ 1,768,194
Allowance for Obsolete Inventory 53,470 1,197,121 (71,892) 1,178,699
------------ ----------- ------------ ------------
$ 270,470 $ 8,807,862 $ (6,131,439) $ 2,946,893
============ =========== ============ ============
FOR THE YEAR ENDED DECEMBER 31, 1996
Allowance for Doubtful Accounts $ 249,454 $ 997,372 $ (1,029,826) $ 217,000
Allowance for Obsolete Inventory 127,694 252,662 (326,886) 53,470
------------ ----------- ------------ ------------
$ 377,148 $ 1,250,034 $ (1,356,712) $ 270,470
============ =========== ============ ============
FOR THE YEAR ENDED DECEMBER 31, 1995
Allowance for Doubtful Accounts $ 271,003 $ 768,671 $ (790,220) $ 249,454
Allowance for Obsolete Inventory 139,142 120,019 (131,467) 127,694
------------ ----------- ------------ ------------
$ 410,145 $ 888,690 $ (921,687) $ 377,148
============ =========== ============ ============
</TABLE>
S-2
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------- -------------------
<S> <C>
2(a) * Asset Purchase Agreement dated December 23, 1996, by and
among Rural Cellular Corporation, Unity Cellular Systems,
Inc., InterCel Licenses, Inc. and InterCel, Inc. (Filed as
Exhibit 99.1 to the Company's Form 8-K dated December 23, 1996
and incorporated herein by reference.)
2(b) * Closing Memorandum dated May 1, 1997 by and between Rural
Cellular Corporation, MRCC, Inc., Unity Cellular Systems,
Inc., InterCel Licenses, Inc. and InterCel, Inc. (Filed as
Exhibit 2.2 to the Company's Form 8-K dated May 12, 1997 and
incorporated herein by reference.) **
3(a) * Third Restated Certificate of Incorporation of InterCel,
Inc. dated June 6, 1996. (Filed as Exhibit 10(yy) to the
Company's Form 10-Q filed for the quarter ended September 30,
1996 (the "1996 Third Quarter 10-Q"), and incorporated herein
by reference.)
3(b) * Certificate of Amendment of Restated Certificate of
Incorporation of InterCel, Inc. dated June 23, 1997. (Filed as
Exhibit 10(b) to the Company's Form 8-K filed July 1, 1997,
and incorporated herein by reference.)
3(c) * Restated By-Laws of InterCel, Inc. (Filed as Exhibit 3(b) to
Registration Statement on Form S-1, File No. 33-72734 (the
"1993 Form S-1"), and incorporated herein by reference.)
4(a) * Indenture dated as of February 7, 1996 between InterCel,
Inc. and Bankers Trust Company, as Trustee, relating to the
12% Senior Discount Notes Due 2006 of InterCel, Inc. (Filed as
Exhibit 4(a) to Registration Statement on Form S-1, File No.
33-96218 ("February 1996 Form S-1"), and incorporated herein
by reference.)
4(b) * Warrant Agreement dated as of February 7, 1996 between
InterCel, Inc. and Bankers Trust Company, as Warrant Agent.
(Filed as Exhibit 4(b) to the February 1996 Form S-1, and
incorporated herein by reference.)
4(c) * Form of Indenture (including form of Note) between InterCel,
Inc. and Bankers Trust Company, as Trustee, relating to the
12% Senior Discount Notes Due 2006 of InterCel, Inc. (Filed as
Exhibit 4(c) to Registration Statement on Form S-1, File No.
333-2748 (the "April 1996 Form S-1"), and incorporated herein
by reference.)
4(d) * Indenture (including form of Note) dated June 10,
1997 between InterCel, Inc. and Bankers Trust
Company, as Trustee, relating to the 11-1/8% Senior
Notes Due 2007 of InterCel, Inc. (Filed as Exhibit
4(h) to Registration Statement on Form S-4, File No.
333-31399 (the "1997 Form S-4"), and incorporated
herein by reference.)
4(e) * Collateral Pledge and Security Agreement dated June 10, 1997
between InterCel, Inc. and Bankers Trust Company, as Trustee.
(Filed as Exhibit 4(j) to the 1997 Form S-4, and incorporated
herein by reference.) **
4(f) * Certificate of Designations, Powers, Preferences and
Relative, Participating or Other Rights, and the
Qualifications, Limitations or Restrictions Thereof, of Series A
</TABLE>
<PAGE> 67
<TABLE>
<S> <C>
Convertible Preferred Stock of InterCel, Inc. (Filed as
Exhibit 10(tt) to the 1996 Third Quarter 10-Q, and
incorporated herein by reference.)
4(g) * Certificate of Designations, Powers, Preferences and
Relative, Participating or Other Rights, and the
Qualifications, Limitations or Restrictions Thereof, of Series
B Convertible Preferred Stock of InterCel, Inc. (Filed as
Exhibit 10(uu) to the 1996 Third Quarter 10-Q, and
incorporated herein by reference.)
4(h) * Certificate of Amendment to the Certificate of Designations,
Powers, Preferences and Relative, Participating or Other
Rights, and the Qualifications, Limitations or Restrictions
Thereof, of Series B Convertible Preferred Stock of InterCel,
Inc. (Filed as Exhibit 4(k) to the 1997 Form S-4, and
incorporated herein by reference.)
4(i) * Certificate of Designations, Powers, Preferences and Relative,
Participating or Other Rights, and the Qualifications,
Limitations or Restrictions Thereof, of Series C Convertible
Preferred Stock of InterCel, Inc. (Filed as Exhibit 4(f) to
the Company's Form 10-K filed for the year ended December 31,
1996 (the "1996 Form 10-K"), and incorporated herein by
reference.)
4(j) * Amended Certificate of Designations, Powers, Preferences and
Relative, Participating or Other Rights, and the
Qualifications, Limitations or Restrictions Thereof, of Series
C Convertible Preferred Stock of InterCel, Inc. (Filed as
Exhibit 4(l) to the 1997 Form S-4, and incorporated herein by
reference.)
4(k) * Certificate of Designations, Powers, Preferences and
Relative, Participating or Other Rights, and the
Qualifications, Limitations or Restrictions Thereof, of Series
D Convertible Preferred Stock of InterCel, Inc. (Filed as
Exhibit 4(g) to the 1996 Form 10-K, and incorporated herein by
reference.)
4(l) * Amended Certificate of Designations, Powers, Preferences and
Relative, Participating or Other Rights, and the
Qualifications, Limitations or Restrictions Thereof, of Series
D Convertible Preferred Stock of InterCel, Inc. (Filed as
Exhibit 4(m) to the 1997 Form S-4, and incorporated herein by
reference.)
10(a) * Software License Agreement between InterCel, Inc. and Systematics
Telecommunications Services, Inc. dated July 24, 1992. (Filed
as Exhibit 10(aa) to the Company's Form 10-KSB filed for the
year ended December 31, 1992, and incorporated herein by
reference
10(b) * Directors and Officers Insurance and Company Reimbursement Policy.
(Filed as Exhibit 10(ii) to the 1993 Form S-1, and incorporated
herein by reference.)
10(c) * Form of Indemnity Agreement. (Filed as Exhibit 10(jj) to the 1993
Form S-1, and incorporated herein by reference.)
10(d) * InterCel, Inc. 1995 Employee Restricted Stock Plan (as amended on
November 17, 1995). (Filed as Exhibit 10(e) to the February 1996
Form S-1, and incorporated herein by reference.)
10(e) * InterCel, Inc. Amended and Restated 1991 Stock Option Plan. (Filed
as Appendix A to the Company's Definitive Proxy Statement for the
1997 Annual Meeting of Shareholders, and incorporated herein by
reference.)
10(f) * InterCel, Inc. Amended Nonemployee Stock Option Plan. (Filed as
Exhibit 10(q) to the Company's Form 10-K filed for the year ended
December 31, 1994 (the "1994 Form 10-K"), and incorporated herein by
reference.)
</TABLE>
<PAGE> 68
<TABLE>
<S> <C>
10(g) * Directed Employee Benefit Trust Agreement between The Charles
Schwab Trust Company and InterCel, Inc. (Filed as Exhibit 10(jjjj)
to the 1994 Form 10-K, and incorporated herein by reference.)
10(h) * Second Amendment to InterCel, Inc. Pension Plan dated as of August
2, 1996. (Filed as Exhibit 10(ss) to the 1996 Third Quarter 10-Q,
and incorporated herein by reference.)
10(i) * InterCel, Inc. 401(k) Profit Sharing Plan. (Filed as Exhibit 10(j)
to the February 1996 Form S-1, and incorporated herein by
reference.)
10(j) * Defined Benefit Pension Plan and Trust Adoption Agreement (Unity
Telephone Company) dated as of January 15, 1984. (Filed as Exhibit
10(ss) to the 1993 Form S-1, and incorporated herein by reference.)
10(k) * Defined Benefit Pension Plan (Unity Telephone Company). (Filed as
Exhibit 10(tt) to the 1993 Form S-1, and incorporated herein by
reference.)
10(l) * Amendment to Unity Telephone Pension Plan dated June 29, 1992.
(Filed as Exhibit 10(uu) to the 1993 Form S-1, and incorporated
herein by reference.)
10(m) * ITC Holding Company Inc. Employees Pension Plan and Trust (as
amended on December 15, 1994). (Filed as Exhibit 10(zz) to the
February 1996 Form S-1, and incorporated herein by reference.)
10(n) * DMS-MTX Cellular Supply Agreement dated March 29, 1995 between
InterCel, Inc. and Northern Telecom Inc. (Filed as Exhibit 10(pp) to
the February 1996 Form S-1, and incorporated herein by reference.)
10(o) * Amendment No. 1 to DMS-MTX Cellular Supply Agreement between
InterCel, Inc. and Northern Telecom Inc. dated August 9, 1995.
(Filed as Exhibit 10(qq) to the February 1996 Form S-1, and
incorporated herein by reference.)
10(p) * Information and Network Products and Services Agreement dated June
16, 1994 between InterCel, Inc. and GTE Telecommunications Service
Incorporated. (Filed as Exhibit 10(uu) to the February 1996 Form
S-1, and incorporated herein by reference.)
10(q) * Credit Agreement dated as of March 4, 1996 among InterCel PCS
Services, Inc., as Borrower, Ericsson Inc., as Initial Lender, and
Ericsson Inc. as Agent. (Filed as Exhibit 10(nn) to the April 1996
Form S-1, and incorporated herein by reference.)
10(r) * Amendment No. 1 to the Credit Agreement by and among Powertel,
Inc., as Borrower, Ericsson Inc., as Initial Lender, and Ericsson
Inc., as Agent, dated as of October 31, 1996. (Filed as Exhibit
10(ww) to the 1996 Third Quarter 10-Q and incorporated herein by
reference.)
10(s) * Amendment No. 2 to the Credit Agreement by and among Powertel,
Inc., as Borrower, Ericsson Project Finance A.B., as Lender, and
Ericsson Inc., as Agent, dated as of March 31, 1997. (Filed as
Exhibit 10(e) to the 1997 Form S-4, and incorporated herein by
reference.)
10(t) * Amendment No. 3 to the Credit Agreement by and among Powertel PCS,
Inc., as Borrower, Goldman Sachs Credit Partners L.P., as Lender,
and Ericsson Inc., as Agent, dated as of June 26, 1997. (Filed as
Exhibit 10(f) to the 1997 Form S-4, and incorporated herein by
reference.)
</TABLE>
<PAGE> 69
<TABLE>
<S> <C>
10(u) Amendment No. 4 to the Credit Agreement by and among Powertel PCS,
Inc., as Borrower, Goldman Sachs Credit Partners L.P., as Lender,
and Ericsson Inc., as Agent, dated as of November 18, 1997.
10(v) Amendment No. 5 to the Credit Agreement by and among Powertel PCS,
Inc., as Borrower, Goldman Sachs Credit Partners L.P., as Lender,
and Ericsson Inc., as Agent, dated as of December 23, 1997.
10(w) * Acquisition Agreement dated as of March 4, 1996 between InterCel
PCS Services, Inc. and Ericsson Inc. (Filed as Exhibit 10(rr) to the
April 1996 Form S-1, and incorporated herein by reference.)
10(x) * Amendment No. 1 to the Acquisition Agreement for Ericsson CMS 40
Personal Communications Systems dated as of September 2, 1997
between Powertel PCS, Inc. and Ericsson Inc. (Filed as Exhibit 10(j)
to the Company's Form 10-Q filed for the quarter ended September 30,
1997, and incorporated herein by reference.)
10(y) * License Agreement between LHS Communications, Inc. and Powertel,
Inc. dated August 2, 1996. (Filed as Exhibit 10(vv) to the 1996
Third Quarter 10-Q, and incorporated herein by reference.)
10(z) * Agreement between BellSouth Telecommunications, Inc. and InterCel,
Inc. effective as of April 1, 1997. (Filed as Exhibit 10(pp) to the
Company's Form 10-Q filed for the quarter ended March 31, 1997 (the
"1997 First Quarter 10-Q"), and incorporated herein by reference.)**
10(aa) * Agreement between BellSouth Telecommunications, Inc. and Powertel,
Inc. effective as of April 1, 1997. (Filed as Exhibit 10(qq) to the
1997 First Quarter 10-Q, and incorporated herein by reference.)**
10(bb) * Stock Purchase Agreement dated as of March 14, 1997 between
InterCel, Inc. and SCANA Communications, Inc. (Filed as Exhibit
10(pp) to the 1996 Form 10-K, and incorporated herein by reference.)
10(cc) * Escrow Agreement dated as of March 14, 1997 between InterCel,
Inc., SCANA Communications, Inc. and Bankers Trust Company, as
Escrow Agent. (Filed as Exhibit 10(qq) to the 1996 Form 10-K, and
incorporated herein by reference.)
10(dd) * Stock Purchase Agreement dated as of March 14, 1997 between
InterCel, Inc. and The Huff Alternative Income Fund, L.P. (Filed as
Exhibit 10(rr) to the 1996 Form 10-K, and incorporated herein by
reference.)
10(ee) * Escrow Agreement dated as of March 14, 1997 between InterCel,
Inc., The Huff Alternative Income Fund, L.P. and Bankers Trust
Company, as Escrow Agent. (Filed as Exhibit 10(ss) to the 1996 Form
10-K, and incorporated herein by reference.)
10(ff) * Termination of Stock Purchase Agreement dated as of April 30, 1997
between InterCel, Inc. and The Huff Alternative Income Fund, L.P.
(Filed as Exhibit 10(nn) to the 1997 First Quarter 10-Q, and
incorporated herein by reference.)
10(gg) * Termination of Stock Purchase Agreement dated as of April 30, 1997
between InterCel, Inc. and SCANA Communications, Inc. (Filed as
Exhibit 10(oo) to the 1997 First Quarter 10-Q, and incorporated
herein by reference.)
</TABLE>
<PAGE> 70
<TABLE>
<S> <C>
10(hh) * Stock Purchase Agreement dated as of May 23, 1997 between
InterCel, Inc. and SCANA Communications, Inc. (Filed as Exhibit
10(c) to the 1997 Form S-4, and incorporated herein by reference.)
10(ii) * Escrow Agreement dated as of June 5, 1997 between InterCel, Inc.,
SCANA Communications, Inc. and Bankers Trust Company, as Escrow
Agent. (Filed as Exhibit 10(d) to the 1997 Form S-4, and
incorporated herein by reference.)
10(jj) * Stock Purchase Agreement dated as of May 23, 1997 between
InterCel, Inc. and The Huff Alternative Income Fund, L.P. (Filed as
Exhibit 10(a) to the 1997 Form S-4, and incorporated herein by
reference.)
10(kk) * Escrow Agreement dated as of June 5, 1997 between InterCel, Inc.,
The Huff Alternative Income Fund, L.P. and Bankers Trust Company, as
Escrow Agent. (Filed as Exhibit 10(b) to the 1997 Form S-4, and
incorporated herein by reference.)
10(ll) First Amendment to Interconnection Agreement between InterCel, Inc.
and BellSouth Telecommunications, Inc. effective as of April 1,
1997.
10(mm) First Amendment to Interconnection Agreement between Powertel, Inc.
and BellSouth Telecommunications, Inc. effective as of April 1,
1997.
10(nn) Powertel 401(k) Profit Sharing Plan (as amended and restated
effective January 1, 1997, and as renamed effective July 1, 1997).
12 Statements regarding Computation of Ratios
21 Subsidiaries of Powertel, Inc.
23 Consent of Arthur Andersen LLP
24 Powers of Attorney for the following individuals:
Campbell B. Lanier, III, Allen E. Smith, Fred G. Astor, Jr., Donald
W. Burton, Bert G. Clifford, O. Gene Gabbard, Lawrence M. Gressette,
Jr., Maurice P. O'Connor, William H. Scott, III, William B.
Timmerman and Donald W. Weber (included on signature page hereto)
27 Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------------------------
* Previously filed.
** The Registrant agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the Securities and Exchange Commission upon
request, as provided in Item 601(b)(2) of Regulation S-K.
<PAGE> 1
EXHIBIT 10(u)
POWERTEL, INC.
AMENDMENT NO. 4
TO THE CREDIT AGREEMENT
This AMENDMENT NO. 4 TO THE CREDIT AGREEMENT (this "AMENDMENT") is
dated as of November 18, 1997, and entered into by and among POWERTEL PCS, INC.,
a Delaware corporation (formerly known as InterCel PCS Services, Inc. and
Powertel, Inc.) (the "BORROWER"), the financial institutions listed on the
signature pages hereof ("LENDERS"), and ERICSSON INC., as agent for Lenders
("AGENT") and, for purposes of Section 3 hereof only, the other Loan Parties
listed on the signature pages hereof, and is made with reference to that certain
Credit Agreement, dated as of March 4, 1996, as amended by that certain
Amendment No. 1 to the Credit Agreement dated as of October 31, 1996, that
certain Amendment No. 2 to the Credit Agreement dated as of March 31, 1997, and
that certain Amendment No. 3 to the Credit Agreement dated as of June 26, 1997
(as so amended, the "CREDIT AGREEMENT"), by and among the Borrower, Lenders and
Agent. Capitalized terms used herein without definition shall have the same
meanings herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, the Borrower and Lenders desire to amend the Credit Agreement
to make certain amendments as set forth below;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO CERTAIN DEFINITIONS AND AMENDMENTS TO SECTION 1:
PROVISIONS RELATING TO DEFINED TERMS
Subsection 1.01 of the Credit Agreement is hereby amended by amending
the definition of "Net Cash Proceeds" to delete clause (a) therefrom in its
entirety and substitute the following clause (a) therefor:
1
<PAGE> 2
"(a) any sale, lease, transfer or other disposition of any assets in
the ordinary course of business".
1.2 AMENDMENT TO SECTION 2.04: PREPAYMENTS
Section 2.04(b) of the Credit Agreement is hereby amended by deleting
clause (i) thereof in its entirety and substituting the following therefor:
"(i) No later than the first Business Day following the date of receipt
by the Borrower or any of its Subsidiaries of any Net Cash Proceeds in
excess of $5,000,000 in any 12 consecutive month period ("EXCESS NET
CASH PROCEEDS"), the Borrower shall prepay the Advances in an aggregate
amount equal to such Excess Net Cash Proceeds. Notwithstanding the
foregoing, as long as no Default shall have occurred and be continuing,
Borrower shall not be required to make any mandatory prepayment
pursuant to this Section 2.04 (b)(i) to the extent the Excess Net Cash
Proceeds are reinvested in productive assets used by the Borrower and
its Subsidiaries in the conduct of its business within 180 days from
the date of receipt thereof. If upon receipt of any Excess Net Cash
Proceeds, the Borrower elects to reinvest the Excess Net Cash Proceeds
as permitted under this Subsection 2.04(b)(i), (1) no later than the
first Business Day following receipt of such Excess Net Cash Proceeds,
the Borrower shall deliver an officers' certificate to Agent
demonstrating the derivation of such Excess Net Cash Proceeds and
certifying the portion of such proceeds which the Borrower elects to
reinvest in productive assets and certifying that no Default shall have
occurred and be continuing and (2) upon the expiration of 180 days
after the date of receipt of the Excess Net Cash Proceeds certified as
being scheduled for reinvestment, the Borrower shall deliver to Agent
an officers' certificate indicating the amount of Excess Net Cash
Proceeds reinvested as of such date, the assets in which such Excess
Net Cash Proceeds have been reinvested, and the amount of any remaining
Excess Net Cash Proceeds which shall be applied to prepay the Advances
as set forth in this Section 2.04(b)(i)."
1.3 AMENDMENT TO SECTION 5.02 NEGATIVE COVENANTS
Section 5.02(b)(iii) is hereby deleted in its entirety and the
following is substituted therefor:
"(iii) any sale, lease, transfer or other disposition of assets for
cash; provided that (A) the consideration received is equal to the fair
market value of such assets and (B) to the extent the aggregate Net
Cash Proceeds received by the Company in any 12 consecutive month
period exceed $5,000,000, the Company shall apply such Net Cash
Proceeds in accordance with Section 2.04(b)(i) hereof."
2
<PAGE> 3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, the Borrower represents and
warrants to each Lender that the following statements are true, correct and
complete:
(a) The execution, delivery and performance by the Borrower of this
Amendment and the Loan Documents, as amended hereby, to which it is a party are
within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action and do not (i) contravene the Borrower's charter or
bylaws, (ii) violate any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System), or any
order, writ, judgment, injunction, decree, determination or award, binding on or
affecting the Borrower or any of its Subsidiaries or any of their properties,
the effect of which would have a Material Adverse Effect, or (iii) conflict with
or result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument binding
on or affecting the Borrower, or any of its Subsidiaries or any of their
properties except where such conflict would not have a Material Adverse Effect.
(b) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery or performance by the Borrower
of this Amendment or any of the Loan Documents, as amended hereby, to which it
is a party.
(c) This Amendment has been duly executed and delivered by the
Borrower. This Amendment and each of the other Loan Documents, as amended
hereby, to which the Borrower is a party are legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms.
(d) Except as disclosed on Annex J hereto, the representations and
warranties contained in Article IV of the Credit Agreement are and will be true,
correct and complete in all material respects on and as of the Fourth Amendment
Effective Date (as hereinafter defined) to the same extent as though made on and
as of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true, correct
and complete in all material respects on and as of such earlier date.
3
<PAGE> 4
(e) No event has occurred and is continuing or will result from the
consummation of the transactions contemplated by this Amendment that would
constitute a Default.
SECTION 3. ACKNOWLEDGEMENT AND CONSENT BY CREDIT SUPPORT PARTIES.
Powertel, Inc. is a party to the Parent Guaranty, each Operating
Subsidiary is party to a Subsidiary Guaranty and a Subsidiary Security
Agreement, and each License Subsidiary is party to a Subsidiary Guaranty.
Powertel, Inc., the Operating Subsidiaries and the License Subsidiaries are
referred to herein collectively as the "CREDIT SUPPORT PARTIES" and the Parent
Guaranty, the Subsidiary Guaranties and the Subsidiary Security Agreements are
herein collectively referred to as the "CREDIT SUPPORT DOCUMENTS."
Each Credit Support Party hereby acknowledges that it has reviewed the
terms and provisions of the Credit Agreement and this Amendment and consents to
the Amendment of the Credit Agreement effected pursuant to this Amendment. Each
Credit Support Party hereby confirms that each Credit Support Document to which
it is a party or otherwise bound and all Collateral encumbered thereby will
continue to guaranty or secure, as the case may be, to the fullest extent
possible the payment and performance of all the "Guaranteed Obligations" and
"Secured Obligations," as the case may be (in each case as such terms are
defined in the applicable Credit Support Document), including without limitation
the Obligations of the Borrower now or hereafter existing under or in respect of
the Amended Agreement (as hereinafter defined) and the Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
acknowledges and agrees that (i) notwithstanding the conditions to effectiveness
set forth in this Amendment, such Credit Support Party is not required by the
terms of the Credit Agreement or any other Loan Document to consent to the
amendments of the Credit Agreement effected pursuant to this Amendment and (ii)
nothing in the Credit Agreement, this Amendment or any other Loan Document
should be deemed to require the consent of such Credit Support Party to any
future amendments to the Credit Agreement.
4
<PAGE> 5
SECTION 4. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the Fourth Amendment Effective Date, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of like import referring to the Credit Agreement, and each
reference in the other Loan Documents to the "Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended
by this Amendment (the "AMENDED AGREEMENT").
