<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1997.
REGISTRATION NO. 333-26055
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CCPR SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4812 13-3120943
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
110 EAST 59TH STREET
NEW YORK, NY 10022
(212) 906-8481
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD J. LUBASCH, ESQ.
SENIOR VICE PRESIDENT-GENERAL COUNSEL AND SECRETARY
CCPR SERVICES, INC.
110 EAST 59TH STREET
NEW YORK, NY 10022
(212) 906-8481
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
THOMAS H. KENNEDY, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NY 10022
(212) 735-3000
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NAME, ADDRESS AND JURISDICTION PRIMARY I.R.S.
TELEPHONE NUMBER OF OF STANDARD EMPLOYER
ADDITIONAL REGISTRANT ORGANIZATION INDUSTRIAL IDENTIFICATION
DELAWARE CLASSIFICATION NO.
CODE NUMBER
4812 13-3517074
CELLULAR
COMMUNICATIONS OF
PUERTO RICO, INC.
110 EAST 59TH STREET, 26TH FLOOR
NEW YORK, NY 10022
(212) 355-3466
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
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THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED JUNE 16, 1997
PROSPECTUS
OFFER FOR ALL OUTSTANDING 10% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR 10% SENIOR SUBORDINATED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF
CCPR SERVICES, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED.
CCPR Services, Inc., a Delaware corporation ("Services"), hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange an aggregate principal amount at maturity of up to
$200,000,000 of 10% Senior Subordinated Notes Due 2007 (the "New Notes") of
Services, which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount at maturity of the
issued and outstanding 10% Senior Subordinated Notes Due 2007 (the "Old Notes"
and, together with the New Notes, the "Notes") of Services from the holders
(the "Holders") thereof. The terms of the New Notes are identical in all
material respects to the Old Notes except (i) that the New Notes have been
registered under the Securities Act, (ii) for certain transfer restrictions and
registration rights relating to the Old Notes and (iii) that the New Notes will
not contain certain provisions relating to an additional payment to be made to
Holders of Old Notes under certain circumstances relating to the timing of the
Exchange Offer.
On January 28, 1997, Services issued $200,000,000 principal amount of Old
Notes. The Old Notes were issued pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws.
The Notes will be redeemable at the option of Services, in whole or in part,
at any time on or after February 1, 2002, at the redemption prices set forth
herein plus accrued and unpaid interest, if any, to the date of redemption.
Services may, at its option, redeem prior to February 1, 2000 up to a maximum
of 33 1/3% of the original aggregate principal amount of the Notes at 109% of
the principal amount thereof, plus accrued and unpaid interest, if any, with
(i) the proceeds of a public offering of $50 million or more or (ii) the
proceeds from the sale of capital stock to one or more Strategic Equity
Investors (as defined herein) for an aggregate purchase price of $35 million or
more. See "Description of the Notes--Redemption--Optional Redemption."
The Notes are fully and unconditionally guaranteed on a senior subordinated
basis (the "Guarantee") by Cellular Communications of Puerto Rico, Inc., a
Delaware corporation ("CCPR" or the "Guarantor"), the sole stockholder of
Services. See "Description of the Notes--Guarantee." The Notes are general
unsecured obligations of Services, subordinated in right of payment to all
existing and future senior indebtedness (the "Senior Debt") of Services. The
Guarantee is subordinated in right of payment to all existing and future Senior
Debt of CCPR. At April 28, 1997, neither Services nor CCPR had any Senior Debt.
The Indenture (as defined herein) permits Services, CCPR and (under limited
circumstances) their subsidiaries to incur additional Senior Debt, subject to
certain limitations, and Services, CCPR and their subsidiaries expect from time
to time to incur additional indebtedness, including Senior Debt, subject to
such limitations.
At present, Services is the principal operating subsidiary of the Company
that operates and manages a Puerto Rico cellular system. The Company has other
subsidiaries that own or control Federal Communications Commission cellular
licenses for Puerto Rico (collectively, the "Company Entities"), as well as
entities that operate a paging business in Puerto Rico and cellular and paging
businesses in the U.S. Virgin Islands (collectively the "Additional Company
Entities"). As of March 31, 1997, the Company Entities and the Additional
Company Entities had $3.7 million of trade and other indebtedness. Indebtedness
of the Company Entities and the Additional Company Entities would rank prior to
the claim of the holders of the Notes and the Guarantee. At present, neither
Services nor CCPR or their subsidiaries have any secured indebtedness that is
outstanding. As of March 31, 1997, Services and CCPR had in the aggregate
approximately $22.9 million of indebtedness that ranks pari passu with the
obligations of the Notes and the Guarantee.