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of Agent
or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. FEES AND EXPENSES. The Borrower agrees to pay on demand all costs
and expenses of the Agent in connection with the preparation, execution, and
delivery and administration, modification and amendment of this Amendment and
the other instruments and documents to be delivered hereunder (including,
without limitation, the reasonable fees and expenses of counsel for the Agent).
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment shall become effective (the "FOURTH AMENDMENT
EFFECTIVE DATE") upon the execution of a counterpart hereof by the Borrower,
Required Lenders and each of the Credit Support Parties and receipt by the
5
<PAGE> 6
Borrower and Agent of written or telephonic notification of such execution and
authorization of delivery thereof.
[Remainder of page intentionally left blank]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
POWERTEL PCS, INC.
By: /s/ Allen E. Smith
--------------------------
Title: President
ERICSSON INC., as Agent
By: /s/ Joseph Hagan
--------------------------
Title: Vice President
GOLDMAN SACHS CREDIT PARTNERS
L.P., as a Lender
/s/ Stephen B. King
-----------------------------
Authorized Signatory
7
<PAGE> 8
For purposes of Section 3 of this Amendment
only:
POWERTEL, INC.
By: /s/ Allen E. Smith
---------------------------------
Title: President
------------------------------
POWERTEL/JACKSONVILLE, INC.
POWERTEL/MEMPHIS, INC.
POWERTEL/BIRMINGHAM, INC.
POWERTEL/ATLANTA, INC.
POWERTEL/JACKSONVILLE LICENSES, INC.
POWERTEL/MEMPHIS LICENSES, INC.
POWERTEL/BIRMINGHAM LICENSES, INC.
POWERTEL/ATLANTA LICENSES, INC.
By: /s/ Allen E. Smith
-------------------------------------
Allen Smith
President of each of the foregoing
<PAGE> 1
EXHIBIT 10(v)
POWERTEL PCS, INC.
AMENDMENT NO. 5
TO THE CREDIT AGREEMENT
This AMENDMENT NO. 5 TO THE CREDIT AGREEMENT (this "AMENDMENT") is
dated as of December 23, 1997, and entered into by and among POWERTEL PCS, INC.,
a Delaware corporation (formerly known as InterCel PCS Services, Inc. and
Powertel, Inc.) (the "BORROWER"), the financial institutions listed on the
signature pages hereof ("LENDERS"), and ERICSSON INC., as agent for the Lenders
("AGENT") and, for purposes of Section 5 hereof only, the other Loan Parties
listed on the signature pages hereof, and is made with reference to that certain
Credit Agreement, dated as of March 4, 1996, as amended by that certain
Amendment No. 1 to the Credit Agreement dated as of October 31, 1996, that
certain Amendment No. 2 to the Credit Agreement dated as of March 31, 1997, that
certain Amendment No. 3 to the Credit Agreement dated as of June 26, 1997, and
that certain Amendment No. 4 to the Credit Agreement dated as of November 18,
1997 (as so amended and as further amended, supplemented or otherwise modified,
the "CREDIT AGREEMENT"), by and among the Borrower, the Lenders and the Agent.
Capitalized terms used herein without definition shall have the same meanings
herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, the Borrower and Lenders desire to amend the Credit Agreement
to add an additional commitment to be initially provided by Ericsson, Inc.
subject to the terms and conditions herein;
WHEREAS, the Borrower has requested that Ericsson and the Lenders amend
the terms of each Assignment Agreement relating to the Credit Agreement executed
prior to the date hereof (each, an "ASSIGNMENT AGREEMENT") as provided herein;
and
WHEREAS, the Borrower has requested that the Lenders waive the
requirements of Section 2.02(a) of the Credit Agreement with respect to drawings
to be made under the Credit Agreement to finance certain invoices under the
Equipment Purchase Agreement issued more than 90 days prior to December 31,
1997.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
<PAGE> 2
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO ARTICLE 1: PROVISIONS RELATING TO DEFINED TERMS
A. Subsection 1.01 of the Credit Agreement is hereby amended by adding
thereto the following definitions, which shall be inserted in proper
alphabetical order:
"ASSIGNMENT AGREEMENT" means an Assignment Agreement in
substantially the form attached hereto as Exhibit G.
"BTA EQUIPMENT" means any equipment or services purchased by
the Borrower under the Equipment Purchase Agreement for use in a BTA
Market.
"BTA MARKETS" means the Basic Trading Areas ("BTAs") of
Bowling Green- Glasgow, Kentucky; Clarksville, Tennessee-Hopkinsville,
Kentucky; Cookeville, Tennessee; Corbin, Kentucky; Evansville, Indiana;
Knoxville, Tennessee; Lexington, Kentucky; Louisville, Kentucky;
Madisonville, Kentucky; Nashville, Tennessee; Owensboro, Kentucky;
Paducah-Murray-Mayfield, Kentucky; and Somerset, Kentucky.
"FACILITY" means the Series A Facility or the Series B
Facility.
"REGISTER" has the meaning specified in Section 8.07(c).
"SERIES A ADVANCE" means an Advance made by a Lender to the
Borrower pursuant to Section 2.01(a) hereof, and "SERIES A ADVANCES"
means such Advances of all Lenders in the aggregate.
"SERIES A COMMITMENT" means the commitment of a Lender to make
Series A Advances pursuant to Section 2.01(a) hereof, and "SERIES A
COMMITMENTS" means such commitments of all Lenders in the aggregate.
"SERIES A FACILITY" means, at any time, the aggregate amount
of the Series A Commitments at such time.
"SERIES B ADVANCE" means an Advance made by a Lender to the
Borrower pursuant to Section 2.01(b) hereof, and "SERIES B ADVANCES"
means all such Advances of all Lenders in the aggregate.
"SERIES B COMMITMENT" means the commitment of a Lender to make
Series B Advances pursuant to Section 2.01(b) hereof, and "SERIES B
COMMITMENTS" means such commitments of all Lenders in the aggregate.
<PAGE> 3
"SERIES B FACILITY" means, at any time, the aggregate amount
of the Series B Commitments at such time.
B. Subsection 1.01 of the Credit Agreement is hereby further amended by
deleting the definitions of "Advance", "Borrowing", "Commitment", "Equipment
Purchase Agreement", "Ericsson", "Ericsson Equipment", "Licenses", "License
Subsidiaries", "Operating Subsidiaries" and "Subscriber" therefrom in their
entirety and substituting the following therefor:
"ADVANCE" or "ADVANCES" means one or more Series A Advances,
Series B Advances or any combination thereof.
"BORROWING" means a borrowing consisting of either Series A
Advances or Series B Advances simultaneously made by the Lenders.
"COMMITMENT" means, with respect to any Lender, as of any date
of determination, such Lender's aggregate (a) Series A Commitment and
(b) Series B Commitment, collectively.
"EQUIPMENT PURCHASE AGREEMENT" has the meaning specified in
the second recital to this Agreement, as such agreement may be
supplemented, amended or otherwise modified from time to time.
"ERICSSON" has the meaning specified in the introductory
paragraph to this Agreement.
"ERICSSON EQUIPMENT" means, collectively, (a) the equipment
and services defined as Ericsson Equipment in the second recital to
this Agreement, and (b) any other equipment or services to be provided
by Ericsson from time to time under the Equipment Purchase Agreement,
including without limitation any BTA Equipment.
"LICENSE SUBSIDIARY" means each of Powertel Jacksonville
Licenses, Inc., Powertel Memphis Licenses, Inc., Powertel Birmingham
Licenses, Inc., Powertel Atlanta Licenses, Inc., Powertel Nashville
Licenses, Inc., Powertel Knoxville Licenses, Inc., Powertel Kentucky
Licenses, Inc. and any other Person established solely for the purpose
of holding the Licenses now or hereafter acquired or owned by the
Borrower and its Subsidiaries, which Person shall be a wholly owned
Subsidiary of the Borrower.
"LICENSES" means each of the personal communications services
MTA or BTA licenses issued by the Federal Communications Commission to
the Borrower and its Subsidiaries.
<PAGE> 4
"OPERATING SUBSIDIARIES" means each of Powertel/Jacksonville,
Inc., Powertel/Memphis, Inc., Powertel/Birmingham, Inc.,
Powertel/Atlanta, Inc., Powertel/Kentucky, Inc. and any other Person
now or hereafter established or acquired as a Subsidiary of the
Borrower to operate in a BTA Market.
"SUBSCRIBER" means, at any time, those subscribers to the
wireless personal communications services ("PCS") of the Borrower and
the Operating Subsidiaries for (i) the MTAs of Jacksonville, Florida;
Memphis, Tennessee/Jackson, Mississippi; Birmingham, Alabama; (ii) the
Atlanta MTA; and (iii) the BTA Markets (a) who have activated a PCS
telephone number for use on the Borrower's or an Operating Subsidiary's
PCS network for such services, (b) who are not ninety days or more past
due with respect to any amounts owed to the Borrower or such Operating
Subsidiaries and (c) who have not given any notice of termination.
1.2 AMENDMENT TO SECTION 2.01: THE ADVANCES
Subsection 2.01 of the Credit Agreement is hereby deleted in its
entirety and the following is substituted therefor:
"SECTION 2.01. Advances. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of the
Borrower herein set forth, each Lender hereby severally agrees to make the
Advances described in subsections 2.01(a) and 2.01(b):
(a) Series A Advances. Each Lender having a Series A
Commitment severally agrees, subject to the terms and conditions
hereinafter set forth, to make Series A Advances to the Borrower from
time to time on any Business Day during the period from the date hereof
until the Termination Date in an aggregate amount not to exceed such
Lender's Series A Commitment at such time. The original amount of each
Lender's Series A Commitment is set forth opposite its name on Schedule
2.01(a) annexed hereto and the aggregate original amount of the Series
A Commitments is $165,000,000; provided that the Series A Commitment of
each Lender shall be adjusted to give effect to any assignments of the
Series A Commitments pursuant to Section 8.07 hereof; and provided,
further that the amount of each Lender's Series A Commitment shall be
reduced by the amount of each Series A Advance made by such Lender.
Each Borrowing made under this Section 2.01(a) shall consist of Series
A Advances made simultaneously by the Lenders having Series A
Commitments ratably according to their Series A Commitments. Amounts
borrowed under this Section 2.01(a) and repaid or prepaid may not be
reborrowed.
(b) Series B Advances. Each Lender having a Series B
Commitment severally agrees, subject to the terms and conditions
hereinafter set forth, to make Series B Advances to the Borrower from
time to time on any Business Day during the period from the date hereof
until the Termination Date in an aggregate amount not to exceed such
Lender's Series B
<PAGE> 5
Commitment at such time. The original amount of each Lender's Series B
Commitment is set forth opposite its name on Schedule 2.01(b) annexed
hereto and the aggregate original amount of the Series B Commitment is
$100,000,000; provided that the Series B Commitment of each Lender
shall be adjusted to give effect to any assignments of the Series B
Commitments pursuant to Section 8.07 hereof; and provided, further that
the amount of each Lender's Series B Commitment shall be reduced by the
amount of each Series B Advance made by such Lender. Each borrowing
under this Section 2.01(b) shall consist of Series B Advances made
simultaneously by the Lenders having Series B Commitments ratably
according to their Series B Commitments. Amounts borrowed under this
Section 2.01(b) and repaid or prepaid may not be reborrowed.
Notwithstanding anything herein to the contrary, no Series B Advances
shall be made hereunder until the full amount of all Advances available
under the Series A Commitments have been drawn. The Series B
Commitments and the Series B Advances thereunder shall be pari passu
with the Series A Commitments and the Series A Advances, respectively,
and all Commitments and Advances shall be subject to and made in
accordance with the terms of this Agreement.
1.3 AMENDMENTS TO SECTION 2.04: PREPAYMENTS
A. Section 2.04(a) of the Credit Agreement is hereby amended by
deleting the last sentence thereof and substituting the following therefor:
"Each such prepayment (i) shall be applied pro rata between
the outstanding Series A Advances and the Series B Advances; and (ii)
shall be applied to reduce the scheduled principal installments of such
Advances due pursuant to Section 2.03 hereof (x) first in inverse order
of maturity to installments due after December 31, 2005 to the full
extent thereof and (y) second ratably to installments due on or before
December 31, 2005."
B. Section 2.04(b) of the Credit Agreement is hereby amended by
amending clause (iii) thereof to read in its entirety as follows:
"(iii) All prepayments under this Section 2.04(b) shall be made
together with accrued interest to the date of such prepayment on the
aggregate principal amount prepaid and shall be applied pro rata
between the outstanding Series A Advances and Series B Advances and
shall be applied to reduce the scheduled principal installments of such
Advances due pursuant to Section 2.03 hereof in inverse order of
maturity."
<PAGE> 6
1.4 AMENDMENT TO SECTION 2.10: USE OF PROCEEDS
Section 2.10 of the Credit Agreement is hereby deleted in its entirety
and the following substituted therefor:
"SECTION 2.10. Use of Proceeds. The proceeds of the Series A
Advances and Series B Advances shall be available (and the Borrower
agrees that it shall use such proceeds) solely to purchase the Ericsson
Equipment in accordance with the terms of the Equipment Purchase
Agreement for use in (i) the MTAs of Jacksonville, Florida; Memphis,
Tennessee/Jackson, Mississippi; and Birmingham, Alabama; (ii) the
Atlanta MTA; and (iii) the BTA Markets; provided that the proceeds of
the Advances shall be available (and the Borrower agrees that it shall
use any such Advances) for use in the Atlanta MTA only upon the
satisfaction of the conditions precedent set forth in Section 3.03
hereof; and provided further that the proceeds of Advances shall be
available (and the Borrower agrees that it shall use such proceeds) for
use in any BTA Market only upon the satisfaction of the conditions
precedent set forth in Section 3.05 hereof."
1.5 AMENDMENT TO ARTICLE 3: CONDITIONS TO LENDING
Article III of the Credit Agreement is hereby amended by adding the
following Section 3.05 thereto:
"SECTION 3.05. Conditions Precedent to Series B Advances. The
obligations of the Lenders having Series B Commitments to make Series B
Advances to the Borrower pursuant to Section 2.01(b) to purchase BTA
Equipment for use in any BTA Market pursuant to the Equipment Purchase
Agreement shall be subject in addition to the conditions set forth in
Section 3.02 to the following conditions precedent:
(a) Each Operating Subsidiary for each BTA Market for which
BTA Equipment is being purchased shall have duly executed a Subsidiary
Guaranty and a Subsidiary Security Agreement;
(b) Each License Subsidiary holding a License for the BTA
Market for which BTA Equipment is being purchased shall have duly
executed a Subsidiary Guaranty; and
(c) The Agent shall have received items (i) through (vii) of
Section 3.01(f) from each Subsidiary becoming a Loan Party pursuant to
clauses (a) and (b) of this Section 3.05 and an opinion of counsel to
the Loan Parties with respect to such Loan Parties and the Collateral
Documents and Guaranties delivered hereunder on behalf of such Loan
Parties, in form and substance reasonably satisfactory to the Agent."
<PAGE> 7
1.6 AMENDMENT TO SECTION 8.07
Section 8.07 of the Credit Agreement is hereby deleted in its entirety
and the following substituted therefor:
"SECTION 8.07. Assignments and Participations. (a) Each Lender
may assign to one or more Persons all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or
a portion of its Commitment, the Advances owing to it and the Note or
Notes held by it); provided, however, that (i) each such assignment
shall be of a constant, and not a varying, percentage of all rights and
obligations under and in respect of one or more Facilities, (ii) except
in the case of an assignment to a Person that, immediately prior to
such assignment, was a Lender or an assignment of all of a Lender's
rights and obligations under this Agreement, the amount of the
Commitments of the assigning Lender being assigned pursuant to each
such assignment (determined as of the date of the Assignment Agreement
with respect to such assignment) shall in no event be less than
$5,000,000; (iii) each such assignment shall be to an Eligible
Assignee, and (iv) the parties to each such assignment shall execute
and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment Agreement, together with (x) any Note subject
to such assignment and (y) a processing and recordation fee of $3,500
(provided, however, that no such fee shall be required to be paid in
connection with the processing and recordation of any of the first six
Assignment Agreements pursuant to which all or part of a Lender's
Series B Commitment and/or any Series B Advances owing to any Lender
are assigned). Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in each Assignment
Agreement, (x) the assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment Agreement, have the rights and
obligations of a Lender hereunder and (y) the Lender assignor
thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment Agreement,
relinquish its rights and be released from its obligations under this
Agreement (and, in the case of an Assignment Agreement covering all or
the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment Agreement, the
Lender assignor thereunder and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i)
other than as provided in such Assignment Agreement, such assigning
Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency
or value of, or the perfection or priority of any lien or security
interest created or purported to be created under or in connection
with, this Agreement or any other instrument or document furnished
pursuant hereto; (ii) such assigning Lender makes no representation or
warranty and assumes no
<PAGE> 8
responsibility with respect to the financial condition of any Loan
Party or the performance or observance by any Loan Party of any of its
obligations under this Agreement or any other instrument or document
furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the
financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment Agreement;
(iv) such assignee will, independently and without reliance upon the
Agent, such assigning Lender or any other Lender and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee confirms that it is an
Eligible Assignee; (vi) such assignee appoints and authorizes the Agent
to take such action as agent on its behalf and to exercise such powers
and discretion under this Agreement as are delegated to the Agent by
the terms hereof, together with such powers and discretion as are
reasonably incidental thereto; and (vii) such assignee agrees that it
will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a
Lender.
(c) The Agent shall maintain at its address referred to in
Section 8.02 a copy of each Assignment Agreement delivered to and
accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment under each Facility of, and
principal amount of the Advances owing under each Facility to, each
Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest
error, and the Borrower, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and
from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment Agreement executed by an
assigning Lender and an assignee representing that it is an Eligible
Assignee, together with any Note or Notes subject to such assignment,
the Agent shall, if such Assignment Agreement has been completed and is
in substantially the form of Exhibit G hereto, (i) accept such
Assignment Agreement, (ii) record the information contained therein in
the Register and (iii) give prompt notice thereof to the Borrower.
Within five Business Days after its receipt of such notice, the
Borrower, at its own expense, shall execute and deliver to the Agent in
exchange for the surrendered Note a new Note to the order of such
Eligible Assignee in an amount equal to the Commitment assumed by it
under a Facility pursuant to such Assignment Agreement and, if the
assigning Lender has retained a Commitment under such Facility, a new
Note to the order of the assigning Lender in an amount equal to the
Commitment retained by it under such Facility. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note or Notes, shall be dated the
effective date of such
<PAGE> 9
Assignment Agreement and shall otherwise be in substantially the form
of Exhibit A hereto.
(e) Each Lender may sell participations to one or more banks
or other entities (other than the Borrower or any of its Affiliates) in
or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note or Notes held by it);
provided, however, that (i) such Lender's obligations under this
Agreement (including, without limitation, its Commitments to the
Borrower hereunder) shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Lender shall remain the
holder of any such Note for all purposes of this Agreement, (iv) the
Borrower, the Agent and the other Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights
and obligations under this Agreement, (v) no such participation shall
result in any increased costs to the Borrower and (vi) no participant
under any such participation shall have any right to approve any
amendment or waiver of any provision of this Agreement or any Note, or
any consent to any departure by the Borrower therefrom, except to the
extent that such amendment, waiver or consent would reduce the
principal of, or interest on, the Notes or any fees or other amounts
payable hereunder, in each case to the extent subject to such
participation, or postpone any date fixed for any payment of principal
of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section 8.07, disclose to the assignee or participant or proposed
assignee or participant, any information relating to the Borrower
furnished to such Lender by or on behalf of the Borrower; provided
that, prior to any such disclosure, the assignee or participant or
proposed assignee or participant shall agree to be bound by the
confidentiality provisions set forth in subsection 8.12 of the Credit
Agreement.
(g) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all
or any portion of its rights under this Agreement (including, without
limitation, the Advances owing to it and the Note held by it) in favor
of any Federal Reserve Bank in accordance with Regulation A of the
Board of Governors of the Federal Reserve System."
1.7 MODIFICATION OF EXHIBIT
Exhibit A to the Credit Agreement is hereby deleted in its entirety and
replaced with a new Exhibit A in the form of Annex A to this Amendment.
<PAGE> 10
1.8 MODIFICATION OF SCHEDULE
(a) Schedule I to the Credit Agreement is hereby deleted in its
entirety and replaced with Schedule 2.01(a) in the form of Annex B hereto.
(b) Schedule 4.01(a) to the Credit Agreement is hereby deleted in its
entirety and replaced with a new Schedule 4.01(a) in the form of Annex C hereto.
(c) Schedule 4.01(b) to the Credit Agreement is hereby deleted in its
entirety and replaced with a new Schedule 4.01(b) in the form of Annex D hereto.
(d) Schedule 4.01(s) to the Credit Agreement is hereby deleted in its
entirety and replaced with a new Schedule 4.01(s) in the form of Annex E hereto.
1.9 ADDITION OF SCHEDULE AND EXHIBIT
(a) The Credit Agreement is hereby amended by adding thereto a new
Schedule 2.01(b) in the form of Annex F to this Amendment.
(b) The Credit Agreement is hereby amended by adding thereto a new
Exhibit G in the form of Annex G to this Amendment.
1.10 WAIVER OF SECTION 2.02(A)
The Lenders hereby agree to waive the requirements of Section 2.02(a)
of the Credit Agreement solely to the extent necessary to permit the Borrower to
make drawings under the Credit Agreement to finance each of the invoices
described on Annex H to this Amendment that were issued more than 90 days prior
to December 31, 1997.
<PAGE> 11
SECTION 2. AMENDMENT TO ASSIGNMENT AGREEMENTS
2.1 ERICSSON-GOLDMAN SACHS ASSIGNMENT AGREEMENT. Section 2(h) of the
Assignment Agreement between Ericsson Inc. and Goldman Sachs Credit Partners
L.P. relating to the Credit Agreement (the "GOLDMAN ASSIGNMENT AGREEMENT") is
hereby amended by deleting the proviso at the end of the first sentence thereof.
2.2 OTHER ASSIGNMENT AGREEMENTS. Section 2(h) of each Assignment
Agreement between Goldman Sachs Credit Partners L.P. and a Lender, in each case
relating to the Credit Agreement, is hereby amended by deleting the proviso at
the end of the first sentence thereof.
SECTION 3. CONDITIONS TO EFFECTIVENESS
3.1 EFFECTIVENESS OF SECTION 1. Section 1 of this Amendment shall
become effective only upon the satisfaction of all of the following conditions
precedent (the date of satisfaction of such conditions being referred to herein
as the "FIFTH AMENDMENT EFFECTIVE DATE"):
A. On or before the Fifth Amendment Effective Date, the Borrower shall
deliver to Lenders (or to Agent for Lenders with sufficient originally executed
copies, where appropriate, for each Lender and its counsel) the following, each,
unless otherwise noted, dated the Fifth Amendment Effective Date:
1. Resolutions of its Board of Directors approving and
authorizing the execution, delivery, and performance of this Amendment,
certified as of the Fifth Amendment Effective Date by its corporate
secretary or an assistant secretary as being in full force and effect
without modification or amendment;
2. Signature and incumbency certificates of its officers
executing this Amendment;
3. Fully executed copies of this Amendment; and
4. A Note duly executed by the Borrower evidencing the Series
B Commitment of the Initial Lender.
B. The Lenders and their respective counsel shall have received
originally executed copies of one or more favorable written opinions of Nelson
Mullins Riley & Scarborough, L.L.P., counsel for the Borrower and the Loan
Parties, in form and substance reasonably satisfactory to the Agent, the
Required Lenders and their counsel, dated as of the Fifth Amendment Effective
Date with respect to (i) the due incorporation, good standing, and corporate
power and authority of the Borrower and the other Loan Parties and (ii) the due
authorization, execution and delivery and enforceability of the Amended
Agreement (as hereinafter defined) by the Borrower and the other Loan Documents
executed or to be executed in connection with this
<PAGE> 12
Amendment by each Loan Party party thereto, and as to such other matters as the
Agent acting on behalf of Lenders may reasonably request.
C. On or before the Fifth Amendment Effective Date, all corporate and
other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Agent, acting on behalf of Lenders, and its counsel shall be
satisfactory in form and substance to Agent and such counsel, and Agent and such
counsel shall have received all such counterpart originals or certified copies
of such documents as Agent may reasonably request.
3.2 EFFECTIVENESS OF SECTION 2. Section 2 of this Amendment shall
become effective upon the execution and delivery of counterparts of this
Amendment by each of Ericsson Inc., Goldman Sachs Credit Partners L.P. and the
Lenders listed on the signature pages hereto.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, the Borrower represents and
warrants to each Lender that the following statements are true, correct and
complete:
(a) The execution, delivery and performance by the Borrower of this
Amendment and the Loan Documents, as amended hereby, to which it is a party are
within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action and do not (i) contravene the Borrower's charter or
bylaws, (ii) violate any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System), or any
order, writ, judgment, injunction, decree, determination or award, binding on or
affecting the Borrower or any of its Subsidiaries or any of their properties,
the effect of which would have a Material Adverse Effect, or (iii) conflict with
or result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument binding
on or affecting the Borrower, or any of its Subsidiaries or any of their
properties except where such conflict would not have a Material Adverse Effect.
(b) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery or performance by the Borrower
of this Amendment or any of the Loan Documents, as amended hereby, to which it
is a party.
<PAGE> 13
(c) This Amendment has been duly executed and delivered by the
Borrower. This Amendment and each of the other Loan Documents, as amended
hereby, to which the Borrower is a party are legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms.
(d) The representations and warranties contained in Article IV of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the Fifth Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
(e) No event has occurred and is continuing or will result from the
consummation of the transactions contemplated by this Amendment that would
constitute a Default.
SECTION 5. ACKNOWLEDGEMENT AND CONSENT BY CREDIT SUPPORT PARTIES.
Powertel, Inc. is a party to the Parent Guaranty, each of
Powertel/Birmingham, Inc., Powertel/Jacksonville, Inc., Powertel/Memphis, Inc.,
and Powertel/Atlanta, Inc. is party to a Subsidiary Guaranty and a Subsidiary
Security Agreement, and each of Powertel Birmingham Licenses, Inc., Powertel
Jacksonville Licenses, Inc., Powertel Memphis Licenses, Inc., and Powertel
Atlanta Licenses, Inc. is party to a Subsidiary Guaranty. In addition, Ericsson
is, pursuant to Section 2(f) of the Goldman Assignment Agreement, a guarantor of
certain payment obligations of the Borrower under the Credit Agreement. Each of
the foregoing parties are referred to herein collectively as the "CREDIT SUPPORT
PARTIES" and the Parent Guaranty, the Subsidiary Guaranties, the Subsidiary
Security Agreements and the Goldman Assignment Agreement are herein collectively
referred to as the "CREDIT SUPPORT DOCUMENTS."
Each Credit Support Party hereby acknowledges that it has reviewed the
terms and provisions of the Credit Agreement and this Amendment and consents to
the Amendment of the Credit Agreement effected pursuant to this Amendment. Each
Credit Support Party hereby confirms that each Credit Support Document to which
it is a party or otherwise bound and all Collateral encumbered thereby will
continue to guaranty or secure, as the case may be, to the fullest extent
possible the payment and performance of all the "Guaranteed Obligations",
"Guarantied Obligations" and "Secured Obligations," as the case may be (in each
case as such terms are defined in the applicable Credit Support Document),
including without limitation the Obligations of the Borrower now or hereafter
existing under or in respect of the Amended Agreement (as hereinafter defined)
and the Notes defined therein.
<PAGE> 14
Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties contained in the
Credit Support Documents to which it is a party or otherwise bound are true,
correct and complete in all material respects on and as of the Fifth Amendment
Effective Date to the same extent as though made on and as of that date, except
to the extent such representations and warranties specifically relate to an
earlier date, in which case they are true, correct and complete in all material
respects on and as of such earlier date.
Each Credit Support Party acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this Amendment,
such Credit Support Party is not required by the terms of the Credit Agreement
or any other Loan Document to consent to the amendments of the Credit Agreement
effected pursuant to this Amendment and (ii) nothing in the Credit Agreement,
this Amendment or any other Loan Document should be deemed to require the
consent of such Credit Support Party to any future amendments to the Credit
Agreement.
SECTION 6. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the Fifth Amendment Effective Date, each
reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Credit
Agreement, and each reference in the other Loan Documents to the
"Credit Agreement", "thereunder", "thereof" or words of like import
referring to the Credit Agreement shall mean and be a reference to the
Credit Agreement as amended by this Amendment (the "AMENDED
AGREEMENT").
(ii) Except as specifically amended by this Amendment, the
Credit Agreement, the other Loan Documents and the Assignment
Agreements shall remain in full force and effect and are hereby
ratified and confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a
waiver of any provision of, or operate as a waiver of any right, power
or remedy of the Agent or any Lender under, the Credit Agreement, any
of the other Loan Documents and any Assignment Agreement.
B. FEES AND EXPENSES. The Borrower agrees to pay on demand all costs
and expenses of the Agent in connection with the preparation, execution,
delivery, modification and amendment of this Amendment and the other instruments
and documents to be delivered hereunder (including, without limitation, the
reasonable fees and expenses of counsel for the Agent).
<PAGE> 15
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment shall become effective upon the satisfaction
of the conditions set forth in Section 3 hereof and the execution of a
counterpart hereof by the Borrower, Required Lenders and each of the Credit
Support Parties and receipt by the Borrower and Agent of written or telephonic
notification of such execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
POWERTEL PCS, INC.
By: /s/ Allen E. Smith
----------------------------------------
Title: President
-------------------------------------
ERICSSON INC., as a Lender, as Agent and as
guarantor under the Goldman Assignment
Agreement
By: /s/ Joseph Hagan
----------------------------------------
Title: Vice President
-------------------------------------
GOLDMAN SACHS CREDIT PARTNERS
L.P., as a Lender
By: /s/ Stephen B. King
----------------------------------------
Title: Authorized Signatory
-------------------------------------
<PAGE> 1
EXHIBIT 10(ll)
FIRST AMENDMENT
TO
INTERCONNECTION AGREEMENT BETWEEN
INTERCEL, INC. ("INTERCEL") AND BELLSOUTH TELECOMMUNICATIONS, INC.
("BELLSOUTH")
WHEREAS, pursuant to Sections 251 and 252 of the Telecommunications Act
of 1996, Intercel and BellSouth entered into an interconnection agreement (the
"Agreement") for the rates, terms, and conditions of the exchange of traffic
between the parties to be effective April 1, 1997;
WHEREAS, the Agreement was approved by the Alabama Public Service
Commission on May 5, 1997, and by the Georgia Public Service Commission on July
1, 1997;
WHEREAS, the Agreement provided for an initial LATA-wide Additive that
was included in Type 1 and Type 2A rates, subject to further negotiation by the
parties; and
WHEREAS, Intercel and BellSouth have negotiated a final LATA-wide
Additive as set forth herein.
NOW THEREFORE, in consideration of the mutual provisions contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Intercel and BellSouth hereby covenant and agree
as follows:
1. Section V of the Agreement is hereby revised to read as follows:
V. MODIFICATION OF RATES
The LATA-wide Additive reflected in Attachment B-1 for Type 1 and Type
2A rates is intended to compensate BellSouth for additional transport and other
costs associated with transporting and terminating Local Traffic throughout a
LATA instead of only within local calling areas as defined by the Commission as
of the Effective Date. From the Effective Date until the expiration or
termination of the Agreement, the LATA-wide Additive shall be the rate per
minute in each state as set forth in Attachment B-1 (Amended). The parties shall
make the adjustment, or "true-up" described in the original Section V of the
Agreement for the purpose of applying the final LATA-wide Additive back to the
Effective Date of the Agreement.
2. Attachment B-1 of the Agreement is hereby revised and replaced with
Attachment B-1 (Amended) appended hereto and made a part hereof.
<PAGE> 2
3. The parties agree that except as specifically modified by this
Amendment all other provisions of the Agreement shall remain in full force and
effect.
4. The parties further agree that either or both of the parties is
authorized to submit this Amendment to the Commission or other regulatory body
having jurisdiction over the subject matter of this Amendment for approval
subject to Section 252(e) of the Telecommunications Act of 1996.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized representatives on the date
indicated below.
- ------------------------------- ----------------------------------------
Intercel, Inc. BellSouth Telecommunications, Inc.
By: /s/ Gowton Achaibar By: /s/ Jerry Hendrix
-------------------------- -----------------------------------
DATE: DATE: 2/11/98
-------------------------- -----------------------------------
<PAGE> 1
EXHIBIT 10(mm)
FIRST AMENDMENT
TO
INTERCONNECTION AGREEMENT BETWEEN
POWERTEL, INC. ("POWERTEL") AND BELLSOUTH TELECOMMUNICATIONS, INC.
("BELLSOUTH")
WHEREAS, pursuant to Sections 251 and 252 of the Telecommunications Act
of 1996, Powertel and BellSouth entered into an interconnection agreement (the
"Agreement") for the rates, terms, and conditions of the exchange of traffic
between the parties to be effective April 1, 1997;
WHEREAS, the Agreement was approved by the Alabama Public Service
Commission on May 5, 1997, by the Florida Public Service Commission on June 24,
1997, by the Georgia Public Service Commission on July 1, 1997, by the Kentucky
Public Service Commission on May 20, 1997, by the Louisiana Public Service
Commission on June 10, 1997, by the Mississippi Public Service Commission on
June 4, 1997, by the South Carolina Public Service Commission on April 17, 1997,
and as filed with the Tennessee Regulatory Authority;
WHEREAS, the Agreement provided for an initial LATA-wide Additive that
was included in Type 1 and Type 2A rates, subject to further negotiation by the
parties; and
WHEREAS, Powertel and BellSouth have negotiated a final LATA-wide
Additive as set forth herein.
NOW THEREFORE, in consideration of the mutual provisions contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Powertel and BellSouth hereby covenant and agree
as follows:
1. Section V of the Agreement is hereby revised to read as follows:
V. MODIFICATION OF RATES
The LATA-wide Additive reflected in Attachment B-1 for Type 1 and Type
2A rates is intended to compensate BellSouth for additional transport and other
costs associated with transporting and terminating Local Traffic throughout a
LATA instead of only within local calling areas as defined by the Commission as
of the Effective Date. From the Effective Date until the expiration or
termination of the Agreement, the LATA-wide Additive shall be the rate per
minute in each state as set forth in Attachment B-1 (Amended). The parties shall
make the adjustment, or "true-up" described in the original Section V of the
Agreement for the purpose of applying the final LATA-wide Additive back to the
Effective Date of the Agreement.
<PAGE> 2
2. Attachment B-1 of the Agreement is hereby revised and replaced with
Attachment B-1 (Amended) appended hereto and made a part hereof.
3. The parties agree that except as specifically modified by this
Amendment all other provisions of the Agreement shall remain in full force and
effect.
4. The parties further agree that either or both of the parties is
authorized to submit this Amendment to the Commission or other regulatory body
having jurisdiction over the subject matter of this Amendment for approval
subject to Section 252(e) of the Telecommunications Act of 1996.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized representatives on the date
indicated below.
- ------------------------------------ ----------------------------------------
Powertel, Inc. BellSouth Telecommunications, Inc.
By: /s/ Gowton Achaibar By: /s/ Jerry Hendrix
------------------------------- -----------------------------------
DATE: DATE: 2/11/98
------------------------------- -----------------------------------
<PAGE> 1
Exhibit 10(nn)
POWERTEL 401(k)
PROFIT SHARING PLAN
(As Amended and Restated Effective
January 1, 1997, and Renamed
Effective July 1, 1997)
formerly known as the InterCel 401(k) Profit Sharing Plan
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I -- INTRODUCTION
<S> <C>
Section 1.1 Establishment and Purpose ............................. 1
ARTICLE II -- DEFINITIONS AND CONSTRUCTION
Section 2.1 Affiliated Employer ................................... 2
Section 2.2 Annual Additions ...................................... 3
Section 2.3 Authorized Leave of Absence ........................... 3
Section 2.4 Beneficiary ........................................... 3
Section 2.5 Break-in-Service Year ................................. 4
Section 2.6 Code .................................................. 4
Section 2.7 Company ............................................... 4
Section 2.8 Compensation .......................................... 4
Section 2.9 Effective Date ........................................ 7
Section 2.10 Elective Deferrals .................................... 7
Section 2.11 Elective Deferral Account ............................. 7
Section 2.12 Eligible Employee ..................................... 7
Section 2.13 Eligible Spouse (or Spouse) ........................... 9
Section 2.14 Employee .............................................. 9
Section 2.15 Employer ..............................................10
Section 2.16 ERISA .................................................10
Section 2.17 Fiduciaries ...........................................10
Section 2.18 Highly Compensated Employee ...........................10
Section 2.19 Hours of Service ......................................11
Section 2.20 Income ................................................14
Section 2.21 Investment Funds ......................................14
Section 2.22 Limited Participant ...................................14
Section 2.23 Non-Highly Compensated Employee .......................15
Section 2.24 Participant ...........................................15
Section 2.25 Permanent Disability ..................................16
Section 2.26 Plan ..................................................16
Section 2.27 Plan Administrator; Committee .........................16
Section 2.28 Plan Quarter ..........................................17
Section 2.29 Plan Trustee ..........................................17
Section 2.30 Plan Year .............................................17
Section 2.31 Qualified Domestic Relations Order ....................17
Section 2.32 Retirement Date .......................................17
Section 2.33 Rollover Contributions ................................18
Section 2.34 Rollover Account ......................................18
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Section 2.35 Termination Date ......................................18
Section 2.36 Transfer Account ......................................19
Section 2.37 Trust (or Trust Fund) .................................19
Section 2.38 Valuation Date ........................................19
Section 2.39 Year of Service .......................................20
ARTICLE III -- PARTICIPATION
Section 3.1 Participation .........................................21
Section 3.2 Enrollment ............................................23
Section 3.3 Participation Upon Reemployment .......................25
ARTICLE IV -- CONTRIBUTIONS AND PARTICIPANT ACCOUNTS
Section 4.1 Elective Deferrals ....................................27
Section 4.2 Modifying or Suspending Contributions .................28
Section 4.3 Matching Contributions ................................29
Section 4.4 Profit Sharing Contributions ..........................30
Section 4.5 Special Make-Up Contribution ..........................30
Section 4.6 Rollover Account ......................................31
Section 4.7 Vesting ...............................................32
Section 4.8 Buy-Back Account ......................................35
ARTICLE V -- LIMITATIONS ON SAVING
Section 5.1 Maximum Annual Additions ..............................36
Section 5.2 Multiple Plans Limitation .............................37
Section 5.3 How the Limitations Shall Be Effected .................39
Section 5.4 ADP Limits on Elective Deferrals ......................40
Section 5.5 ACP Limits on Matching Contributions ..................42
Section 5.6 Excess Contributions Under the ADP & ACP Tests ........44
Section 5.7 Special Corrective Contributions ......................46
Section 5.8 Other Excess Deferrals ................................48
ARTICLE VI -- INVESTMENT AND PLAN ACCOUNTING
Section 6.1 Participant Accounts ..................................50
Section 6.2 Investment of Accounts ................................52
Section 6.3 Investment Funds ......................................52
Section 6.4 Investment Directions .................................54
Section 6.5 Investment Fund Accounting ............................55
Section 6.6 Expenses ..............................................56
Section 6.7 Crediting Contributions and Forfeitures ...............56
Section 6.8 Adjustment of Account Balances ........................59
Section 6.9 Operation of Company Stock Fund .......................59
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VII -- WITHDRAWALS AND DISTRIBUTIONS
Section 7.1 Withdrawals ...........................................63
Section 7.2 Distribution on Death, Retirement, Disability
or Other Termination of Employment...................66
Section 7.3 Designation of Beneficiary ............................68
Section 7.4 Lack of Beneficiary ...................................69
Section 7.5 Missing Payees ........................................70
Section 7.6 Timing of Benefit Payments ............................71
Section 7.7 Consent to Distributions Before Retirement Date .......72
Section 7.8 Special Distribution Rule .............................73
Section 7.9 Direct Rollover Election ..............................74
Section 7.10 Loans to Participants .................................75
ARTICLE VIII -- TOP-HEAVY PROVISIONS
Section 8.1 Top-Heavy Rules .......................................80
Section 8.2 Superseding Law .......................................84
ARTICLE IX -- TRUST FUND
Section 9.1 Contributions to the Trust Fund .......................85
Section 9.2 Use of Trust Assets ...................................85
ARTICLE X -- COMMITTEE AND PLAN ADMINISTRATION
Section 10.1 Membership and Authority ..............................86
Section 10.2 Delegation by Committee ...............................87
Section 10.3 Uniform Rules .........................................88
Section 10.4 Information to be Furnished to Committee ..............88
Section 10.5 Committee's Decisions Final ...........................88
Section 10.6 Exercise of Committee's Duties ........................89
Section 10.7 Remuneration and Expenses .............................89
Section 10.8 Resignation or Removal of Committee Member ............90
Section 10.9 Appointment of Successor Committee Member .............90
Section 10.10 Records and Reports ...................................90
Section 10.11 Indemnification .......................................90
Section 10.12 Claims Procedure ......................................91
ARTICLE XI -- MISCELLANEOUS PROVISIONS
Section 11.1 Nonguarantee of Employment ............................92
Section 11.2 Rights to Trust Assets ................................93
Section 11.3 Nonforfeitability of Benefits .........................93
Section 11.4 Nonalienation of Benefits .............................94
Section 11.5 Word Usage ............................................94
ARTICLE XII -- AMENDMENTS AND ACTION BY EMPLOYERS
Section 12.1 Amendments ............................................95
Section 12.2 Action by Employers ...................................95
Section 12.3 Notice of Amendment or Termination ....................96
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
ARTICLE XIII -- SUCCESSOR EMPLOYER AND MERGER
Section 13.1 Successor Employer ....................................96
Section 13.2 Conditions Applicable to Merger or
Consolidation of Plans.................................96
ARTICLE XIV -- PLAN TERMINATION
Section 14.1 Right to Terminate ....................................97
Section 14.2 Partial Termination ...................................98
Section 14.3 Liquidation of the Trust Fund .........................98
Section 14.4 Manner of Distribution ................................99
</TABLE>
<PAGE> 6
ARTICLE I
INTRODUCTION
SECTION 1.1 ESTABLISHMENT AND PURPOSE
InterCel, Inc. (the "Company") previously established a new retirement
plan for the benefit of its eligible employees, using a prototype document. The
name of that plan was the InterCel 401(k) Profit Sharing Plan (the "Plan"). It
took effect as of February 1, 1995.
The Company amended and restated the Plan, also effective as of
February 1, 1995, in order to include certain customized provisions which the
prototype document could not accommodate. The Company has further amended and
restated the Plan in the form of this document, effective as of January 1, 1997
or as otherwise specified herein. Effective July 1, 1997, the name of this Plan
is changed to the "PowerTel 401(k) Profit Sharing Plan."
The Plan is designed and intended to be tax-qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and to be
funded through a trust fund which shall be tax-exempt under Code Section 501(a).
The Plan is further designed as a profit sharing plan with a qualifying cash or
deferred feature in accordance with Code Section 401(k). Unless otherwise
specified in the Plan, the following four types of contributions may be made to
the Plan: (l) pre-tax salary deferrals elected by participating employees; (2)
employer matching contributions; (3) discretionary employer profit sharing
contributions; and (4) rollover or transfer contributions from another eligible,
tax-qualified profit sharing plan or from an individual retirement account.
Employer profit sharing contributions shall be entirely discretionary, but need
not be made from or conditioned on available current or accumulated profits.
<PAGE> 7
- 2 -
The Plan shall be exempt from the qualified joint and survivor annuity
and spousal consent provisions of Code Sections 401(a)(11) and 417.
The Plan Administrator shall interpret and operate the Plan in a manner
consistent with these stated design objectives and purposes.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
Where the following words and phrases appear in this Plan, they will
have the meanings set forth in this Article unless the context clearly indicates
to the contrary.
SECTION 2.1 AFFILIATED EMPLOYER
Any of the following entities as defined under Section 414 of the Code:
(a) any corporation that is a member of a controlled group of
corporations with the Company as defined under Section 414(b) of
the Code,
(b) any trade or business whether or not incorporated, that is under
common control with the Company as defined under Section 414(c)
of the Code,
(c) any trade or business that is a member of an affiliated service
group of which the Company is also a member under Section 414(m)
of the Code, or
(d) any other entity required to be aggregated with the Company under
Section 414(o) of the Code;
provided that "Affiliated Employer" does not include any entity for any period
before the date such entity satisfied (or after the date the entity ceases to
satisfy) the affiliation or control tests of (a) through (d) above. In
identifying "Affiliated Employers" for the purposes of Sections 5.1
<PAGE> 8
- 3 -
and 5.2 of the Plan, the definition in Sections 414(b) and (c) of the Code will
be modified as provided in Section 415(h) of the Code.
SECTION 2.2 ANNUAL ADDITIONS
With respect to any Plan Year, the total of the contributions and any
forfeitures that become allocated to a Participant's Account under the Plan for
that year, excluding rollover and transfer contributions.
SECTION 2.3 AUTHORIZED LEAVE OF ABSENCE
Any absence authorized by the Employer under the Employer's standard
personnel practices, provided that all persons under similar circumstances must
be treated alike in the granting of such Authorized Leaves of Absence; and
provided further that the Employee returns to employment with the Employer or
retires immediately following his Authorized Leave of Absence. An absence caused
by service in the Armed Forces of the United States will be considered an
Authorized Leave of Absence provided that the Employee complies with all of the
requirements of federal law in order to be entitled to reemployment and provided
further that the Employee returns to employment with the Employer within the
period provided by such law.
SECTION 2.4 BENEFICIARY
Any legal or natural person or persons designated by a Participant or
otherwise authorized in accordance with the provisions of Article VII herein to
receive any death benefit that may be payable under this Plan upon the
Participant's death.
<PAGE> 9
- 4 -
SECTION 2.5 BREAK-IN-SERVICE YEAR
Any Plan Year in which the Employee completes fewer than 501 Hours of
Service.
SECTION 2.6 CODE
The Internal Revenue Code of 1986, as amended from time to time.
SECTION 2.7 COMPANY
InterCel, Inc., a Delaware corporation, and any successor or assign
which adopts and continues the Plan either by resolution of its board of
directors or by contractual undertaking. Effective as of June 30, 1997, the name
of the Company is changed to Powertel, Inc., which is also a Delaware
corporation.
SECTION 2.8 COMPENSATION
(a) For purposes of determining contributions to the Plan, Compensation
shall mean an Employee's earned income for the Plan Year of a type that is
required to be reported as wages on the Employee's Form W-2 (without regard to
any limits on reportable remuneration based on the nature or location of the
employment or the services performed), plus any amounts not currently includible
in the Employee's gross income that constitute elective pretax salary or wage
deferrals under Sections 125, 129, 401(k), 403(b) or 457 of the Code; but for
this purpose matters listed in part (b) below shall be excluded. Subject to part
(b) below, bonuses shall be considered Compensation for the Plan Year in which
they are paid, regardless of when earned.
<PAGE> 10
- 5 -
(b) Excluded from Compensation for purposes of part (a) above, however,
shall be: Employer flexible benefit plan credits that do not constitute wage
deferrals as described in Section 2.8(a) above, imputed income, moving expenses,
automobile allowances, relocation allowances, tuition reimbursement, sign on
bonuses, lump sum accrued vacation payments, awards (under any employee
recognition program or otherwise), severance payments, any incentive payments
(including, but not limited to, payments for accepting an assignment to work at
a different location), long-term incentive payments (under a multiple year bonus
program), and short-term and long-term disability benefits. In addition, if all
or any part of an Employee's year-end bonus payment is advanced or accelerated
so it is paid during the calendar year for which it is earned, then any such
accelerated payment shall be excluded from Compensation if paid to a Highly
Compensated Employee. Compensation earned while the Employee is not a
Participant in the Plan also shall be excluded for all purposes (except part (c)
below) under the Plan.
(c) For purposes of Code Section 415 testing under Sections 5.1 and
5.2, the term Compensation shall be defined in accordance with Code Section 415
and applicable regulations thereunder. To the extent permitted in such
regulations, Compensation shall refer solely to W-2 income (without regard to
any limits on reportable renumeration based on the nature or location of the
employment or the services performed) in accordance with Treasury Regulation ss.
1.415 - 2(d)(11)(i) . Beginning on January 1, 1998, Compensation under Code
Section 415 also shall include pre-tax wage deferrals made in accordance with
Code Section 125, 129, 401(k), 403(b) or 457, to the extent so provided in Code
Section 415(c)(3). For purposes of identifying
<PAGE> 11
- 6 -
Highly Compensated Employees under Section 2.18, Compensation shall be as
defined in this part (c) except that pre-tax deferrals shall be included at all
times as and to the extent required under Code Section 414(q)(7).