The Indenture permits Services, CCPR and the Restricted Subsidiaries (as
defined herein) to make an aggregate of up to $100 million of Restricted
Payments (as defined herein) to CoreComm Incorporated ("CoreComm") that are not
otherwise permitted by the Indenture. See "Description of the Notes--Certain
Covenants--Limitation on Restricted Payments."
In the event of a Change of Control Triggering Event (as defined herein),
holders of the Notes will have the right to require Services to repurchase
their Notes, in whole or in part, at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase. There can be no assurance that Services or CCPR will have the
financial resources necessary to purchase the Notes upon a Change of Control
Triggering Event. See "Description of the Notes--Change of Control."
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from January 31, 1997. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
any payment in respect of accrued interest on such Old Notes.
(Continued on following page)
SEE "RISK FACTORS" ON PAGE 14 OF THIS PROSPECTUS FOR A DESCRIPTION OF CERTAIN
FACTORS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
(Continued from previous page)
The New Notes are being offered hereunder in order to satisfy certain
obligations of Services contained in the Registration Rights Agreement (as
defined herein). Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission"), as set forth in no-action letters
issued to third parties, Services believes that New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by Holders thereof (other than any Holder which is
an "affiliate" of Services within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired
in the ordinary course of such Holder's business and such Holder, other than
broker-dealers, has no arrangement with any person to engage in a distribution
of such New Notes. However, the Commission has not considered the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as in such other circumstances. Each Holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If any Holder is
an affiliate of Services, is engaged in or intends to engage in or has any
arrangement with any person to participate in the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could not
rely on the applicable interpretations of the staff of the Commission and (ii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. Services has agreed that, for a period of 90 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
Services will not receive any proceeds from the Exchange Offer. Services
will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event Services terminates the Exchange Offer and does
not accept for exchange any Old Notes, Services will promptly return the Old
Notes to the Holders thereof. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes. The
Initial Purchasers (as defined herein) have advised Services that they
currently intend to make a market in the New Notes. The Initial Purchasers are
not obligated to do so, however, and any market-making with respect to the New
Notes may be discontinued at any time without notice. Services does not intend
to apply for listing or quotation of the New Notes on any securities exchange
or stock market.
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AVAILABLE INFORMATION
CoreComm Incorporated ("CoreComm") is the publicly traded holding company of
CCPR. CoreComm is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by CoreComm with the Commission may be inspected and copied
at the public reference facilities maintained by the Commission at its
principal offices at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048; and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a site on the World Wide Web that
contains reports, proxy and information statements and other information at
http://www.sec.gov. The common stock of CoreComm, par value $0.01 per share
(the "Common Stock"), is listed on The Nasdaq Stock Market's National Market
("Nasdaq") and such reports, proxy and information statements and other
information concerning CoreComm can be inspected and copied at the Nasdaq
National Market, 1735 K Street, N.W., Washington, D.C. 20006-1506.
Services and CCPR have filed with the Commission a registration statement on
Form S-4 (herein, together with all amendments and exhibits, referred to as
the "Registration Statement") under the Securities Act with respect to the New
Notes offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to Services, CCPR and the New Notes offered
hereby, reference is made to the Registration Statement. Any statements made
in this Prospectus concerning the provisions of certain documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement otherwise
filed with the Commission.
Upon the effectiveness of the Registration Statement, Services and CCPR will
become subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will
file reports and other information with the Commission. The Registration
Statement, the exhibits forming a part thereof and the reports and other
information filed by Services and CCPR with the Commission in accordance with
the Exchange Act may be inspected, without charge, at the Public Reference
Section of the Commission located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the following Regional Offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048; and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any portion of the material may be obtained from the Public Reference Section
of the Commission upon payment of the prescribed fees. The Commission also
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information at http://www.sec.gov.
In the event that Services is not required to be subject to the reporting
requirements of the Exchange Act in the future, Services or CCPR will be
required under the Indenture pursuant to which the Old Notes were, and the New
Notes will be, issued, to continue to file with the Commission, and to furnish
the Holders of the New Notes with, the information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act.
CERTAIN DEFINITIONS
As used in this Prospectus, "Services" means CCPR Services, Inc., a Delaware
corporation, "CCPR" means Cellular Communications of Puerto Rico, Inc., a
Delaware corporation, "CoreComm" means CoreComm Incorporated, a Delaware
corporation, and the "Company" means CCPR and its subsidiaries, including
Services. "Pops," currently the most common technique for measuring the
relative size of different companies in the cellular telephone business, is
the estimated population of a market, as set forth in the 1995 U.S. Census
Bureau population estimate, multiplied by a company's ownership interest in
its entity operating its system in that market. The number of Pops owned by a
cellular operator does not represent the number of users of cellular service
and is not necessarily indicative of the number of potential subscribers.
Rather, this term is used only as a basis for comparison of the current size
of cellular systems operators. The term "FCC" refers to the