(d) For purposes of nondiscrimination testing under Sections 5.4 and
5.5 of the Plan, Compensation shall be measured as provided in parts (a) and (b)
above, except that the Plan Administrator shall have discretion for such testing
purposes for any year, and from year to year, to include any items otherwise
excludable under part (b) or to exclude all pre-tax deferrals otherwise included
under part (a), or to make both such changes under (a) and (b). Such discretion
shall be exercised uniformly for all Participants for the year being tested and
as needed to help the Plan to pass applicable nondiscrimination tests or to
minimize the impact of not passing one or more such tests for a given Plan Year.
(e) In addition to the other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the contrary, for
purposes of parts (a) and (d) above the annual Compensation of each Participant
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit, as adjusted by the Commissioner of the Internal Revenue
Service for increases in the cost of living in accordance with Section
401(a)(17)(B) of the Code. The OBRA '93 annual compensation limit for 1995 is
$150,000. The cost of living adjustment in effect for a calendar year applies to
any period, not exceeding twelve (12) months, over which compensation is
determined (the "determination period") beginning in such calendar year. If a
determination period consists of fewer than twelve (12) months, the
<PAGE> 12
- 7 -
OBRA '93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period and the
denominator of which is twelve (12). Any reference in this Plan to the
limitation under Section 401(a)(17) of the Code shall mean the OBRA '93 annual
compensation limit set forth above.
SECTION 2.9 EFFECTIVE DATE
February 1, 1995, the date on which the Plan became effective.
SECTION 2.10 ELECTIVE DEFERRALS
Contributions made to the Plan for the Plan Year by an Employer, at the
election of the Participant in accordance with Articles III and IV, in lieu of
cash compensation.
SECTION 2.11 ELECTIVE DEFERRAL ACCOUNT
The account maintained for a Participant to record his share of
Elective Deferrals and adjustments relating thereto.
SECTION 2.12 ELIGIBLE EMPLOYEE
Any Employee of an Employer, except as provided below. Notwithstanding
any other provision of the Plan:
(a) a Leased Employee (as defined in Section 2.14) shall be deemed, on
an individual by individual basis, to be in a class of Employees not eligible to
participate in this Plan, unless such participation is required as a condition
of the Plan's qualification under Section 401(a) of the Code, and
<PAGE> 13
- 8 -
(b) any independent contractor who is not a Leased Employee shall be
ineligible to participate in the Plan and so shall not be considered an Employee
for purposes of this Plan.
Any Leased Employee who is covered by a money purchase pension plan
maintained by the leasing organization shall not be considered an Employee for
purposes of this Plan if:
(i) Leased Employees do not constitute more than twenty percent
(20%) of the combined workforce of the Company and Affiliated
Employers; and
(ii) Such money purchase pension plan provides for a nonintegrated
employer contribution rate of at least ten percent (10%) of
compensation, provides for full and immediate vesting, and
provides that all employees of the leasing organization
(except those performing substantially all their services for
the leasing organization) participate immediately as and to
the extent necessary to satisfy the safe harbor in Code
Section 414(n)(5).
Any individual whose terms and conditions of employment are governed by
a collective bargaining agreement between an Employer and a duly authorized
bargaining representative shall not be considered an Eligible Employee under the
Plan except to the extent that coverage under the Plan is one of the benefits
expressly provided by such collective bargaining agreement, but this exclusion
shall apply only if retirement benefits were a subject of good faith bargaining
between the Employer and the bargaining representative.
Employees who are nonresident aliens with no U.S.-source income shall
not be considered Eligible Employees under the Plan.
<PAGE> 14
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SECTION 2.13 ELIGIBLE SPOUSE (OR SPOUSE)
The spouse to whom a Participant or Limited Participant is legally
married under the laws of the applicable jurisdiction.
SECTION 2.14 EMPLOYEE
Except as otherwise specified below or in Section 2.12, any person who,
on or after the Effective Date, is receiving remuneration for personal services
rendered to the Employer, including an Employee who would be receiving such
remuneration except for an Authorized Leave of Absence.
Only to the extent required by Section 414(n) of the Code and the
regulations thereunder, shall a Leased Employee be treated as an Employee. A
"Leased Employee" means any individual who is not an Employee and who provides
services for the Employer if:
(a) such services are provided pursuant to an agreement between an
Employer and any other person;
(b) such individual has performed such services for the Employer (or a
related person within the meaning of Section 144(a)(3) of the Code) on a
substantially full-time basis for a period of at least one year; and
(c) such services are performed under the primary direction or control
of the Employer.
<PAGE> 15
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SECTION 2.15 EMPLOYER
The Company or any Affiliated Employer that has adopted the Plan for
the benefit of its Eligible Employees, with the approval of the Company, for
such time as such adoption of the Plan remains in effect.
SECTION 2.16 ERISA
The Employee Retirement Income Security Act of 1974, as amended from
time to time.
SECTION 2.17 FIDUCIARIES
The Plan Trustee, the Plan investment manager(s), and the Plan
Administrator, but only with respect to the specific fiduciary responsibilities
of each for Plan and Trust administration.
SECTION 2.18 HIGHLY COMPENSATED EMPLOYEE
The term Highly Compensated Employee shall include Highly Compensated
Active Employees and Highly Compensated Former Employees.
A Highly Compensated Active Employee means any Employee who performs
service for an Employer during the determination year and who:
(a) is a "5-percent owner" of the Employer, as defined in Code Section
416(i)(1), at any time during the determination year or the immediately
preceding Plan Year; or
(b) received Compensation from the Employer in excess of $80,000 (as
adjusted under Section 414(q)(1) of the Code) for that immediately preceding
Plan Year and, if the
<PAGE> 16
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Company so elects for that immediately preceding Plan Year, was in the top-paid
group for such year.
For purposes of this Section;
(i) the determination year shall be each successive Plan Year,
respectively, during which the Plan remains in effect, and
(ii) the "top paid group" shall be the group consisting of the top
twenty percent (20%) of all Employees when ranked on the basis
of Compensation paid by the Employers during the applicable
Plan Year.
A Highly Compensated Former Employee includes any former Employee who
was a Highly Compensated Active Employee either when he separated from service
with the Employer or at any time after he attained age 55.
Notwithstanding the foregoing, the determination of who is a Highly
Compensated Employee or a Highly Compensated Former Employee will be made in
accordance with Section 414(q) of the Code and the regulations thereunder from
time to time. For the 1997 determination year, this definition of Highly
Compensated Employee shall apply when looking back to the immediately preceding
Plan Year without regard to the prior definition which had been in effect in
that preceding year.
SECTION 2.19 HOURS OF SERVICE
An Employee shall be credited with Hours of Service in accordance with
the following rules:
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(a) Hours Credited for Performance of Service. An Hour of Service shall
be credited to an Employee for each hour for which the Employee is directly or
indirectly paid or entitled to payment by the Company or any Affiliated Employer
for the performance of duties (including periods for which backpay is awarded by
final judgment of an appropriate court or other appropriate body or for which
backpay is agreed to by the Company or an Affiliated Employer).
(b) Hours Credited Without Regard To Performance of Services. In
addition to Hours of Service credited under subsection (a) above, an Hour of
Service shall be credited to an Employee for each hour for which the Employee is
directly or indirectly paid or entitled to payment by the Company or any
Affiliated Employer for a period during which no duties are required to be
performed (including such periods for which backpay is awarded by final judgment
of an appropriate court or other appropriate body or for which backpay is agreed
to by the Company or an Affiliated Employer); except that no Hours of Service
shall be credited for any severance pay or other special compensation (not
including accrued vacation pay) received or payable to any former Employee with
respect to any period after (or paid in connection with) the termination of his
employment with the Company and all Affiliated Employers.
(c) Maternity and Paternity Leave. If an Employee is absent from work
with the Company or any Affiliated Employer for any period by reason of the
Employee's pregnancy, birth of a child of the Employee, placement of a child
with the Employee in connection with the adoption of such child by the Employee,
or for purposes of caring for the child for a period
<PAGE> 18
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beginning immediately after such birth or placement, the Employee will be
considered as having completed the number of Hours of Service which otherwise
would normally have been credited to the Employee but for such absence, or if
the Plan Administrator is unable to determine such number of Hours of Service,
eight Hours of Service for each day of absence; provided that the total number
of hours treated as Hours of Service under this subsection (c) by reason of such
pregnancy or placement shall not exceed 501 hours. The hours described in this
subsection (c) shall be treated as Hours of Service:
(i) only in the year in which the absence begins, if the Employee
would be prevented from incurring a Break in Service in such
year solely because the period of absence is treated as Hours
of Service, or
(ii) in any other case, in the immediately following year;
(d) Compliance With Final Regulations. In addition to any other hours
credited under subsections (a), (b) and (c) above, an Hour of Service shall be
credited to an Employee for any additional hour which is required to be credited
in accordance with appropriate final regulations of the United States Department
of Labor interpreting the minimum participation standards of ERISA. For this
purpose the rules for crediting hours of service set forth in Section 2530.200-2
of the Department of Labor regulations are hereby incorporated by reference.
(e) Period For Which Hours Are Credited. Except for hours credited in
accordance with subsection (c) above, hours shall be credited for the periods to
which such hours pertain rather than the periods during which payment for such
hours is made or received.
<PAGE> 19
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(f) Authorized Leave of Absence. Regardless of the limits of subsection
(b) above, for vesting purposes only Hours of Service shall be credited under
this Section 2.19 for the entire period of an Employee's Authorized Leave of
Absence from which he timely returns, whether paid or unpaid, as though the
Employee were actively at work during such absence.
(g) Non-duplication of Service. Hours required to be credited for more
than one reason under this Section which pertain to the same period of time
shall be credited only once.
SECTION 2.20 INCOME
The net gain or loss of the Trust Fund from investments, as reflected
by interest payments, dividends, realized and unrealized gains and losses on
securities, other investment transactions, and expenses paid from the Trust
Fund. In determining the Income of the Trust Fund as of any date, assets will be
valued on the basis of their then fair market value.
SECTION 2.21 INVESTMENT FUNDS
The investment funds, specified under Section 6.3 of the Plan, in which
Trust assets are invested.
SECTION 2.22 LIMITED PARTICIPANT
A Participant:
(a) whose employment with an Employer has terminated, but who is
employed by an Affiliated Employer; or
(b) who has a vested interest under the Plan that has not been paid in
full; or
<PAGE> 20
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(c) who has authorized only a Rollover Contribution under Section 3.2
of the Plan; and, therefore, who is participating in the allocation of Trust
Fund Income and who may direct the investment of his account balances under
Section 6.3 of the Plan, and who may designate Beneficiaries, but who is not
entitled to Annual Additions (except to share in the allocation of Profit
Sharing Contributions) or to make withdrawals.
Any Participant who is an Employee of any Employer and who is assigned
to employment based outside the United States shall be considered only a Limited
Participant under the Plan for the duration of such foreign based employment,
except with respect to any period for which such Employee is on the domestic
United States payroll of the Employer.
SECTION 2.23 NON-HIGHLY COMPENSATED EMPLOYEE
Any Eligible Employee who is not a Highly Compensated Employee.
SECTION 2.24 PARTICIPANT
An Eligible Employee who becomes a Participant in the Plan in
accordance with the provisions of Section 3.1 of the Plan. A Participant who is
no longer an Eligible Employee shall be a Limited Participant in the Plan solely
for the purposes of receiving Income allocations, directing investments in
accordance with Section 6.3 of the Plan, designating Beneficiaries under Section
7.3 of the Plan, and receiving any benefit distributions to which such person
may become entitled (other than withdrawals) as though a full Participant in
accordance with Article VII of the Plan.
<PAGE> 21
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SECTION 2.25 PERMANENT DISABILITY
Any physical or mental injury, illness or incapacity which is expected
to be permanent or of long and indefinite duration and which also entitles the
Participant to disability benefits under the Social Security Act as in effect on
his date of disability, as determined by the Social Security Administration
under that Act. Notwithstanding the foregoing, Permanent Disability shall not
include any condition resulting from an injury or disease which:
(a) was contracted, suffered or incurred while the Participant was
engaged in, or resulted from his having engaged in a criminal enterprise;
(b) was intentionally self-inflicted;
(c) resulted from chronic or excessive use of intoxicants, drugs or
narcotics; or
(d) arose after the Participant's employment terminated with the
Employer.
SECTION 2.26 PLAN
The InterCel 401(k) Profit Sharing Plan, a tax-qualified, profit
sharing plan having a Code Section 401(k) qualified cash or deferred feature, as
set forth in this document and as hereafter amended or restated from time to
time. Effective July 1, 1997, the name of this Plan is changed to the "Powertel
401(k) Profit Sharing Plan" in order to reflect a change in the name of the
Company as Plan sponsor.
<PAGE> 22
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SECTION 2.27 PLAN ADMINISTRATOR; COMMITTEE
The authority to control and manage the operation and administration of
the Plan will be vested in the Company's Profit Sharing Plan Administrative
Committee (the "Committee") as described in Article X. The Committee will be the
"plan administrator" as described in Section 3(16)(A) of ERISA, and the "named
fiduciary" for the Plan within the meaning of Section 402 of ERISA.
SECTION 2.28 PLAN QUARTER
The three-month period beginning January 1, April 1, July 1, or October
1 of each calendar year.
SECTION 2.29 PLAN TRUSTEE
The person or persons appointed, from time to time, by the Board of
Directors of the Company to administer the Trust.
SECTION 2.30 PLAN YEAR
The calendar year, beginning on January 1 and ending on the next
following December 31; except that the initial Plan Year shall run only for
eleven months from the Plan's Effective Date through December 31, 1995.
SECTION 2.31 QUALIFIED DOMESTIC RELATIONS ORDER
A judgment, decree, or order relating to the provision of child
support, alimony payments, or marital property rights that meets the
requirements of Section 414(p) of the Code.
<PAGE> 23
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SECTION 2.32 RETIREMENT DATE
The date on or after a Participant's sixty-fifth (65th) birthday on
which such Participant's employment with the Employer (including all Affiliated
Employers) terminates due to his retirement under the terms of the Plan.
SECTION 2.33 ROLLOVER CONTRIBUTIONS
Eligible rollover distributions described in Section 402(c)(4) of the
Code, rollover contributions described in Section 408(d)(3) of the Code, and
direct transfers from other plans meeting the requirements of Section 401(a)(31)
of the Code; provided, however, that Rollover Contributions will not include
amounts subject to, or distributions from a plan subject to, Section 401(a)(11)
of the Code relating to the requirements of a joint and survivor annuity and a
preretirement survivor annuity (unless such amounts qualify for the exception in
Section 401(a)(11)(B)(iii) of the Code), and Rollover Contributions will not
include any amounts consisting of after-tax employee savings. Notwithstanding
the foregoing, no benefit from any other qualified plan shall be accepted in
rollover or transfer form to the extent such benefit is subject to a Qualified
Domestic Relations Order.
SECTION 2.34 ROLLOVER ACCOUNT
The account maintained for a Participant or an Employee to record his
share of Rollover Contributions and adjustments relating thereto.
<PAGE> 24
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SECTION 2.35 TERMINATION DATE
The date on which an Employee ceases employment with an Employer and
all Affiliated Employers.
SECTION 2.36 TRANSFER ACCOUNT
An account maintained for a Participant to reflect amounts transferred
from another qualified plan and accepted for this Plan by the Plan Administrator
which do not qualify as rollovers governed by Section 2.33 above and which are
not attributable to a benefit distribution resulting from a distributable event
(such as termination of employment or retirement) under such other plan. No
transfer shall be accepted which would be subject to qualified joint and
survivor annuity requirements or to special withdrawal or loan requirements not
otherwise part of this Plan or which would otherwise substantially change the
Plan Administrator's responsibilities, but the Plan Administrator may choose
whether to accept a transfer that includes after-tax employee contributions in a
particular instance.
SECTION 2.37 TRUST (OR TRUST FUND)
The InterCel 401(k) Profit Sharing Trust, as established effective
February 1, 1995, and initially maintained pursuant to a certain Directed
Employee Benefit Trust Agreement with the Charles Schwab Trust Company, and as
amended or restated from time to time. The name of the Trust shall be changed,
effective July 1, 1997, to the "Powertel 401(k) Profit Sharing Trust."
<PAGE> 25
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SECTION 2.38 VALUATION DATE
The last day of each calendar month, and any other dates designated by
the Plan Administrator for the valuation of assets and allocation of
contributions and Income.
SECTION 2.39 YEAR OF SERVICE
(a) A 12 consecutive month period in which an Employee completes at
least 1,000 Hours of Service. If an Employee completes 1,000 or more Hours of
Service before the first anniversary of the date on which he completes his first
Hour of Service, then that initial 12 month period of employment as an Employee
shall count as the Employee's first Year of Service and all subsequent Years of
Service shall be measured using the Plan Year, beginning with the Plan Year
which commences within that Employee's first Year of Service. If an Employee
fails to complete 1,000 or more Hours of Service before the first anniversary of
his first credited Hour of Service then his Years of Service shall be measured
using the Plan Year, beginning with the Plan Year which commences after that
Employee's first credited Hour of Service. Years of Service for purposes of
vesting, however, shall be measured only using the Plan Year.
(b) Service prior to February 1, 1995 with the predecessor corporation
to the Company, Unity Telephone Company, shall count towards Years of Service
for all purposes under the Plan; subject to the Plan provisions regarding Hours
of Service and Break in Service Years. While such prior service shall count as
though the individual were then an Employee for purposes of this Plan, such
individual's participation in this Plan shall not commence before the individual
actually becomes an Eligible Employee and not before the Plan's Effective Date.
This
<PAGE> 26
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subsection (c) shall not apply to any Employee who is hired by an Employer after
February 1, 1995.
(c) Any employee of ITC Holding Company ("ITC") who is transferred
directly from that employment to employment with the Company shall be credited,
as of the date such employee first becomes an Eligible Employee of the Company,
with Years of Service for purposes of this Plan in the amount of the Years of
Service standing to such Employee's credit for vesting purposes under the
existing ITC-sponsored 401(k) plan as of the date of the Employee's transfer
from ITC employment. The Plan Administrator shall be entitled to rely on any
report or records provided by the administrator or recordkeeper for such ITC
plan for purposes of crediting past service under this part (c).
(d) For any Plan Year that is less than twelve (12) months in duration,
the minimum number of Hours of Service necessary to earn a Year of Service for
that Plan Year shall equal the product of 1,000 multiplied by a fraction, the
numerator of which is the number of months in such short Plan Year and the
denominator of which is 12. This same pro rata Hours of Service rule shall apply
to the determination of Break in Service Years for short Plan Years, except that
the fraction shall be multiplied by 501 instead.
<PAGE> 27
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ARTICLE III
PARTICIPATION
SECTION 3.1 PARTICIPATION
(a) An Eligible Employee shall be eligible to participate in the Plan
on the January 1st or July 1st coincident with or next following the date on
which the Eligible Employee completes his first Year of Service as an Employee,
except that any Eligible Employee who completes a Year of Service before the
Plan's Effective Date shall commence participation in the Plan as of that
Effective Date. In addition, any individual who was a participant in the Unity
Cellular Systems, Inc. Pension Plan (the "UCS Plan") as of April 29, 1994 and
who is an Eligible Employee on February 1, 1995 shall become a Participant in
this Plan as of February 1, 1995 without regard to the Year of Service
eligibility requirement. Effective October 1, 1995, an Eligible Employee shall
be eligible to participate in the Plan on the first day of the next Plan Quarter
commencing on or after the date on which the Eligible Employee completes his
first Year of Service as an Employee. An individual who ceases to be an Eligible
Employee before completing the required Year of Service shall be treated as a
new hire upon any subsequent reemployment as an Eligible Employee.
(b) Effective on and after October 1, 1995, the Year of Service
eligibility requirement shall not apply to full-time Eligible Employees, so
that:
(i) an individual who is a full-time Eligible Employee on October
1, 1995 and has not yet commenced participation in the Plan
shall become a Participant on that date, and
(ii) an individual who becomes a full-time Eligible Employee after
October 1, 1995 shall commence participation in the Plan as
of the first day of the next Plan Quarter that begins on or
after the date on which such individual becomes a full-time
<PAGE> 28
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Eligible Employee, subject to the further conditions of this
Section.
For this purpose, an Eligible Employee shall be considered full-time if
he is classified as a regular, full-time Employee of an Employer and is
regularly scheduled to work at least forty (40) hours per week as an Eligible
Employee. The Year of Service eligibility requirement in subsection (a) above
shall continue to apply to all Eligible Employees who are not considered
full-time.
(c) An individual who has satisfied the applicable requirements of this
Section 3.1 for eligibility to participate but who is no longer an Eligible
Employee when his participation is otherwise due to commence shall:
(i) commence participation as of the first date thereafter on
which he is again an Eligible Employee, if the individual did
not incur at least five consecutive Break in Service Years
during that interim absence from Eligible Employee status, or
(ii) commence participation on the same basis as a new hire by
again completing the eligibility requirements of this Section
3.1 after resuming Eligible Employee status after an interim
absence from that status covering at least five consecutive
Break in Service years.
SECTION 3.2 ENROLLMENT
An Eligible Employee shall enroll in the Plan on or before his entry
date. To enroll, the Eligible Employee must complete, sign and return to the
Plan Administrator a proper Plan enrollment form. The enrollment form may
address such matters as:
<PAGE> 29
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(a) the level of Elective Deferrals to be made on behalf of the
Participant;
(b) the investment of the Participant's Accounts under the Plan and of
future contributions credited to the Participant's Accounts;
(c) the Participant's designated Beneficiary; and
(d) such other information as the Plan Administrator deems appropriate.
The enrollment form may consist of a package of several different
forms, rather than a single form, if the Plan Administrator prefers.
An Eligible Employee's participation in the Plan shall be automatic on
his appropriate entry date, but the making of Elective Deferrals shall be
voluntary and subject to the Eligible Employee's written election on the
appropriate enrollment form. An election of Elective Deferrals shall take effect
as of the electing Participant's entry date or, if later, as of the start of the
first payroll period commencing in the first Plan Quarter which begins on or
after the date on which the Participant's Elective Deferral election is properly
made and returned to the Plan Administrator. Any contributions made on behalf of
a Participant before his enrollment form(s) is filed shall be held by the
Trustee uninvested, in cash or non-interest bearing cash equivalents, pending
the Participant's formal election of investment options.
During a Plan Year, Participants may elect to:
(i) change their Elective Deferral elections as of the start of
any Plan Quarter;
(ii) change their investment direction elections as of the start
of any Plan Quarter;
<PAGE> 30
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(iii) change their designated Beneficiary elections at any time;
and
(iv) make a Rollover Contribution election at any time;
provided an appropriate enrollment form reflecting the new election has been
signed and filed with the Plan Administrator by the Participant on or before the
effective date of the election.
SECTION 3.3 PARTICIPATION UPON REEMPLOYMENT
(a) Participation in the Plan will cease as of the Participant's
Termination Date, subject to Sections 2.22 and 2.24 of the Plan regarding the
rights of a Limited Participant. If an individual who is or was a Participant is
rehired as an Eligible Employee, such Eligible Employee will be eligible to
resume participation in this Plan immediately upon such reemployment.
Participation will resume as of the start of the next calendar month, if the
Eligible Employee reenrolls (in the manner prescribed in Section 3.2) before the
start of such month. Elective Deferral contributions shall commence with the
first payroll period beginning on or after the date the properly completed
enrollment form is returned to the Plan Administrator.
(b) Notwithstanding any Plan provisions to the contrary, any Employee
who timely resumes employment covered by this Plan directly from an Authorized
Leave of Absence due to a qualifying period of "service in the uniformed
services" of the United States (as defined in the Uniformed Services Employment
and Reemployment Rights Act at 38 U.S.C. ss. 4303(12)) shall have service
credited and make-up contributions made for the period of such qualifying
uniformed service in accordance with this Section 3.3(b) solely so as to comply
with said Act
<PAGE> 31
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("USERRA"). The Employee's period of uniformed service, if it qualifies under
USERRA for such treatment, shall be considered service with an Employer for
purposes of this Plan, and no Break in Service Year shall be assessed for any
portion of said qualifying uniformed service. This Section 3.3(b) shall apply to
periods of uniformed service commencing on or after December 12, 1994.
The Employer with whom the Employee first resumes employment upon
return from such uniformed service shall be obligated to make, as promptly as
practicable, a special make-up contribution on behalf of the Employee in the
amount of all Profit Sharing Contributions, if any, which would have been
allocated to the Employee's account under the Plan for the period of the
Employee's qualifying uniformed service if the Employee had actually been
working for that Employer in covered service throughout such period. No make-up
earnings or forfeiture allocations for the period of such qualifying uniformed
service shall be included in this or any other make-up contribution under this
Section 3.3(b).
The amount of this make-up contribution shall be determined based on
the level of Compensation the Employee would have received had he remained
actually employed during such period of qualifying uniformed service. If that
level of Compensation is uncertain, then the Employee's average level of
Compensation for the last twelve months of covered employment (or for his actual
months of covered employment, if less) shall be used instead.
Immediately upon resuming covered employment (and applying the same
assumed measure of prior Compensation as described above) the Employee shall
have the opportunity to
<PAGE> 32
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elect to make up any Elective Deferrals which he could have had made to the Plan
during his period of qualifying uniformed service, subject to the Plan limits on
Elective Deferrals that were in effect from time to time for such prior period.
This make-up deferral opportunity shall not extend, however, beyond the shorter
of three times the duration of such uniformed service or five years, measured
from the date on which the Employee resumes covered employment.
Any Matching Contribution which would have been made on the Employee's
behalf during such period of uniformed service had the Employee's make-up
Elective Deferrals, if any, been made during such period will be made and
allocated on the Employee's behalf as such make-up Elective Deferrals are made,
subject to the Plan limits on such Matching Contributions that were in effect
from time to time for such prior period. Make-up contributions under this
Section 3.3(b) shall be treated as Annual Additions for the prior year(s) to
which they relate, rather than for the year in which they are made.
27
The Plan Administrator, in its discretion, may to the extent allowed by
applicable law suspend an Employee's obligation to repay a Plan loan for any
period during the Employee's uniformed service, regardless of whether such
service is qualified under USERRA.
<PAGE> 33
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ARTICLE IV
CONTRIBUTIONS AND PARTICIPANT ACCOUNTS
SECTION 4.1 ELECTIVE DEFERRALS
A Participant may elect in writing, on an appropriate Plan enrollment
form, to have Elective Deferrals contributed to the Plan on his behalf, either
(i) in increments of from 1% to 10% of his Compensation, using
whole percentages, or
(ii) in a specified dollar amount per pay period.
As soon as practicable after each pay period (generally within thirty days) the
Employer will contribute to the Plan an amount equal to the Participant's
elected contribution for the pay period under this Section 4.1 to be credited to
such Participant's Elective Deferral Account. The total amount of Elective
Deferrals that may be credited to a Participant's Elective Deferral Account may
not exceed $9,500 in any Plan Year (or such greater amount as may be prescribed
by the Secretary of the Treasury for the Plan Year to take into account cost of
living increases pursuant to Section 402(g)(5) of the Code). All contributions
under this Section 4.1 for a given Plan Year shall be made in accordance with
Section 6.7(a) and not later than the date of filing of the Employer's federal
income tax return for its fiscal year in which that Plan Year ends.
<PAGE> 34
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SECTION 4.2 MODIFYING OR SUSPENDING CONTRIBUTIONS
(a) A Participant may elect to change his level of Elective Deferrals
as of the start of the first payroll period beginning in any Plan Quarter by
filing a revised enrollment form with the Plan Administrator before the
beginning of that Plan Quarter.
(b) Elective Deferrals may be suspended at the Participant's written
request effective at any time upon at least thirty (30) days' advance notice. A
Participant who has elected to suspend Elective Deferrals may resume such
contributions as of the start of the first payroll period beginning in any
subsequent Plan Quarter by filing a revised enrollment form with the Plan
Administrator before the beginning of that Plan Quarter. Elective Deferrals are
automatically suspended for any period during which the Participant is not on
the active payroll of the Employer or is not an Eligible Employee, but shall be
resumed automatically without a waiting or reenrollment Period (subject to
Section 3.3, if applicable) once the Participant resumes Eligible Employee
status on the Employer's active payroll. Any suspension of Elective Deferrals
triggered by a hardship withdrawal under Section 7.1 shall be governed entirely
by that Section.
(c) The Plan Administrator has discretion to reduce or suspend, at any
time during the Plan Year, the Elective Deferrals being made on behalf of one or
more Highly Compensated Employees in order to avoid exceeding any of the
applicable legal limits described in Section 4.1 or in Article V.
(d) Any Participant who becomes entitled to an executive compensation
bonus may file a written election with the Plan Administrator that Elective
Deferrals not be withheld
<PAGE> 35
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from any such bonus payment, provided such election is made before the first
date on which the bonus payment could otherwise be issued or delivered to the
Participant.
SECTION 4.3 MATCHING CONTRIBUTIONS
Each Employer shall contribute to the Plan, from time to time, a
Matching Contribution as provided in this Section 4.3. The Matching
Contributions shall be made on behalf of every Participant for whom the Employer
makes Elective Deferral contributions under the Plan. The amount of the Matching
Contributions made on behalf of a Participant for a Plan Year shall equal half
of the first two-percent (2%) of Compensation deferred by such Participant as an
Elective Deferral contribution to the Plan for the Plan Year. No Matching
Contribution shall be made with respect to a Participant's Elective Deferrals in
excess of 2% of the Participant's Compensation for the Plan Year.
Matching Contributions for any Plan Year shall be made no later than
the Employer's federal income tax return filing deadline (or filing date, if
earlier) for the Employer's taxable year in which that Plan Year ends. No
interest or earnings on Matching Contributions shall be due or credited with
respect to any period before such contributions are actually received by the
Plan.
SECTION 4.4 PROFIT SHARING CONTRIBUTIONS
Subject to the limitations of Article V, each Employer shall have
discretion to contribute to the Plan such amount, if any, of its profits or
other available assets for any Plan Year as shall be determined by the Board of
Directors of that Employer or the designee of such Board. No Employer shall be
required to make a contribution under this Section for any Plan Year.
<PAGE> 36
- 31 -
Employer contributions for any Plan Year shall be made no later than the date of
filing of the Employer's federal income tax return for its fiscal year in which
that Plan Year ends. Allocation of the profit sharing contributions will be
based upon the Compensation of all eligible participants.
SECTION 4.5 SPECIAL MAKE-UP CONTRIBUTION
The Company shall make a special make-up contribution to the Plan on
behalf of any Eligible Employees who commenced participation in this Plan on
February 1, 1995 and who also were participants in the frozen UCS Plan on April
29, 1994. The amount of this special contribution for each such Eligible
Employee shall equal the present value of the single life annuity benefit
(payable commencing at age 65) that such person would have accrued under the UCS
Plan (had the UCS Plan not been frozen) during the period from April 29, 1994
through January 14, 1995, subject to Code Section 401(a)(4) nondiscrimination
rules. Such amount shall be calculated as of February 1, 1995, using the
actuarial factors then applicable under the UCS Plan. This special make-up
contribution shall be credited to the Eligible Employee's Special Make-Up
Contribution Account and shall be made as promptly as practicable after the Plan
and Trust are put into effect. The Company shall select an enrolled actuary to
calculate these special make-up contributions. Each Participant who is eligible
for a special make-up contribution under this Section shall file with the Plan
Administrator a signed, written direction as to the investment of his Special
Make-Up Contribution Account, which investment direction shall take effect, and
may be changed thereafter, in accordance with Section 6.4.
<PAGE> 37
- 32 -
SECTION 4.6 ROLLOVER ACCOUNT
An Employee may contribute Rollover Contributions to the Plan. Such a
contribution must be completed on or before the sixtieth (60th) day following
the Employee's receipt of the eligible rollover distribution from the other
qualified plan or from an individual retirement account that was used as a
temporary account for a qualified plan distribution. Such a contribution also
may be made through a direct trustee-to-trustee transfer elected by the Employee
in accordance with Code Section 401(a)(31). The Plan Administrator may require
information (including, but not limited to, a certificate from the transferor
plan that such plan and its restated trust are qualified under Code Sections
401(a) and 501(a), respectively) regarding the Rollover Contribution in order to
determine whether the rollover will meet the requirements of the Code. Any
amounts so contributed will be credited to the Employee's Rollover Account and
will be invested in accordance with the Employee's investment elections under
the Plan.
SECTION 4.7 VESTING
(a) At all times, a Participant shall have a 100% vested interest in
his Elective Deferral Account, his Matching Contribution Account, his Special
Make-Up Contribution Account and his Rollover Account.
(b) A Participant's vested interest in his Transfer Account shall equal
the sum of:
(i) his vested percentage in the transfer at the time it is made,
as reported by the administrator or recordkeeper for the
transferor plan, plus
(ii) any incremental additional vested Percentage earned thereon
in accordance with the vesting
<PAGE> 38
- 33 -
schedule for Profit Sharing Contributions set forth below.
(c) A Participant's vested interest in his Profit Sharing Contribution
Account, if any, shall be the percentage of such Account determined in
accordance with whichever of the following schedules is applicable, and shall be
based on the Participant's complete Years of Service standing to his credit
under the Plan as of the date on which his employment ends with any and all
Affiliated Employers:
<TABLE>
<CAPTION>
If the Participant's His Vested
Number of Years of Service is Percentage Shall Be
----------------------------- -------------------
<S> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
For Participants terminating employment with any and all Affiliated
Employers on or after October 1, 1995, the following vesting schedule shall
apply instead:
<TABLE>
<CAPTION>
If the Participant's His Vested
Number of Years of Service is Percentage Shall Be
----------------------------- -------------------
<S> <C>
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
</TABLE>
(d) Any nonvested portion of a Participant's Profit Sharing and
Transfer Accounts shall become a forfeiture as of the earlier of:
<PAGE> 39
- 34 -
(i) the date on which the distribution of the Participant's
vested benefit, if any, is made or is deemed (such as for a
zero dollar cashout under Section 7.2) to be made under the
Plan, or
(ii) the close of the first Plan Year in which the Participant
completes one Break in Service Year.
Forfeitures shall be used in accordance with Section 6.7(d). If such Participant
resumes employment as an Eligible Employee prior to completing five consecutive
Break in Service Years, however, then the amount forfeited by him shall be
restored to his respective Accounts without any adjustments for investment
experience or interest for the break period. Such restoration shall occur as of
the close of the first subsequent Plan Year which does not qualify as a Break in
Service Year for him, and shall be made first from any as yet unallocated
forfeitures, second from any as yet unallocated Income, and third, if necessary,
from an additional Employer contribution. Such reemployed Participant's vested
interest in his Profit Sharing and Transfer Accounts thereafter shall be based
on the sum of any Years of Service standing to his credit for vesting purposes
immediately prior to his break plus any Years of Service earned thereafter.
Subject to Section 4.8 where applicable, if a reemployed Participant had a
vested interest in his Profit Sharing or Transfer Accounts at the time of his
prior separation from service then, regardless of his number of consecutive
Break in Service Years after that separation, his vested interest in his Profit
Sharing and Transfer Accounts after such reemployment as an Employee shall be
based on the sum of any Years of Service standing to his credit for vesting
purposes immediately prior to his break plus any Years of Service earned
thereafter.
<PAGE> 40
- 35 -
(e) Any portion of a Participant's Profit Sharing or Transfer Accounts
which is restored pursuant to subsection (d) above shall be maintained in a
special subaccount within the appropriate Profit Sharing or Transfer Account. In
order to prevent an acceleration of vesting in such Participant's Account, the
vested portion of such subaccount as of any subsequent time shall,
notwithstanding any other provisions of this Section 4.7, be determined by
applying the following formula from Treasury Regulation ss.
1.411(a)-7(d)(5)(iii)(B):
P(A+D)-D
where P is the Participant's vested percentage at such time determined without
regard to this sentence; A is the amount in such subaccount at such time; and D
is the amount of any distribution or partial distribution previously made to the
Participant from such Account.
(f) Notwithstanding the foregoing provisions of this Section 4.7, all
Participants who both were Non-Highly Compensated Employees of Unity Cellular
Systems, Inc. (a Company subsidiary which does business under the name "Unicel")
and then became employees of Rural Cellular Corporation ("RCC") immediately
after and directly because of the sale of Unicel by the Company to RCC on or
about April 30, 1997, shall be 100% vested in all their accounts under the Plan
as of that sale date regardless of their Years of Service to that date.
<PAGE> 41
- 36 -
SECTION 4.8 BUY-BACK ACCOUNT
Any Participant who receives a distribution of his entire vested
benefit under the Plan and who later resumes employment as an Eligible Employee
shall not have the Years of Service standing to his credit at the time of his
prior distribution count towards his vested interest in any Accounts
attributable to any period of employment after such distribution unless the
Participant has repaid the full amount of such prior distribution, without
interest, to the Plan before completing five (5) consecutive Break in Service
Years after such distribution. A Buy-Back Account shall be established for any
Participant who repays such a prior distribution pursuant to this Section. The
Participant's interest in such Buy-Back Account shall be fully vested and
nonforfeitable at all times. Any amount credited to a Buy-Back Account shall be
allocated among Investment Funds as the Participant shall direct, at the time of
such crediting and thereafter, in accordance with procedures under Section 6.4.
A Participant's Buy-Back Account shall be available for Plan withdrawals and
loans pursuant to Sections 7.1 and 7.10, respectively, except that any loan or
withdrawal must be made first from such Buy-Back Account, if any, and only when
such Account is exhausted may loans or withdrawals be made from the other
Accounts credited to the Participant.
<PAGE> 42
- 37 -
ARTICLE V
LIMITATIONS ON SAVING
SECTION 5.1 MAXIMUM ANNUAL ADDITIONS
Notwithstanding anything contained herein to the contrary, the total
Annual Additions made to a Participant's Accounts (excluding his Rollover or
Transfer Account) for a Limitation Year may not exceed the lesser of $30,000 or
twenty-five percent (25%) of the Participant's Compensation for the Limitation
Year ending during the calendar year for which a new adjusted dollar limitation
is first effective, except that such $30,000 will be increased to reflect the
maximum permissible amount under Section 415(b)(l) of the Code for the
Limitation Year. If, in addition to this Plan, the Employer maintains any other
qualified defined contribution plan, a Participant's maximum Annual Addition as
described in this Section 5.1 will apply to all such plans in the aggregate. If,
as a result of the application of such aggregation, the total Annual Additions
must be curtailed, unless the Plan Administrator otherwise determines, the
annual addition to the other plan will first be reduced (but not below zero) in
order to bring the Plan into compliance. For purposes of this Section and
Section 5.2, the Limitation Year shall be the Plan Year. Amounts rolled over or
transferred from another qualified plan to this Plan shall not count towards any
Participant's Annual Additions except, insofar as required under Code Section
415, for any portion of such rollover or transfer attributable to contributions
and forfeitures that became credited to the Participant's account under the
transferring plan for any portion of the same Plan Year in which the transfer is
made.
<PAGE> 43
- 38 -
SECTION 5.2 MULTIPLE PLANS LIMITATION
If the Employer maintains one or more defined benefit plans (as defined
in Section 414(j) of the Code), or if the Employer maintains a welfare benefit
fund (as defined in Section 419(e) of the Code) in addition to this Plan (and
any other defined contribution plans), the contributions made under this Plan
shall not exceed the limitation contained in this Section 5.2. The limitation of
this Section 5.2 is that the sum of the defined benefit plan fraction and the
defined contribution plan fraction, as determined and applied by the Plan
actuary or recordkeeper in accordance with Code Section 415(e), for any
Limitation Year may not exceed one (1.0). The limitation of this Section 5.2
shall become null and void and not apply to any Plan Year beginning after
December 31, 1999, unless otherwise required by Code Section 415(e).
(a) The defined benefit plan fraction is a fraction, the numerator of
which is the projected annual benefit of the Participant under all defined
benefit plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of:
(i) the product of 1.25 multiplied by the dollar limitation in
effect under Section 4l5(b)(l)(A) of the Code for such
Limitation Year; or
(ii) the product of 1.4 multiplied by the amount which may be
taken into account under Section 4l5(b)(l)(B) of the Code
with respect to such Participant under the Plan for such
Limitation Year.
<PAGE> 44
- 39 -
(b) The defined contribution plan fraction for any Limitation Year is a
fraction, the numerator of which is the sum of the Annual Additions to the
Participant's accounts under all defined contribution plans (whether or not
terminated) maintained by the Employer for the current and all prior Limitation
Years, and the denominator of which is the sum of the lesser of the following
amounts determined for such Limitation Year and for each prior Limitation Year
of service with the Employer:
(i) the product of 1.25 multiplied by the dollar limitation in
effect under Section 4l5(c)(l)(A) of the Code for such
Limitation Year (determined without regard to Section
415(c)(6) of the Code); or
(ii) the product of 1.4 multiplied by the amount which may be
taken into account under Section 415(c)(l)(B) of the Code (or
Sections 415(c)(7) or 415(c)(8) of the Code, if applicable)
with respect to the Participant under the Plan for such
Limitation Year.
(c) If a Participant in this Plan is also a participant in a defined
benefit plan maintained by the Employer, adjustments necessary to satisfy the
limitations of this Section 5.2 shall be made first under the defined benefit
plan to the fullest extent practical. If the Participant participates in more
than one defined contribution plan, adjustments necessary to satisfy the
limitations of this Section 5.2 shall be made under such other plan, to the
fullest extent practical,
<PAGE> 45
- 40 -
after any defined benefit plan adjustments have been made and before any
adjustments are made under this Plan.
SECTION 5.3 HOW THE LIMITATIONS SHALL BE EFFECTED
If it becomes necessary for the Plan Administrator to limit certain
allocations to a Participant's Accounts in order to satisfy the limitations of
Sections 5.1 and 5.2 above, the Plan Administrator shall apply any such excess
amounts from the Participant's Accounts in the following manner and order of
priority, as needed in order to satisfy those applicable limits:
(a) First, amounts shall be taken from the Profit Sharing Account and:
(i) used to reduce Employer contributions for that Participant
for the next and succeeding Plan Year(s) until exhausted,
provided that Participant continues to be a Participant for
such Plan Years, or, if not exhausted before his
participation ceases, then
(ii) held in a suspense account and used to reduce Employer
contributions for all other Participants for the next and
succeeding Plan Year(s) until exhausted.
(b) If necessary, after step (a) has been fully utilized for the Plan
Year, amounts shall be taken from the Matching Contribution Account and used in
the same manner as under (a) above; and
(c) If necessary, after step (b) has been fully utilized for the Plan
Year, refunds shall be made from the Elective Deferral Account back to the
Participant in the amount of the remaining excess contributions, as adjusted for
investment experience to that date.
<PAGE> 46
- 41 -
SECTION 5.4 ADP LIMITS ON ELECTIVE DEFERRALS
(a) ADP Tests. To ensure continued qualification of the Plan, the
Average Deferral Percentage test (or "ADP Test") must be applied to Elective
Deferrals under the Plan as follows:
(i) The Average Deferral Percentage for Highly Compensated
Employees for any given Plan Year may not exceed the Average
Deferral Percentage for Non-Highly Compensated Employees for
that Plan Year (but use the immediately preceding Plan Year
when testing for any Plan Year that begins on or after
January 1, 1998) multiplied by 1.25; or, if it produces a
higher limit,
(ii) The Average Deferral Percentage for Highly Compensated
Employees for any given Plan Year may not exceed the Average
Deferral Percentage for Non-Highly Compensated Employees for
that Plan Year (but use the immediately preceding Plan Year
when testing for any Plan Year that begins on or after
January 1, 1998) multiplied by two (2), provided that the
Average Deferral Percentage for such Highly Compensated
Employees does not exceed the Average Deferral Percentage for
such Non-Highly Compensated Employees by more than two (2)
percentage
<PAGE> 47
- 42 -
points or such lesser amount as the Secretary of the Treasury
may prescribe to prevent the multiple use of this alternative
limitation with respect to any Highly Compensated Employee.
(b) Definitions. The following definitions apply to the ADP Test as
indicated:
(i) Average Deferral Percentage: The average, for a specified
group of Participants for any given Plan Year, of the ratios
(calculated separately for each Participant in such group)
of:
(1) the amount of Elective Deferrals actually paid over to
the Trust on behalf of such Participant for that Plan
Year, to
(2) the Participant's Compensation for such Plan Year
(whether or not the Employee was a Participant for the
entire Plan Year).
For purposes of computing Average Deferral Percentages, an Eligible Employee who
would be a Participant but for the failure to make Elective Deferrals shall be
treated as a Participant who makes no Elective Deferrals.
(ii) Excess Contributions: With respect to any given Plan Year,
the excess of:
(1) The aggregate amount of Elective Deferrals actually
taken into account in computing the Average Deferral
<PAGE> 48
- 43 -
Percentage of Highly Compensated Employees for such
Plan Year, over
(2) the maximum amount of such contributions permitted by
the ADP Test (determined by reducing contributions made
on behalf of Highly Compensated Employees in order of
their individual actual deferral percentages, beginning
with the highest of such percentages).
(c) Special Rules. The following special rules will apply:
(i) For purposes of this Section 5.4, the actual deferral
percentage for any Highly Compensated Employee for any given
Plan Year who is eligible to have Elective Deferrals credited
(including any qualified employer deferral contributions,
matching contributions, or qualified nonelective
contributions, even though any such contributions may not be
allowed in this Plan) to his account under two or more plans
described in Sections 40l(a) or 401(k) of the Code that are
maintained by the Employer or any Affiliated Employer will be
determined as if all such contributions and Elective
Deferrals were made under a single plan.
(ii) For purposes of Sections 5.4 and 5.5, "Compensation" shall
have the meaning given in Section 2.8(d) as applied by the
Plan Administrator for the Plan Year being tested.
<PAGE> 49
- 44 -
SECTION 5.5 ACP LIMITS ON MATCHING CONTRIBUTIONS
The Plan Administrator shall apply the following nondiscrimination
limitations to the matching contributions made for the Plan Year under Section
4.3 (and, for this purpose, including any contributions being allocated to a
voluntary after-tax contribution account for the same Plan Year).
The "average contribution percentage" of the Highly Compensated
Employees shall not exceed, in any Plan Year, the greater of:
(a) 125 percent of the average contribution percentage of all other
Employees for the Plan Year (but here use the immediately preceding Plan Year
when testing for any Plan Year that begins on or after January 1, 1998); or
(b) The lesser of:
(i) 200 percent of the average contribution percentage of all
other Employees for the Plan Year (but here use the
immediately preceding Plan Year when testing for any Plan
Year that begins on or after January 1, 1998), and
(ii) the average contribution percentage of all other Employees
for the Plan Year (also using the prior year for testing 1998
and beyond) plus two (2) percentage points, or such lesser
amounts as the Secretary of the Treasury shall prescribe to
prevent the use of this alternative limitation with respect
to any Highly Compensated Employee.
The "average contribution percentage" for a designated group of Employees is the
average of the ratios (calculated separately for each Employee in the group) of:
<PAGE> 50
- 45 -
(a) the sum of the Employer matching contributions paid and credited to
the account of such Employee for the Plan Year, and any qualified matching
contributions or qualified nonelective contributions made on behalf of the
Employee for the Plan Year to
(b) such Employee's Compensation for such Plan Year. Elective Deferrals
may be used in the average contribution percentage test provided that the ADP
Test under Section 5.4 is both:
(i) met before the Elective Deferrals are used in the average
contribution percentage test, and
(ii) continues to be met following the exclusion of those
contributions that are used to meet the average contribution
percentage test (the "ACP Test").
The excess of the:
(i) aggregate amount of Employer contributions taken into account
in computing the numerator of the average contribution
percentage actually made on behalf of Highly Compensated
Employees for such Plan Year, over
(ii) the maximum amount of Employer contributions permitted by the
ACP Test (determined by reducing contributions made on behalf
of Highly Compensated Employees in order of their
contribution percentages beginning with the highest of such
percentages) is the excess aggregate contribution.
<PAGE> 51
- 46 -
The ACP Test described in this Section 5.5 shall be administered in
accordance with all applicable regulations under Code Section 401(m) governing,
among other things, such matters as:
(i) which eligible Employees must be counted,
(ii) which contributions must be taken into account and for what
Plan Year,
(iii) aggregating and disaggregating plans, and
(iv) aggregating contributions made on behalf of any Highly
Compensated Employee who is eligible to participate in more
than one similar plan during the same testing period.
In addition, in the event that the prohibitions are violated in Section
5.4(a)(ii) and in the first (a) in Section 5.5 on the use of the alternative
limitation in the ADP and ACP Tests, respectively, the Plan will correct that
violation by reducing the actual deferral percentages of all Highly Compensated
Employees (rather than by adjusting actual contribution percentages) in
accordance with Regulation ss. 1.401(m) - 2(c).
SECTION 5.6 EXCESS CONTRIBUTIONS UNDER THE ADP AND ACP TESTS
If the Elective Deferrals of one or more Highly Compensated Employees
exceed those allowable under the ADP Test, the limitation under such Test will
be first applied to the Highly Compensated Employee(s) electing the highest
dollar amount of Elective Deferrals under Section 4.1 of the Plan until the
first of the following occurs:
<PAGE> 52
- 47 -
(a) the ADP Test is met, or
(b) such Highly Compensated Employee's election under Section 4.1 of
the Plan has been reduced to the same dollar amount as the Participant who is
the Highly Compensated Employee electing the second highest dollar amount of
Elective Deferrals under Section 4.1 of the Plan.
If further limitations are required, such Participants' Elective
Deferrals will be reduced until they meet that of the Highly Compensated
Employee(s) electing the next highest dollar amount of Elective Deferrals, and
so on. Excess contributions under the ADP Test, including any income and minus
any loss allocable to those contributions, shall be distributed by refunding
them to the subject Participant before the close of the Plan Year following the
Plan Year in which the excess contribution was made.
In accordance with the leveling method required in Regulation ss.
1.401(m) - 1(e)(2), the same laddered reduction and refund process as described
in the preceding paragraph shall also apply each Plan Year to any excess
contributions under the ACP Test in Section 5.5.
Subject to Section 5.7, excess contributions for any Plan Year, and
income allocable thereto, shall be distributed as provided above generally
within 2 1/2 months after the close of the Plan Year to which the excess
contributions relate and in no event later than twelve months after the close of
that Plan Year, in accordance with applicable regulations under Code Section
401(m). Excess contributions shall be treated as Annual Additions under the
Plan. Only to the extent required to satisfy the general nondiscrimination rules
of Code Section 401(a)(4), matching
<PAGE> 53
- 48 -
contributions which are attributable to refunded Elective Deferrals shall be
forfeited (rather than distributed) and applied in accordance with Section
6.7(d).
SECTION 5.7 SPECIAL CORRECTIVE CONTRIBUTIONS
The Employers may choose to make contributions to the Plan on behalf of
Non-Highly Compensated Employees for a particular Plan Year in lieu of having
the Plan refund excess amounts under Section 5.6. Any such contribution would be
allocated as of the last day of the Plan Year in an amount sufficient to raise
the Average Deferral Percentage or average contribution percentage for the
Non-Highly Compensated Employee group to the minimum level necessary to satisfy
the ADP or ACP Tests in Sections 5.4 and 5.5 for that Plan Year. Any
contribution made under this Section 5.7 shall be a qualified nonelective
contribution, as defined in Code Section 401(m)(4)(c), so it will be subject to
the vesting and distribution rules applicable to Elective Deferrals under the
Plan. In addition, such qualified nonelective contributions must, standing
alone, satisfy the coverage and nondiscrimination rules of Code Sections
410(b)(l) and 401(a)(4), respectively.
Any contribution made under this Section shall be made within twelve
(12) months after the end of the Plan Year to which it is allocated. The
contribution will be made only on behalf of Non-Highly Compensated Employees who
are both Participants and employed by an Employer on the last day of the Plan
Year to which the contribution relates.
The contribution shall be in the minimum amount (if any) sufficient to
satisfy either or both of the ADP and ACP tests set forth in Sections 5.4 and
5.5, including the multiple use
<PAGE> 54
- 49 -
test. Any such contribution shall be made and allocated first to the account of
the Non-Highly Compensated Employee Participant(s) with the lowest Compensation
(as defined in Section 2.8(d) above) for the applicable Plan Year in an amount
required to satisfy any of the ADP and ACP tests for which the contribution is
needed. If that allocation is not sufficient for the Plan to satisfy those
tests, then a further contribution shall be made and allocated similarly to the
account of the Non-Highly Compensated Employee Participant with the next lowest
level of such adjusted Compensation for the Plan Year. Contributions shall
continue to be made and allocated in this laddered manner to the accounts of the
Non-Highly Compensated Employee Participants who are eligible for them under
this Section and whose adjusted Compensation is the lowest, in succession, until
the ADP and ACP tests are satisfied by the Plan for the Plan Year to which such
contributions relate. Contributions used to pass the ACP test shall be made for
and allocated to only those Participants who are credited with Elective
Deferrals for the same Plan Year and thereby were entitled to a Matching
Contribution for such Plan Year.
The formula for making and allocating contributions as set forth in
this Section 5.7 shall apply to any Plan Year beginning on or after January 1,
1996.
The Committee shall maintain records sufficient to demonstrate
satisfaction of the tests and the amount of any qualified non-elective
contributions taken into account to satisfy each test. Notwithstanding the
preceding language of this Section, in no event shall contributions under this
Section be allocated to any Participant in an amount that would exceed:
<PAGE> 55
- 50 -
(a) the Code Section 415 limits described in Plan Sections 5.1 and 5.2;
or
(b) the limits of the Matching Contribution formula set forth in Plan
Section 4.3.
The contributions made under this Section will be allocated to the
Elective Deferral Account or Matching Contribution Account of the respective
Participant, depending on which of the ADP or ACP Tests the contribution is used
to satisfy. Once allocated, the contribution will be treated under the Plan the
same as any other portion of the Account to which it is allocated, as far as the
Participant's interests are concerned.
Contributions made under this Section 5.7 shall be 100% vested when
made, shall be subject to the Plan's distribution rules applicable to the
Participant's Account to which they are allocated, and shall be subject to the
additional requirements of Regulations ss. 1.401(m) - 1(b)(5) where necessary
for such contributions to be treated as matching contributions.
<PAGE> 56
- 51 -
SECTION 5.8 OTHER EXCESS DEFERRALS
For each calendar year, Elective Deferrals made on behalf of any
Participant under this Plan and similar elective pre-tax contributions made on
the same Participant's behalf under all tax-qualified plans maintained by any
Employer shall not, in aggregate, exceed the $9,500 (indexed) dollar limitation
under Code Section 402(g) as in effect at the beginning of the calendar year.
For this purpose, Elective Deferrals shall not include amounts properly refunded
to the Participant under Section 5.6 above. If more than the maximum permissible
amount under Code Section 402(g) is allocated to the Participant's account in
aggregate under all Employers' plans for any calendar year, then the provisions
of parts (a) - (c) below shall apply. For this purpose, any and all Employer
plans described in Code Sections 401(k), 403(b), 408(k), 457 or 501(c)(18) shall
be considered.
(a) The Participant may, but is not required to, assign to this Plan
all or part of such contributions in excess of the maximum permissible amount
(the "Excess Elective Deferrals") by notifying the Plan Administrator in writing
of such assigned excess amount by March 1 of the next calendar year after the
calendar year for which the excess contributions were made. A Participant is
deemed to have notified the Plan Administrator that the entire year's excess
shall be assigned to this Plan where the Participant has excess contributions
when only plans of that Participant's Employer for the year in which such excess
arose are taken into account.
(b) To the extent a Participant timely assigns, or is deemed to assign,
Excess Elective Deferrals to the Plan pursuant to part (a) above, the Plan
Administrator shall direct the
<PAGE> 57
- 52 -
Trustee to distribute such Excess Elective Deferrals, adjusted for income or
loss allocable thereto, to the Participant no later than April 15th of the
calendar year immediately following the calendar year for which such Excess
Elective Deferrals were made. (c) Excess Elective Deferrals shall be adjusted
for any income or loss allocable to them, in accordance with the Plan
Administrator's rules and practices (to be uniformly applied to similarly
situated Participants) until they are distributed under this Section. Excess
Elective Deferrals shall be treated as Annual Additions under Section 5.1 for
the year for which they were made unless such excess is distributed no late than
said April 15th date.
ARTICLE VI
INVESTMENT AND PLAN ACCOUNTING
SECTION 6.1 PARTICIPANT ACCOUNTS
The Plan Administrator shall establish and maintain the following
separate accounts, as needed, with respect to Participants:
(a) Elective Deferral Account. An Elective Deferral Account shall be
maintained on behalf of each Participant who elects such deferrals under Section
4.1. With respect to any Participant, this account shall represent the amount of
the Participant's Elective Deferral contributions and any earnings, losses,
expenses, appreciation, depreciation and other adjustments thereto under the
Plan.
(b) Matching Contribution Account. A Matching Contribution Account
shall be maintained on behalf of each Participant on whose behalf matching
contributions are made under
<PAGE> 58
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Section 4.3, and such account shall represent the Participant's allocated share
of such contributions and the earnings, losses, expenses, appreciation,
depreciation and other adjustments thereto under the Plan.
(c) Profit Sharing Account. A Profit Sharing Account shall be
maintained on behalf of each Participant. With respect to any Participant, this
account shall represent the portion of Employer profit sharing contributions
made under Section 4.4, and any forfeitures, which are allocated for his
benefit, as well as any earnings, losses, expenses, appreciation, depreciation
and other adjustments thereto under the Plan.
(d) Special Make-Up Contribution Account. A Special Make-Up
Contribution Account shall be maintained on behalf of each Participant for whom
a special make-up contribution is made under Section 4.5, and such account shall
also reflect any earnings, losses, expenses, appreciation, depreciation and
other adjustments thereto under the Plan.
(e) Rollover Account. A Rollover Account shall be maintained on behalf
of each Participant for whom a qualifying rollover contribution is made to this
Plan in accordance with Section 4.6, which will reflect his qualifying rollover
contribution and any earnings, losses, expenses, appreciation, depreciation and
other adjustments thereto under the Plan.
(f) Transfer Account. A Transfer Account shall be maintained on behalf
of each Participant for whom a transfer is made to this Plan from another
tax-qualified retirement plan under Section 4.7. This account shall represent
the amount of such transfer and any earnings, losses, appreciation, depreciation
and other adjustments thereto under the Plan.
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(g) Buy-Back Account. A Buy-Back Account shall be maintained on behalf
of each Participant who repays to the Plan any distribution received from the
Plan, in accordance with Section 4.8, and such account shall represent the
amount so repaid, as well as any earnings, losses, expenses, appreciation,
depreciation and other adjustments thereto under the Plan.
The maintenance of separate account balances shall not require physical
segregation of Plan assets with respect to each account balance. The accounts
maintained hereunder represent the Participants' respective interests in the
Plan and Trust and are intended as bookkeeping account records to assist in the
administration of this Plan. Any reference to a Participant's Accounts shall
refer to all of the accounts maintained in the Participant's name from time to
time under the Plan.
SECTION 6.2 INVESTMENT OF ACCOUNTS
The Trustee and any investment manager or insurance institution
responsible, from time to time, for investment of Plan assets shall be permitted
to commingle the assets of the Plan for purposes of investment with the assets
of other plans or trusts which qualify for a federal tax exemption under
Sections 401(a) and 501(a) of the Code. Any documents which are required to be
incorporated in the Plan and the Trust to permit such commingled investments are
hereby so incorporated. Except to the extent required by Sections 6.3 and 6.4,
segregated investment of Plan assets cannot be required with respect to any one
or more Participants. Each account invested in a particular investment fund
shall represent an undivided interest in such investment fund which corresponds
to the balance of such account.
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SECTION 6.3 INVESTMENT FUNDS
From time to time the Committee may establish, or may cause the Trustee
or other investment manager to establish, one or more investment funds for the
investment and reinvestment of Plan assets. The continued availability of any
investment fund is necessarily conditioned upon the terms and conditions of
applicable investment management agreements and other investment arrangements to
the extent not inconsistent with the Plan. While the Plan Administrator may
arrange for the establishment of investment funds, the continued availability of
these funds cannot be assured nor is it possible to assure that the arrangements
or the investment funds managed by a particular investment manager or insurance
institution or by the Trustee will continue to be available on the same or
similar terms.
The Plan Administrator shall make available for Participant-directed
investment one or more investment choices from at least each of the following
different types of investment funds:
(a) an "Equity Fund" designed to invest in domestic or foreign equity
securities, having capital appreciation and growth, some current income and
growth of income, with varying levels of risk, as the Fund objectives;
(b) a "Managed Income Fund" designed to invest in fixed income
securities issued or backed by federal, state, or foreign governments or related
agencies, by corporations and by insurance companies, banks and other financial
institutions, and having preservation of capital and production of income, as
the primary Fund objectives;
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(c) a "Balanced Fund" designed to invest in both equity and
income-producing securities, and using asset allocation and other strategies to
provide, with varying levels of risk, both capital growth and income generation
as primary Fund objectives; and
(d) a "Company Stock Fund" designed to invest in equity securities of
the Company (subject to short-term cash needs), with attendant levels of risk
associated with the investment of a fund in the stock of the Company.
The Plan Administrator may, in its discretion, from time to time change
the available number and identity of investment options within any of the then
available investment funds, add new types of investment funds or delete any type
of investment funds, as it deems appropriate, except the Company Stock Fund may
only be deleted by amendment to the Plan. Investment funds (and any options
within such funds) shall be selected and made available with the purpose and
intent of satisfying the Department of Labor regulations under Section 404(c) of
ERISA, so as to relieve Plan fiduciaries of liability with respect to Plan
investments to the fullest extent of such law.
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SECTION 6.4 INVESTMENT DIRECTIONS
Before the start of any Plan Quarter, a Participant may file with the
Plan Administrator a signed, written direction on a proper Plan enrollment form
redirecting the investment of his current Account balances and/or directing the
investment of future contributions to his Accounts. Such investment direction
shall take effect as soon as practicable, but not before the first day of the
next Plan Quarter beginning after it is received and shall supersede any prior
investment direction to the extent inconsistent with such prior direction.
Amounts must be reallocated between investment funds in multiples of 10% among
the investment choices then available under the Plan.
Except as provided in Section 3.2 regarding the holding of certain
assets uninvested pending a Participant's initial enrollment, during any period
for which a Participant has not made either or both elections regarding the
investment of existing Account balances and future contributions, he will be
considered to have elected to have his current Account balances or his future
contributions, or both, as the case may be, invested entirely in the Managed
Income Fund. It shall be the responsibility of the Plan Administrator to
accumulate, aggregate and transmit to the Trustee, all investment directions.
From time to time temporary suspensions of the right to direct
investment changes (and to take loans or withdrawals under the Plan) may be
imposed on Participants, with advance notice, by the Plan Administrator as
needed to accommodate changes in Plan investment managers, recordkeepers or
investment funds. During such "black-out" periods, existing
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investment directions shall continue in effect, subject to such rules as the
Plan Administrator shall establish for any such "black-out" period.
SECTION 6.5 INVESTMENT FUND ACCOUNTING
The undivided interest of each Participant's account in an investment
fund shall be determined in accordance with the accounting procedure specified
in the trust agreement, investment management agreement, insurance contract,
custodian agreement or other document under which such investment fund is
maintained. To the extent not inconsistent with such procedures, the following
rules shall apply:
(a) Deposits. Amounts deposited in an investment fund may be deposited
by means of a transfer of such amounts to such investment fund from another
investment fund as required to conform with the investment directions properly
received in accordance with Sections 6.3 and 6.4.
(b) Distributions. Amounts required to be transferred from an
investment fund to satisfy benefit payments and required transfers to effectuate
investment directions in accordance with Sections 6.3 and 6.4 shall be
transferred from such investment funds as soon as practicable following receipt
by the Trustee or investment manager of proper instructions to complete such
transfers.
(c) Investing. Except as provided in the applicable investment fund
document, all amounts deposited in an investment fund shall be invested as soon
as practical following receipt of such deposit. Notwithstanding the primary
purpose or investment policy of an
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investment fund, assets of any investment fund which are not invested in the
manner required by the investment fund document shall be invested in such short
term instruments or funds as the applicable Trustee or investment manager shall
determine pending investment in accordance with such investment policy.
SECTION 6.6 EXPENSES
All costs and expenses incurred in connection with the general
administration of the Plan and Trust, to the extent not paid by the Company,
shall be allocated (for deduction) among the investment funds in the proportion
in which the amount invested in each such fund bears to the amount invested in
all funds as of the accounting date preceding the day of application, provided
that all costs and expenses directly identifiable to one fund shall be allocated
to that fund.
SECTION 6.7 CREDITING CONTRIBUTIONS AND FORFEITURES
(a) Elective Deferrals. Elective Deferrals shall be credited to the
account of the Participant that elected such contributions. Amounts credited to
the Participant's Elective Deferral Account shall be based on the Participant's
election, subject to any limitations and adjustments applicable under the Plan.
Elective Deferrals shall be contributed to the Plan within such time as shall be
required under applicable ERISA regulations to avoid the Employer being
considered to have held such amounts as Plan assets.
These contributions shall be credited as soon as practicable on or
after the first business day coincident with or next following the date such
contribution is received by the Plan.
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No one--including any Employer, any Affiliated Employer, the Plan, and any Plan
fiduciary--shall have any obligation to invest or credit interest on the
Elective Deferral amounts so contributed with respect to any period between the
close of the relevant pay period and the date the contribution is made.
(b) Matching Contributions. Matching contributions shall be made in
accordance with Section 4.3 and credited to the account of each Participant for
whom an Elective Deferral contribution is made for the same Plan Year. The
amount of each matching contribution shall be based on the amount of Elective
Deferral contribution that is made, subject to any limitations and adjustments
applicable under the Plan.
Matching contributions shall be credited as soon as practicable on or
after the first business day coincident with or next following the date such
contribution is received by the Plan. No one--including any Employer, any
Affiliated Employer, the Plan, and any Plan fiduciary -- shall have any
obligation to invest or credit interest on matching contributions with respect
to any period between the close of the pay period to which the applicable
Elective Deferral contribution relates and the date the matching contribution is
made.
(c) Profit Sharing Contributions. Employer profit sharing
contributions, if any, made under Section 4.4 shall be credited as soon as
practicable on or after the first business day coincident with or next following
the date such contribution is received by the Plan. Such contributions shall be
aggregated from all contributing Employers and then allocated among the
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accounts of all Participants in proportion to the relative Compensation of each
such Participant to date for that Plan Year.
No one--including any Employer, any Affiliated Employer, the Plan and
any Plan fiduciary--shall have any obligation to invest or credit interest on
profit sharing contributions with respect to any period before the contribution
is received by the Plan.
(d) Forfeitures. Any forfeitures occurring only during the Plan Year
commencing February 1, 1995 shall be reallocated as of the close of that Plan
Year to the Profit Sharing Accounts of all Participants then eligible to share
in allocations to that Account, in the manner provided in Section 6.7(c). Any
forfeitures occurring during any subsequent Plan Year shall be applied entirely
against any matching contribution, profit sharing contribution or other
contribution obligations of the Employer that employed the Participant who
incurred the forfeiture, and towards the payment of reasonable administration
expenses payable by the Plan for that Plan Year. To the extent such post-1995
forfeitures are not exhausted for the Plan Year in which they arise, the unused
forfeitures from that Plan Year shall be held in a suspense account (to which
investment experience shall not be allocated) and applied in satisfaction of the
Employer's matching, profit sharing and special contribution obligations, or for
the payment of reasonable Plan administration expenses, if any, for the next
subsequent Plan Year(s), until exhausted.
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SECTION 6.8 ADJUSTMENT OF ACCOUNT BALANCES
As of each Valuation Date, including any interim Valuation Date, the
Plan Administrator, or its designee, may adjust the account balances of
Participants, as needed, to reflect adjustments, in the value of the Trust Fund
(allocated based on relative account balances), and to reflect contributions,
distributions and transfers of benefits to or for the benefit of any
Participant, including withdrawals and loans.
SECTION 6.9 OPERATION OF COMPANY STOCK FUND
a) Stock Purchases. Assets directed or allocated to the Company Stock
Fund shall be invested primarily in the authorized common stock of the Company,
without regard to the ten percent of Plan assets limit on Plan ownership of
employer securities under Section 407 of ERISA. Unless otherwise directed by the
Plan Administrator, the Plan Trustee shall purchase shares of Company stock,
from time to time, at prices that are not in excess of the fair market value of
such stock, in accordance with the Trust.
Fair market value of the Company stock shall be determined by the
closing sale price on the date of purchase of such shares as reported on any
public stock exchange (including NASDAQ) on which such Company stock is listed,
but if such shares are not so listed or if no such price quotations are then
available then their fair market value shall be determined by a professional
independent appraisal conducted or updated not less frequently than annually.
Custody of the shares of Company stock shall be maintained by the Trustee or by
its designated agent for this purpose. Such shares may be registered in the name
of the Trustee or its nominee.
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Such shares may not be loaned (i.e., to other investment managers and securities
dealers), except with the prior consent of the Plan Administrator and only on
such terms as it approves.
Any dividends paid on shares of Company stock shall be reinvested in
additional shares of Company stock at the next reasonably available opportunity.
Cash that is contributed to or reallocated for investment in the Company Stock
Fund also shall be invested in Company stock at the next reasonably available
opportunity. Any cash available from time to time in the Company Stock Fund
shall be held by the Trustee in cash or non-interest-bearing cash equivalents
pending investment in Company stock or disbursement out of the Company Stock
Fund, as shall be directed by the Plan Administrator.
(b) Allocating Interests. Each Participant invested in the Company
Stock Fund shall be credited with his pro rata share of the total shares of
Company stock then held in such Fund. Expenses of Company stock transactions,
appraisals and other administration expenses attributable to the Company Stock
Fund, to the extent not paid by the Employers, shall be deducted from the assets
then allocated to such Fund prior to determining the periodic allocations. The
allocation to Participants shall be pro rata based on the relative interests of
each Participant in the Fund as of the prior Valuation Date, adjusted for
transfers into or out of the Company Stock Fund on behalf of the Participant
since the last Valuation Date. Cash and any other assets of the Fund other than
Company stock shall be allocated on the same pro rata basis, to the extent such
assets are not directly attributable (such as dividends or stock sale proceeds)
to a particular Participant's Account.
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(c) Insider Trading Restrictions. Notwithstanding anything in the Plan
to the contrary, the Plan Administrator may adopt more restrictive investment
election procedures applicable to any Participant subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), in order to assure compliance with such statute. Participants subject to
the provisions of Section 16(b) of the Exchange Act may not take any part in the
Plan Administrator's consideration of, or acting upon, any matter described in
this paragraph. Notwithstanding the foregoing, the Plan Administrator shall not
be required to take any steps or pursue any course of action to evaluate a
request for any such waiver by a Participant and the Plan Administrator may not
waive any obligation of the Participant under Section 16(b) of the Exchange Act.
(d) Voting Rights. Common stock of the Company held by the Trustee
shall be voted at each meeting of the stockholders of the Company, and written
consents of stockholders to Company action shall be given, as directed by the
Participant to whose Account such stock is credited. The Plan Administrator
shall cause each such Participant to be provided with a copy of the notice of
each stockholders' meeting, and other necessary documents soliciting stockholder
action or consent, and the proxy statement relating to such meeting or consent,
together with an appropriate form for the Participant to indicate his voting or
consent instructions. The Plan Administrator shall tally Company stock voting
instructions and direct the Trustee to vote the Plan's shares of Company stock
accordingly. The Plan Administrator shall direct the Trustee to abstain with
respect to the voting of any shares for which voting instructions were not
timely
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received from Participants. With respect to any shares of Company stock which
are not then allocated to Participants' Accounts, due to forfeiture or
otherwise, the Trustee shall be instructed by the Plan Administrator to vote
such shares proportionately in the same manner as the shares subject to
Participant-directed voting are then being voted, including abstentions. These
same voting rules shall apply to tender offers involving the Company stock.
(e) Distributions. Company stock shall not be distributed in kind as a
Plan benefit. Accordingly, at the direction of the Plan Administrator, the
Trustee shall sell shares of Company stock, if and when needed, to satisfy the
cash needs of the Plan with respect to investment directions, as well as loans,
withdrawals and distributions to Participants and Beneficiaries. Such sales
shall be at no less than fair market value (determined as provided in part (a)
above) and may be made in the open market or to the Company. Any transaction
involving Company stock shall be structured to avoid being a prohibited
transaction under applicable sections of ERISA and the Code.
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ARTICLE VII
WITHDRAWALS AND DISTRIBUTIONS
SECTION 7.1 WITHDRAWALS
Any Participant (excluding all Limited Participants who did not become
RCC employees immediately after the sale of Unicel on or about April 30, 1997)
may request a withdrawal from the balance in his Accounts in accordance with the
provisions of this Section 7.1. Such balance shall be determined as of the
Valuation Date immediately preceding the date of the request, subject to any
subsequent reduction of that balance reasonably estimated or ascertainable by
the Plan Administrator before the withdrawal is made. The Plan Administrator may
limit withdrawals to a designated percentage of such prior balance in order to
protect the Plan against the impact of possible depreciation of Plan assets.
Withdrawals from a Participant's Elective Deferral Account shall be limited to
the amount of the Participant's Elective Deferrals then credited to such
Account; earnings on Elective Deferrals may not be withdrawn. Participants shall
be entitled to withdrawals from all their Accounts, in such order of priority as
is then applied by the Plan for loans under Section 7.10 and related Plan loan
procedures, but only to the extent such Accounts are vested and only in the
event and to the extent of the Participant's "financial hardship" as provided in
this Section 7.1.
For purposes of this Section, "financial hardship" means immediate and
heavy financial needs occurring in the Participant's personal affairs which
cannot reasonably be satisfied from other resources available to the
Participant. Such hardship shall be determined by the Plan
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Administrator from appropriate evidence furnished by the Participant and in
accordance with applicable regulations under Section 401(k) of the Code.
A Participant's financial need shall be deemed sufficiently immediate
and heavy to justify a hardship withdrawal under this Section only with respect
to:
(a) medical expenses (or expenses necessary to obtain medical care) of
a type deductible under Code Section 213(d) (but without regard to actual
deductibility) incurred by the Participant, his Spouse or dependents;
(b) the purchase (excluding mortgage payments) of a principal residence
for the Participant;
(c) payment of tuition and related educational fees, including room and
board expenses, for up to 12 months of post-secondary education for the
Participant, his Spouse, children or dependents;
(d) the need to prevent eviction of the Participant from his principal
residence or foreclosure of the mortgage on his principal residence;
(e) any other circumstance determined by the Internal Revenue Service
to constitute immediate and heavy financial need for this purpose The request
for a withdrawal shall be made in writing on a form prescribed by the Plan
Administrator and shall be submitted to the Plan Administrator not less than
sixty (60) days prior to the desired withdrawal date (or such lesser period as
the Plan Administrator may allow to accommodate financial emergencies). The Plan
Administrator shall cause approved withdrawals to be disbursed (subject to
Section 7.9)
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with reasonable promptness after the withdrawal request has been approved, in
accordance with any periodic withdrawal processing and disbursement schedule
developed from time to time by the Plan Administrator.
Unless the entire account is being withdrawn, no withdrawal shall be
permitted in an amount of less than $500. No more than one hardship withdrawal
may be made by a Participant during any twelve (12) consecutive month period.
The Participant shall provide such further information as the Plan
Administrator may request in support of the withdrawal request. The Plan
Administrator shall approve or disapprove the withdrawal request in accordance
with any applicable regulations under Section 401(k) of the Code and such rules,
consistent with any such regulations, as the Plan Administrator shall adopt and
apply uniformly to similarly situated Participants.
In addition, the Participant must demonstrate to the satisfaction of
the Plan Administrator that the amount of the requested withdrawal does not
exceed the amount required to relieve such immediate and heavy financial need,
considering also the extent to which such need may be satisfied from other
resources reasonably available to the Participant, including assets of his
Spouse and minor children to the extent reasonably available to him. The Plan
Administrator may require, and place reasonable reliance on, the Participant's
written representations to the effect that, as a practical matter, such need
cannot be relieved:
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(a) through reimbursement or compensation by insurance or otherwise;
(b) by reasonable liquidation of the Participant's assets to a degree
which would not itself cause immediate and heavy financial need;
(c) by cessation of Elective Deferrals under the Plan; or
(d) by other distributions or loans from plans maintained by any
present or former employer of the Participant, or by borrowing from commercial
sources on reasonable commercial terms. The amount of a hardship withdrawal may
be increased, at the Participant's request, by the estimated amount of income
taxes, excise taxes, and other penalties, if any, that the Participant may owe
on the amount being withdrawn.
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SECTION 7.2 DISTRIBUTION ON DEATH, RETIREMENT, DISABILITY OR OTHER
TERMINATION OF EMPLOYMENT
A Participant (or the Participant's Beneficiary) who terminates
employment with the Company and all Affiliated Employers by reason of his
retirement, death, Permanent Disability (which began while he was an active
Employee of an Employer), or for any other reason will receive the balance of
the vested portion of his Accounts in a single sum cash payment. The sale of
substantially all the assets of Unicel to RCC on or about May 1, 1997 shall be
considered a distributable event in accordance with Code Section
401(k)(10)(A)(ii). Any distribution of the Elective Deferral Accounts of
affected Participants who were employed by Unicel and became employees of RRC as
a result of said asset sale shall be deferred pending receipt of a favorable
determination letter from the Internal Revenue Service regarding this Plan as
hereby amended and restated. Regardless of the vesting schedules in Section 4.7,
a Participant shall become 100% vested in his Accounts as of the earliest of:
(i) the date he terminated employment with any and all Employers
due to his Permanent Disability or death, or
(ii) the date on which he attains age sixty-five (65), while still
employed with any Employer.
For purposes of determining the amount of such payment, if the
Participant's or Beneficiary's written request for distribution is received by
the Plan Administrator on or before the fifteenth (15th) day of a calendar
month, then the distributable value of the Accounts shall be determined as of
the later of the last day of that month or the last day of the calendar month in
which the Participant's Termination Date arises. If the written request for
distribution is received after the fifteenth (15th) day of a calendar month,
then the distributable value of the Accounts
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shall be determined as of the later of the last day of the second calendar month
following the date such request is received or the last day of the calendar
month in which the Participant's Termination Date arises.
If a Participant leaves the employ of the Company and all Affiliated
Employers and the balance of the vested portion of his Accounts exceeds $3,500
he shall be deemed a Limited Participant and his Accounts shall remain in the
Plan until he attains (or would have attained) his Retirement Date, unless the
Limited Participant or surviving Beneficiary elects in writing to receive
distribution of his Accounts prior to such Retirement Date as provided in
Section 7.7 of the Plan. If a Participant's distributable benefit does not
exceed $3,500, then it shall be paid in accordance with Section 7.6(c). If a
Participant has no vested interest in his Accounts as of his Termination Date,
then his Accounts shall be forfeited and he shall be deemed to have received a
distribution of zero dollars ($0) in full payment of his vested interest in the
Plan. Transfer and Rollover Accounts shall be distributed on the same terms as
all other Accounts of the Participant under this Section.
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SECTION 7.3 DESIGNATION OF BENEFICIARY
Each Participant or Limited Participant may designate any legal or
natural person or persons as his Beneficiary under the Plan to receive any
portion of such Participant's benefit that remains unpaid as of the date of his
death. Each Beneficiary designation will be in the form prescribed by the Plan
Administrator and will be effective only when filed with the Plan Administrator
during the Participant's lifetime. Each Beneficiary designation filed with the
Plan Administrator will cancel all prior Beneficiary designations filed with the
Plan Administrator.
Notwithstanding the foregoing, no Beneficiary designation will be
effective under the Plan unless the Participant's or Limited Participant's
Eligible Spouse consents in writing to such designation, such consent
acknowledges the effect of such designation, and the Eligible Spouse's signature
is witnessed by the Plan Administrator or a notary public. Notwithstanding the
foregoing, spousal consent to a Participant's Beneficiary designation will not
be required if:
(a) the Eligible Spouse is designated as the sole primary Beneficiary
by the Participant or Limited Participant; or
(b) it is established to the satisfaction of the Plan Administrator
that spousal consent cannot be obtained because there is no Eligible Spouse, or
because of such other circumstances as may be prescribed in regulations issued
by the Secretary of the Treasury. For this purpose, reasonable reliance by the
Plan Administrator on suitable written representations or other evidence from
the Participant shall be allowed.
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Any consent by an Eligible Spouse or any determination by the Plan
Administrator that the consent is not required pursuant to paragraphs (a) or (b)
above may not be revoked by the Spouse and will be effective only with respect
to such Eligible Spouse.
SECTION 7.4 LACK OF BENEFICIARY
If any Participant (including, for all purposes of this Section, a
Limited Participant) fails to designate a Beneficiary in the manner provided
above, or if the Beneficiary designated by a Participant dies before him or
before complete distribution of the Participant's benefits, such Participant's
benefits will be paid in accordance with the following order of priority:
(a) to the Participant's Eligible Spouse; or, if there be none
surviving,
(b) to the Participant's children (including legally adopted children)
and the descendants of deceased children (per stirpes), in equal parts; or, if
there be none surviving,
(c) to the Participant's father and mother, in equal parts; or, if
there be none surviving,
(d) to the Participant's estate.
The Plan Administrator may determine the identity of the distributees
and in so doing may act and rely upon any information deemed reliable upon
reasonable inquiry, and upon any affidavit, certificate, or other paper believed
to be genuine, and upon any evidence believed sufficient. If a Participant,
Limited Participant, or Beneficiary is under a legal disability, and is unable
to attend properly to his personal financial matters, the Plan Administrator may
direct that
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payments be made to any individual legally appointed to care for such
Participant, Limited Participant or Beneficiary.
Any payment made pursuant to this Section will be in complete discharge
of the obligation for paying such benefit under the Plan.
SECTION 7.5 MISSING PAYEES
Each Participant, Limited Participant and each Beneficiary must file
written notification with the Plan Administrator or Employer of the address at
which such person can be reached. Any communication, statement, or notice
addressed to a Participant, Limited Participant or Beneficiary shall be sent to
their most current address filed with the Employer or Plan Administrator. If no
address is so filed, then the last address as shown in the Employer's records
will be used for such person for all purposes of the Plan.
Notwithstanding any other provision of the Plan, in the event that the
Plan Administrator cannot locate any person to whom a payment is due under this
Plan, the benefit in respect of which such payment is to be made shall be
forfeited and applied in accordance with Section 6.7(d) at such time as the Plan
Administrator shall determine in its sole discretion (but in all events prior to
the time such benefit would otherwise escheat under any applicable law);
provided that such forfeited benefit shall be reinstated (without adjustment for
any intervening investment experience) if such person subsequently makes a valid
claim for such benefit prior to termination of the Plan. Restoration of such
forfeited benefit shall be made from the same sources as provided for restoring
forfeitures under Section 4.7.
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SECTION 7.6 TIMING OF BENEFIT PAYMENTS
(a) Unless the Participant otherwise elects or this Plan requires
otherwise in a particular case, payment of a Participant's vested interest under
the Plan will be made or commenced not more than sixty (60) days after the close
of the Plan Year coincident with or next following the latest to occur of the
following:
(i) the date on which the Participant reaches age 65,
(ii) the 10th anniversary of the year in which the Employee became
a Plan Participant, or
(iii) the date on which the Participant terminates employment with
the Employer and all Affiliated Employers.
Subject to the special rules of Sections 7.6(b) and (c), any benefit
distributions payable under the Plan shall be made to a Participant or surviving
Beneficiary as soon as practicable after receipt and processing by the Plan
Administrator of such person's proper, written request for a benefit
distribution. Such administrative processing includes a determination as to
whether the person is entitled to a benefit and, if so, a determination of the
distributable amount in accordance with Section 7.2.
(b) Notwithstanding the foregoing, benefit payments for any Participant
who is a "5-percent owner" will begin no later than April 1 following the
calendar year in which the Participant attains age 70 1/2, whether or not the
Participant has retired. Distributions will be made in a manner consistent with
Section 401(a)(9) of the Code. Any distribution options inconsistent with
statutory requirements will be superseded by the applicable Code section. For
purposes of
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this paragraph, a Participant is a "5-percent owner" if he is a 5-percent owner
(as defined in Code Section 416) of an Employer in the Plan Year in which that
Participant attains age 70 1/2.
(c) If the aggregate balance of the Participant's Accounts, determined
as of the last day of the calendar month in which his Termination Date arises
(or as of any other date prescribed in Section 7.2), does not exceed $3,500,
then a single sum distribution of his benefit shall be made, without regard to
the Participant's distribution request or lack of one, as promptly as
practicable and not later than the close of the first Plan Year beginning after
his Termination Date.
SECTION 7.7 CONSENT TO DISTRIBUTIONS BEFORE RETIREMENT DATE
No distribution shall be made to any Participant (who is eligible for a
distribution under the Plan) before his Retirement Date unless:
(a) the prior written consent of the Participant (or if the Participant
has died, his surviving Beneficiary) to the distribution has been obtained by
the Plan Administrator within the 90-day period ending on the date distribution
is to be made or commenced, or
(b) the balance of the Participant's Accounts, determined as of the
Valuation Date coinciding with or next preceding the date of the distribution,
does not exceed $3,500.
The Plan Administrator shall notify the Participant of any right to
defer any distribution until the Participant's Retirement Date.
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SECTION 7.8 SPECIAL DISTRIBUTION RULE
Elective Deferrals and earnings or losses allocable thereto, shall not
be distributed to Participants, Limited Participants or Beneficiaries earlier
than upon separation from service, death, or disability or, in accordance with
Treasury Regulation ss.1.401(k)-1(d), upon the occurrence of one of the
following events:
(a) The termination of the Plan without establishment of a successor
defined contribution plan;
(b) The disposition by an Employer of substantially all of the assets
(within the meaning of Section 409(d)(2) of the Code) used in the trade or
business of the Employer if the Employer continues to maintain this Plan after
the disposition, but only with respect to Employees who continue employment with
the business acquiring such assets;
(c) The disposition by an Employer to an unrelated entity of the
Employer's interest in a subsidiary (within the meaning of Section 409(d)(3) of
the Code) if the Employer continues to maintain this Plan, but only with respect
to Employees who continue employment with such subsidiary; or
(d) The financial hardship of the Participant, as described in Section
7.1 of the Plan.
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SECTION 7.9 DIRECT ROLLOVER ELECTION
(a) Election. Notwithstanding any provisions of the Plan to the
contrary that would otherwise limit the election under this Section, a person
entitled to a distribution of benefits from the Plan (a "Distributee") may elect
to have any portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Distributee in a Direct Rollover,
rather than being paid to the Distributee.
(b) Definitions. For purposes of this Section:
(i) "Eligible Rollover Distribution" shall mean any distribution
(including withdrawals) of all or any portion of the balance
to the credit of the Distributee, except that an Eligible
Rollover Distribution shall not include: any distribution
that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the
life (or life expectancy) of the Distributee or the joint
lives (or joint life expectancies) of the Distributee and
the Distributee's designated Beneficiary, or for a specified
period of ten years or more; any distribution to the extent
such distribution is required under section 401(a)(9) of the
Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
(ii) "Eligible Retirement Plan" shall mean an individual
retirement account described in section 408(a) of the Code,
an individual retirement annuity described in section 408(b)
of the Code, an annuity plan described in section 403(a) of
the Code, or a qualified trust described in section 401(a)
of the Code, that accepts the Distributee's Eligible
Rollover Distribution. However, in the case of an Eligible
Rollover
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Distribution to the surviving Spouse, an Eligible Retirement
Plan is an individual retirement account or individual
retirement annuity.
(iii) "Distributee" shall include an Employee or former Employee.
In addition, the Employee's or former Employee's surviving
Spouse and the Employee's or former Employee's Spouse or
former Spouse who is the alternate payee under a Qualified
Domestic Relations Order, as defined in section 414(p) of
the Code, are Distributees with regard to any interest of
the Spouse or former Spouse.
(iv) "Direct Rollover" shall mean a payment by a direct
trustee-to-trustee transfer from the Plan to the Eligible
Retirement Plan specified by the Distributee.
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SECTION 7.10 LOANS TO PARTICIPANTS
The Plan Administrator upon proper written request by an eligible
borrower, shall direct the Trustee to make a loan from the vested portion of the
Accounts of a Participant in accordance with this Section. Eligibility for and
the rules with respect to loans shall, in the discretion of the Plan
Administrator, be uniformly applied to all similarly situated loan applicants
and this loan program shall not operate to discriminate in favor of Highly
Compensated Employees, officers or shareholders of an Employer. Eligible
borrowers shall include active or inactive Employees, surviving Beneficiaries,
and alternate payees under qualified domestic relations orders (to the extent
such an order authorizes such borrowing rights) who have an interest in a
Participant's Account under the Plan. From time to time the Plan Administrator
may allow loan requests to be made directly to a separate Plan recordkeeper,
which shall during such times administer this loan program instead of the Plan
Administrator, in which case loan requests shall be made in such time and manner
as such recordkeeper permits. At all times, loans shall be available to eligible
borrowers without restriction as to the reason for the loan or the use to be
made of the loan proceeds.
Loans shall be available to eligible borrowers on the following terms:
(a) The initial principal amount of any loan may not be less than
$1,000. The maximum principal amount of all loans outstanding to any one
borrower shall not exceed 50% of the balance of the vested portion of the
Participant's Accounts or $50,000, whichever is less. For purposes of this
paragraph (a), the $50,000 maximum figure shall be reduced by the excess, if
any, of the highest outstanding balance of loans from the Participant's Accounts
during the one-
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year period ending on the day before the date on which such loan is made over
the outstanding balance of loans from the Participant's Accounts on the date on
which such loan is made.
(b) Loans shall be taken from Participant's Accounts in the following
order of priority:
(i) First, from the Buy-Back Account, if any; and
(ii) Next, if needed, from the Elective Deferral Account, if any;
and
(iii) Next, if needed, from the Matching Contribution Account, if
any; and
(iv) Next, if needed, from the Rollover Account, if any; and
(v) Next, if needed, from the Special Make-Up Contribution
Account, if any; and
(vi) Next, if needed, from the Profit Sharing Account; if any, to
the extent vested; and
(vii) Finally, if needed from the vested portion of the Transfer
Account, if any.
The Plan Administrator shall be authorized and permitted to modify that order of
priority by so designating in the Plan loan procedures at any time and from time
to time. Loans shall be taken pro rata from all investment funds in which the
Participant's Accounts from which the loan is made are invested.
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(c) The term of any loan may not exceed five years. This five-year
maximum shall even apply to loans used to acquire any dwelling unit which,
within a reasonable time, is to be used as a principal residence of the
Participant.
(d) Loans shall have a fixed rate of interest. The interest rate shall
be set as of the last day of each calendar quarter by the Plan Administrator for
loans to be made in the next following calendar quarter, and shall equal the
prime rate then charged (as of the quarter-end date on which the rate is to be
set) by a large domestic money center bank (which may be the Company's principal
commercial bank) selected by the Plan Administrator, plus one percentage point
(1%).
(e) The Plan Administrator shall have the authority to require that the
loan be repaid by payroll withholding over its term and, as a condition
precedent to approval of the loan, require the borrower to irrevocably authorize
payroll withholding to accomplish the same. Borrowers not on an Employer's
payroll must make their loan repayments monthly by certified check, payable as
directed by the Plan Administrator, unless a direct deposit repayment
arrangement is established under part (f) below.
(f) The loan shall be secured by the vested interest in the
Participant's Accounts to the extent of the principal amount of the loan plus
accrued interest. However, not more than 50% of the vested portion of the
Participant's Accounts may be used as security for all loans from the
Participant's Accounts. The Plan Administrator may request such other or further
security as it shall deem necessary and prudent from time to time in order to
protect the Plan from risk of
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loss of principal or income if a default were to occur. With respect to loans
made to eligible Beneficiaries and loans to inactive Employees, the Plan
Administrator shall have the authority to require and arrange that the loan be
repaid by direct deposit to the Trustee from a checking account of the borrower.
If such payroll withholding or direct deposit arrangements cease or cannot be
arranged, the Plan Administrator may reserve the right to deny the loan request
or accelerate and call the existing loan due in order to avoid the risk of loss
to the Plan.
(g) If the vested portion of a Participant's Accounts is to be
distributed as a Plan benefit prior to the repayment of all principal and
accrued interest due on any Plan loan from the Participant's Accounts, the
distribution shall be offset by the amount of unpaid principal and interest due
on the loan.
(h) All loans shall be bona fide and evidenced by a note containing
such additional terms and conditions, consistent with this Section, as the Plan
Administrator shall require. Payments shall be scheduled to be made no less
frequently than quarterly. Any refinancing shall be made at the interest rate in
effect for new loans at the time the refinancing takes place.
(i) A Participant shall be permitted no more than one outstanding loan
at any time, but this limitation shall not prohibit such refinancing and
adjustment of the terms and conditions of any Participant's loan as the Plan
Administrator, within the other limitations of this Section, may allow.
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(j) Only Participants and Beneficiaries who are "parties in interest"
with respect to the Plan, within the meaning of Section 3(14) of ERISA, shall be
permitted to borrow under this Section. Participants who are no longer employed
with any Employer or Affiliated Employer shall not be eligible for loans under
this Section.
(k) Once three monthly payments (or payments for an entire three-month
period, if payments are not due monthly) remain past due on a loan under this
Section then the loan shall be considered in default, the entire unpaid
principal and interest shall be accelerated, due and owing, and shall be
reported for income tax purposes as a taxable distribution from the Plan. The
amount in default, shall continue to accrue interest until paid. Any outstanding
balance on a loan shall not be offset against and deducted from the balance of
the Participant's Accounts, as provided in part (g) above, unless and until
immediately before the Participant's Accounts are distributed as a benefit under
Sections 7.2 and 7.6.
(l) All loans shall be treated as a separate investment fund of the
affected Participant's Accounts. All payments with respect to loans shall be
credited to the Accounts of the Participant from which the loan was made, and in
the same proportions to each Account as the loan was taken from that Account,
and such payments shall be invested pro rata according to the most recent
investment direction for those respective Accounts.
(m) Any reasonable Plan administration expenses attributable to a loan
shall be deducted from the loan principal, added to loan repayments or otherwise
passed through to and paid by the borrower.
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ARTICLE VIII
TOP-HEAVY PROVISIONS
SECTION 8.1 TOP-HEAVY RULES
The provisions in parts (a) through (d) below will become effective for
any Plan Year in which the Plan is determined to be a Top-Heavy Plan.
(a) Minimum Allocations: For any Plan Year for which the Plan is deemed
a Top-Heavy Plan, the following required minimum allocation rules will apply:
(i) The Employer contributions allocated on behalf of any
Participant who is not a Key Employee (whether or not he or
she has authorized Elective Deferrals during such Top-Heavy
Plan Year) will not be less than the lesser of three percent
(3%) of such Participant's compensation (as defined below),
or the largest Employer contribution expressed as a
percentage of the first $150,000 (or such other maximum as
may be applicable under Code Section 401(a)(17)) of the Key
Employee's compensation allocated on behalf of any Key
Employee for that Plan Year. The minimum allocation is
determined without regard to any Social Security
contribution. The allocation will be made even though under
other Plan provisions the Participant would not otherwise be
entitled to receive an allocation, or would receive a lesser
allocation for the year due to either the Participant's
failure to complete 1,000 hours of employment (or any
equivalent provided in the Plan), or the Participant's
compensation being less than a stated amount.
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(ii) For the purpose of computing the Minimum Allocations,
"compensation" as used in Section 8.1(a)(i) above means
Compensation, including any amounts that a Key Employee
elects to defer under the salary reduction agreement which
are excludable from the Employee's gross income under
Sections 125, 401(k), 402(a)(8), 402(h) or 403(b) of the
Code, as defined in Code Section 415(c)(3).
(b) Compensation Limitation: For any Plan Year for which the Plan is a
Top-Heavy Plan, annual Compensation taken into account under the Plan will not
exceed $150,000, adjusted for inflation as provided under Sections 401(a)(17)
and 415(d) of the Code.
(c) Coordination With Other Plans: If another defined contribution or
defined benefit plan maintained by any Affiliated Employer provides
contributions or benefits on behalf of Participants in this Plan, such other
plan or plans will be treated as a part of this Plan in determining whether this
Plan satisfies the requirements of Sections 8.1(a) and (b) of this Plan. Such
determination will be made by the Plan Administrator.
(d) Adjustment of Multiple Plans Limitation: For any Plan Year for
which the Plan is determined to be a Top-Heavy Plan, the determination of the
defined contribution fraction and the defined benefit fraction under Section 5.2
of the Plan will be adjusted in accordance with the provisions of Section 416(h)
of the Code.
(e) Definitions: The following definitions will apply to this Section
8.1:
(i) Key Employee: Any employee or former employee (and the
beneficiaries of such employees) who at any time during the
Determination Period was:
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(l) an officer of any Affiliated Employer if such
employee's annual compensation exceeds 150% of the
dollar limitation under Section 415(b)(l)(A) of the
Code for any Plan Year,
(2) an owner (or considered an owner under Section 318 of
the Code) of one of the ten largest interests in any
Affiliated Employer if such employee's compensation
exceeds 100% of such dollar limitation under Section
415(c)(l)(A) of the Code,
(3) a five percent (5%) owner of the any Affiliated
Employer, or
(4) a one percent (1%) owner of any Affiliated Employer
who has an annual compensation of more than $150,000.
An officer is defined as any employee of any Affiliated
Employer who is named by such Affiliated Employer as an
officer, provided that not more than the greater of three
employees or 10% of the employees (but in no event more than
50 employees) will be considered as officers in determining
whether the Plan is Top-Heavy. The Determination Period is
the Plan Year containing the Determination Date and the four
preceding Plan Years. The determination of who is a Key
Employee is made under Section 416(i)(l) of the Code. For
purposes of identifying Key Employees, "compensation" shall
be
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as defined in Code Section 415(c)(3), and as modified by
Code Section 414(q)(7).
(ii) Non-Key Employee: Any employee of any Affiliated Employer
who is not a Key Employee.
(iii) Determination Date: For the first Plan Year, the last day of
that year. For any Plan Year thereafter, the last day of the
preceding Plan Year.
(iv) Valuation Date: The date as of which the Employee's Account
balances are valued for purposes of calculating the
Top-Heavy Ratio.
(v) Top-Heavy Plan: The Plan will be deemed a Top-Heavy Plan for
any Plan Year for which the following conditions exist:
(1) The Top-Heavy Ratio for the Plan exceeds 60%, and the
Plan is not part of any Required Aggregation Group or
Permissive Aggregation Group of plans;
(2) The Plan is part of a Required Aggregation Group of
plans (but not a Permissive Aggregation Group), and
the Top-Heavy Ratio for the group exceeds 60%; and
(3) The Plan is part of a Required Aggregation Group and
part of a Permissive Aggregation Group, and the
Top-Heavy Ratio for the Permissive Aggregation Group
exceeds 60%.
(vi) Top-Heavy Ratio: If any Affiliated Employer maintains one or
more defined contribution plans
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and has not maintained any defined benefit plan that during
the five-year period ending on the Determination Date has or
has had accrued benefits, the Top-Heavy Ratio for this Plan
alone or for the Required or Permissive Aggregation Group,
as appropriate, is a fraction, the numerator of which is the
sum of the Account balances of all Key Employees (including
any distributions in the five-year period ending on the
Determination Date) and the denominator of which is the sum
of all Account balances (including any distributions in the
five-year period ending on that Determination Date) of all
Participants. Both the numerator and denominator of the
Top-Heavy Ratio will be adjusted to reflect contributions
due but not made as of the Determination Date that are
required to be taken into account under Section 416 of the
Code. The value of the Account balances will be determined
as of the most recent Valuation Date that falls within or
ends with the 12-month period ending on the Determination
Date. The Account balances of a Participant who
(l) is not a Key Employee but who was a Key Employee in a
prior Plan Year, or
(2) has not been credited with at least one hour of
employment at any time during the five-year period
ending on the Determination Date,
will be disregarded, as will the balances in any
Participant's Rollover and Transfer Accounts.
When aggregating plans, Account balances will be calculated
with reference
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to the Determination Dates that fall within the same Plan
Year.
(vii) Permissive Aggregation Group: The Required Aggregation
Group, plus any other plan or plans of any Affiliated
Employer falling under Sections 401(a)(4) and 410 of the
Code.
(viii) Required Aggregation Group: Each plan of the Company in
which at least one Key Employee participates or has
participated during the Determination Period (including a
terminated plan), and each other plan that enables a plan in
which a Key Employee is a participant to meet the
requirements of Sections 40l(a)(4) or 410 of the Code.
SECTION 8.2 SUPERSEDING LAW
The provisions of Section 8.1 of the Plan will be deemed to be altered
to the extent required by any applicable Code Sections or other applicable law
or regulations relating to top-heavy plans.
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ARTICLE IX
TRUST FUND
SECTION 9.1 CONTRIBUTIONS TO THE TRUST FUND
All contributions under this Plan will be paid to the Trustee and
deposited in the Trust Fund. In no event will any contribution for a given Plan
Year be made to the Plan later than the date of filing of the Employer's federal
income tax return for its fiscal year in which such Plan Year ends. All
contributions made by the Employer are expressly conditioned upon the
qualification of the Plan and any amendments to the Plan, under Sections 401(a)
and 401(k) of the Code, and upon the current deductibility of such contributions
under Section 404 of the Code. Upon the contributing Employer's request, insofar
as permitted under Section 403(c) of ERISA, a contribution that was made by
mistake of fact, or conditioned upon qualification of the Plan or any amendment
thereto, or conditioned upon the deductibility of the contribution under Section
404 of the Code, will be returned to the contributing Employer within one year
after the payment of the contribution, the denial of the qualification, or the
disallowance of the deduction (to the extent disallowed), whichever is
applicable.
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SECTION 9.2 USE OF TRUST ASSETS
Except as provided in Section 9.1 of the Plan and this Section, all
assets of the Trust Fund, including Income, will be retained for the exclusive
benefit of Participants, Limited Participants, and Beneficiaries and will be
used to pay benefits to such persons and will not revert to or inure to the
benefit of any Employers. Reasonable expenses incurred in the administration,
maintenance and operation of the Plan and Trust Fund shall be paid from the
Trust Fund at the direction of the Plan Administrator to the extent permitted
under ERISA, unless any Employers determine to pay certain of such expenses from
time to time.
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ARTICLE X
COMMITTEE AND PLAN ADMINISTRATION
SECTION 10.1 MEMBERSHIP AND AUTHORITY
The Committee referred to in Section 2.27 will consist of not more than
three (3) persons appointed by the Board of Directors of the Company, or by the
authorized designee of such Board. The Committee will be the "named fiduciary"
(as described in ERISA Section 402) under the Plan and will have complete
authority and discretion in exercising rights, powers and duties granted to the
Committee under the Plan and applicable law. Except as otherwise specifically
provided in this Article X, in controlling and managing the operation and
administration of the Plan, the Committee will act either by a majority vote of
its then members present at a Committee meeting at which a quorum (a majority,
or as otherwise provided in Committee rules or by-laws) is present, or by
unanimous written consent of all Committee members acting without a meeting, and
shall have full and exclusive discretion in exercising the following powers,
rights, and duties in addition to those vested in it elsewhere in the Plan:
(a) To adopt such rules of procedure and regulations as, in its
opinion, may be necessary for the proper and efficient administration of the
Plan and as are consistent with the provisions of the Plan;
(b) To enforce the Plan in accordance with its terms and such
applicable rules and regulations as may be adopted by the Committee;
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(c) To determine all questions arising under the Plan, including the
power to determine the rights or eligibility of employees or Participants and
their Beneficiaries and their respective benefits; and to construe and interpret
the Plan and thereby to remedy ambiguities, inconsistencies, or omissions;
(d) To maintain and keep records concerning the Plan and concerning its
proceedings and acts in such form and detail as the Committee may decide, and to
make such reports on the Plan to the Company, government agencies, or others as
the Committee or the Company determines to be appropriate; and
(e) To direct all payments of benefits under the Plan.
The certificate of a majority of the members of the Committee, or of
the Secretary or other designated member or representative of the Committee,
that the Committee has taken or authorized any action will be conclusive in
favor of any person relying on the certificate.
SECTION 10.2 DELEGATION BY COMMITTEE
In exercising its authority to control and manage the operation and
administration of the Plan, the Committee may employ agents and counsel (who may
also be employed by or represent any Employer) and delegate to them or allocate
to individual Committee members such powers as the Committee deems desirable.
Any such delegation will be in writing and will reflect the action of the
Committee members then acting. The writing contemplated by the foregoing
sentence shall adequately describe the advice to be rendered or the functions
and duties to be performed by the delegatee.
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SECTION 10.3 UNIFORM RULES
In managing the Plan, the Committee will uniformly apply rules and
regulations adopted by it, from time to time, to all Participants similarly
situated.
SECTION 10.4 INFORMATION TO BE FURNISHED TO COMMITTEE
The Employer will furnish the Committee such data and information as
may be required. The records of the Employer as to an Employee's or
Participant's period of employment, termination of employment and the reason
therefor, leave of absence, reemployment, and earnings will be conclusive on all
persons unless determined to be incorrect. Participants and other persons
entitled to benefits under the Plan must furnish to the Committee such evidence,
data, or information as the Committee considers desirable to carry out the Plan.
SECTION 10.5 COMMITTEE'S DECISIONS FINAL
All determinations and decisions regarding provisions of the Plan
involving eligibility to participate in the Plan, eligibility for benefits under
the Plan, and the amount and form of benefits payable under the Plan, shall be
made in the sole discretion of the Committee. All such decisions and
determinations shall be final and binding. A misstatement, mistake of fact, or
other administrative error or omission, shall be corrected when it becomes
known, and the Committee shall make any such adjustment on account thereof as it
considers equitable and practicable.
<PAGE> 101
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SECTION 10.6 EXERCISE OF COMMITTEE'S DUTIES
Notwithstanding any other provisions of the Plan, the Committee will
discharge its duties hereunder solely in the interests of the Participants in
the Plan and their Beneficiaries, and:
(a) For the exclusive purpose of:
(i) providing benefits to Plan Participants and other persons
entitled to benefits under the Plan; and
(ii) defraying reasonable expenses of administering the Plan; and
(b) With the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent person acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims.
SECTION 10.7 REMUNERATION AND EXPENSES
No remuneration shall be paid to any Committee member, delegatee of the
Committee, or other Employee fiduciary of the Plan, acting as such. However, the
reasonable expenses of a Committee member incurred in the performance of a
Committee function, and any other reasonable expenses of Plan administration,
may be paid from the Trust in accordance with Section 9.2, at the direction of
the Committee, if not paid by any Employers.
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SECTION 10.8 RESIGNATION OR REMOVAL OF COMMITTEE MEMBER
A Committee member may resign at any time by giving written notice to
the Company and the other Committee members. The Board of Directors of the
Company may act to remove a Committee member by giving written notice to him and
the other Committee members.
SECTION 10.9 APPOINTMENT OF SUCCESSOR COMMITTEE MEMBER
The Board of Directors of the Company may act to fill any vacancy in
the membership of the Committee and will give prompt written notice thereof to
the other Committee members. While there is a vacancy in the membership of the
Committee, the remaining Committee members will have the same powers as the full
Committee until the vacancy is filled.
SECTION 10.10 RECORDS AND REPORTS
The Committee will exercise such authority and responsibility as it
deems appropriate to comply with ERISA and Code requirements relating to:
records of a Participant's service, account balances, and the percentage of such
account balances that are nonforfeitable under the Plan; notifications to
Participants; registration and qualification with the Internal Revenue Service;
and annual reports to the Department of Labor or Internal Revenue Service.
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SECTION 10.11 INDEMNIFICATION
To the extent permitted by law, no Committee member, shareholder,
director, officer or employee of any Affiliated Company, shall incur any
personal liability of any nature for any act or failure to act in good faith in
connection with the administration of the Plan, except in cases of gross
negligence or willful misconduct by such individual. The Company's Board of
Directors (and its members), the Committee (and its members), and any Employees
serving the Plan with the approval of the Company or the Committee, will be
indemnified and saved harmless by the Employers, from and against any and all
liabilities to which they may be subjected by reason of any act or failure to
act made in good faith pursuant to the provisions of the Plan, including
expenses reasonably incurred in the defense of any claim relating thereto.
SECTION 10.12 CLAIMS PROCEDURE
Unless otherwise delegated by the Committee, the Committee will make
all determinations as to the right of any person to a benefit.
(a) If a claim is denied, in whole or part, the party making the claim
will be given a written notice of denial of the claim, containing the following:
(i) Specific reasons for the denial;
(ii) Specific reference to pertinent Plan provisions on which the
denial is based;
(iii) A description of any additional material or information
necessary for the claimant to perfect the claim, and an
explanation of why the material or information is necessary;
and
(iv) An explanation of the claim review procedure.
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The notice will be furnished within a reasonable time after receipt of the
claim. If the notice is not furnished within ninety (90) days following the
claim, or within an additional ninety (90) days (if deemed necessary and notice
of the extension is given to the claimant before the expiration of the initial
ninety (90) day period), the claim will be deemed denied.
(b) The following claim review procedure will apply to any denied
claim:
(i) Review may be requested in writing and a complete request
for review must be received by the Committee within sixty
(60) days following the date of denial of the claim. During
such period the claimant may inspect or copy any Plan
records pertaining to his claim. The request for review must
contain all reasons, facts and documents in support of the
denied claim.
(ii) The decision on review shall be made by the Committee or its
designee, shall be in writing, and shall be issued within
sixty (60) days after receipt of the request for review,
provided that the period for decision may extend to a date
not later than 120 days after such request if it is
determined that special circumstances require such an
extension. The decision on review shall include specific
reasons for the decision and specific references to the Plan
provisions on which the decision is based.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.1 NONGUARANTEE OF EMPLOYMENT
Nothing contained herein will be construed as:
(a) a contract of employment between an Employer or any Affiliated
Employer and any Employee, Participant, Limited Participant or other person who
is or may be entitled to benefits under the Plan;
(b) a right of any Employee or other person to be continued in the
employment of an Employer or any Affiliated Employer; or
(c) a limitation of the right of an Employer or any Affiliated Employer
to discharge any of its employees, with or without cause.
<PAGE> 106
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SECTION 11.2 RIGHTS TO TRUST ASSETS
Upon termination of his employment, no Employee, Participant, Limited
Participant or Beneficiary will have any right to, or interest in, any assets of
the Trust Fund other than the right to receive benefits specifically accrued by
such Employee as a Participant in accordance with the Plan, or as the
Beneficiary of a deceased Participant in the Plan, and then only to the extent
of the benefits payable under the Plan to such Employee or Beneficiary out of
the assets of the Trust Fund. Payment of all benefits under the Plan will be
made solely out of the assets of the Trust Fund, and neither any Employer, any
Affiliated Employer, nor the Plan Administrator will be personally liable for
any loss of assets or decrease in value due to adverse investment experience of
the Trust Fund.
SECTION 11.3 NONFORFEITABILITY OF BENEFITS
Subject only to the specific provisions of this Plan, nothing will be
deemed to divest a Participant of his right to any Plan benefit to which he
attains a nonforfeitable right in accordance with the provisions of this Plan.
<PAGE> 107
- 102 -
SECTION 11.4 NONALIENATION OF BENEFITS
Benefits payable under this Plan will not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary; and any attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, charge, or otherwise dispose of any right to benefits payable
hereunder will be void. The Trust Fund will not in any manner be liable for, or
subject to, the debts, contracts, liabilities, engagements, or torts of any
person entitled to benefits hereunder.
The preceding paragraph shall not apply to a "Qualified Domestic
Relations Order" as defined in Section 414(p) of the Code. The Plan
Administrator shall establish a written procedure to determine the qualified
status of such domestic relations orders and to administer accounts and
distributions under such orders. Further, to the extent provided under a
Qualified Domestic Relations Order, a former Spouse of a Participant shall be
treated as the Spouse or surviving Spouse under the Plan with respect to
benefits specifically identified under the terms of the Qualified Domestic
Relations Order. To the extent legally permitted, payments to an alternate payee
under a Qualified Domestic Relations Order may commence prior to the subject
Participant's earliest retirement age, if so authorized by such Order and so
requested in writing by the alternate payee.
<PAGE> 108
- 103 -
SECTION 11.5 WORD USAGE
Any Participants or surviving Beneficiaries affected by a material Plan
amendment, or by a partial or complete Plan termination, shall be notified of
such Plan amendment or termination as required by law.
ARTICLE XII
AMENDMENTS AND ACTION BY EMPLOYERS
SECTION 12.1 AMENDMENTS
The Company reserves the right to amend or modify the Plan from time to
time by written instrument duly adopted by the Board of Directors of the
Company, or by that Board's designee. Any such amendment or modification shall
be effective on such date as such Board or designee shall specify, unless ERISA
or the Code requires some other effective date. Except as authorized under Code
Section 411(d)(6) or as permitted under the Company's Code Section 401(b)
remedial amendment rights, in no event will the vested interest and benefit
rights of any Participant be retroactively reduced by a Plan amendment (with
respect to his Accounts as existing immediately prior to such effective date).
SECTION 12.2 ACTION BY EMPLOYERS
Any action by any Employer under this Plan may be made or taken by
resolution of its Board of Directors or by any person or persons duly authorized
by resolution of such Board to take such action.
<PAGE> 109
- 104 -
SECTION 12.3 NOTICE OF AMENDMENT OR TERMINATION
Any Participants or surviving Beneficiaries affected by a material Plan
amendment, or by a partial or complete Plan termination, shall be notified of
such Plan amendment or termination as required by law.
ARTICLE XIII
SUCCESSOR EMPLOYER AND MERGER
SECTION 13.1 SUCCESSOR EMPLOYER
In the event of the dissolution, merger, consolidation, or
reorganization of the Company, provision may be made by which the Plan and Trust
will be continued by the successor to the Company by adopting the Plan and
becoming a party to the Trust, and, in that event, such successor will be
substituted for the Company under the Plan. The substitution of the successor
will constitute an assumption of Plan sponsorship by the successor, whereupon
the successor will have all of the powers, duties, and responsibilities of the
Company under the Plan.
SECTION 13.2 CONDITIONS APPLICABLE TO MERGER OR CONSOLIDATION OF PLANS
In the event of any merger or consolidation of the Plan with, or
transfer in whole or in part of the assets and liabilities of the Trust Fund to,
another trust fund held under any other plan of deferred compensation maintained
or to be established for the benefit of any or all of the Participants of this
Plan, the assets of the Trust Fund applicable to such Participants will be
merged, consolidated with or transferred to such other trust fund only if:
<PAGE> 110
- 105 -
(a) each Participant would (if either this Plan or the other plan then
terminated) receive a benefit immediately after the merger, consolidation, or
transfer that is equal to or greater than the benefit he or she would have been
entitled to receive immediately before the merger, consolidation, or transfer
(if this Plan had then terminated) and the determination of such benefits will
be made in the manner and at the time prescribed in regulations issued under
ERISA;
(b) resolutions of the Board of Directors of the Company under this
Plan, or any similar board of any new or successor employer of the affected
Participants, will authorize such transfer of assets; and, in the case of the
new or successor employer of the affected Participants, provided its resolutions
include an assumption by its plan of liabilities with respect to such
Participants' inclusion in the new employer's plan; and
(c) such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.
<PAGE> 111
- 106 -
ARTICLE XIV
PLAN TERMINATION
SECTION 14.1 RIGHT TO TERMINATE
In accordance with the procedures set forth in this Article, the
Company may terminate the Plan at any time. In the event of the dissolution,
merger, consolidation, or reorganization of the Company, the Plan will terminate
and the Trust Fund will be liquidated unless the Plan is continued by a
successor to the Company in accordance with the provisions of Section 13.1. The
Company may terminate the Plan at any other time by resolution of its Board of
Directors.
SECTION 14.2 PARTIAL TERMINATION
Upon partial termination of the Plan by the Company or other Employer
with respect to a sufficient group of Participants, the Plan Trustee will, in
accordance with the directions of the Plan Administrator, allocate and
segregate, for the benefit of such Participants employed by that Employer the
proportionate interest of such Participants in the Trust Fund. The funds so
allocated and segregated will be used by the Trustee to pay benefits to or on
behalf of Participants in accordance with Section 14.3.
SECTION 14.3 LIQUIDATION OF THE TRUST FUND
Upon the termination or partial termination of the Plan (including a
complete discontinuance of Employer contributions which is deemed a termination
of the Plan within the meaning of Section 411(d)(3) of the Code), the accounts
of all Participants affected by such termination or partial termination will
become fully vested and the Plan Administrator may direct the Trustee:
<PAGE> 112
- 107 -
(a) to continue to administer the Trust Fund and pay the value of the
final balance of Participants' Accounts in accordance with Article VII, for the
benefit of Participants, Limited Participants or their Beneficiaries affected by
such termination of the Plan until the Trust Fund has been liquidated; or
(b) to distribute any remaining assets in the Trust Fund, after payment
of any expenses properly chargeable thereto, to Participants, Limited
Participants, and Beneficiaries in proportion to their respective final Account
balances.
In case the Plan Administrator directs liquidation of the Trust Fund
pursuant to (a) above, the expenses of administering the Plan and Trust, if not
paid by the affected Employer, will be paid directly from the Trust Fund in
accordance with Section 9.2.
SECTION 14.4 MANNER OF DISTRIBUTION
Upon termination or partial termination of the Plan, the value of a
Participant's vested interest in the Plan may be paid in a single sum in
accordance with the provisions set forth in Article VII.
IN WITNESS WHEREOF, this Plan restatement, having been first duly
adopted by the Board of Directors of the Company, is hereby executed below by a
duly authorized officer of the Company on this ____ day of _____________, 1997,
to be effective as of January 1, 1997.
POWERTEL, INC.
By:
------------------------------------------
By:
------------------------------------------
<PAGE> 1
POWERTEL, INC. EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- ------ -------- -------
(IN THOUSANDS, EXCEPT RATIO)
<S> <C> <C> <C> <C> <C>
Earnings before income taxes and
cumulative effect of change in
accounting principle ($135,168) ($26,682) $5,234 $3,412 $1,580
Add (deduct):
Fixed charges 89,203 44,125 1,809 753 60
Interest capitalized (22,093) (29,039) - - -
Minority Interest (153) (474) - - -
--------- -------- ------ ------ ------
Earnings as adjusted ($ 68,211) ($12,070) $7,043 $4,165 $1,640
========= ======== ====== ====== ======
Fixed Charges:
Interest expense $ 61,565 $ 12,864 $1,657 $ 635 $ 46
Capitalized interest 22,093 29,039 - - -
Debt issuance costs 2,039 1,251 - - -
Capitalized debt issuance costs - - - - -
Rent expense (1/3 of total) 3,506 971 152 118 14
--------- -------- ------ ------ ------
$ 89,203 $ 44,125 $1,809 $ 753 $ 60
========= ======== ====== ====== ======
Ratio of earnings to fixed charges - (a) - (a) 3.9 5.5 27.3
========= ======== ====== ====== ======
</TABLE>
- ------------------
(a) For the years ended December 31, 1997 and 1996, earnings were insufficient
to cover fixed charges by $157,414 and $56,195, respectively.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
InterCel Licenses, Inc.
Powertel PCS, Inc.
Powertel/Atlanta, Inc.
Powertel/Birmingham, Inc.
Powertel/Jacksonville, Inc.
Powertel/Memphis, Inc.
Powertel/Kentucky, Inc.
Powertel Atlanta Licenses, Inc.
Powertel Birmingham Licenses, Inc.
Powertel Jacksonville Licenses, Inc.
Powertel Memphis Licenses, Inc.
Powertel Kentucky Licenses, Inc.
Powertel Nashville Licenses, Inc.
Powertel Knoxville Licenses, Inc.
<PAGE> 1
EXHIBIT 23
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 333-09769, 33-52550, 33-91734, 33-81842, and
33-52552.
/s/ Arthur Andersen LLP
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF POWERTEL, INC. FOR THE YEAR ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 326,954
<SECURITIES> 0
<RECEIVABLES> 34,549
<ALLOWANCES> 1,768
<INVENTORY> 3,975
<CURRENT-ASSETS> 405,484
<PP&E> 541,449
<DEPRECIATION> (49,699)
<TOTAL-ASSETS> 1,378,592
<CURRENT-LIABILITIES> 0
<BONDS> 788,358
0
4
<COMMON> 270
<OTHER-SE> 317,542
<TOTAL-LIABILITY-AND-EQUITY> 1,378,592
<SALES> 16,171
<TOTAL-REVENUES> 78,916
<CGS> 45,318
<TOTAL-COSTS> 214,017
<OTHER-EXPENSES> (63,537)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,604
<INCOME-PRETAX> (135,168)
<INCOME-TAX> 0
<INCOME-CONTINUING> (135,168)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135,168)
<EPS-PRIMARY> (5.04)
<EPS-DILUTED> (5.04)
</TABLE>
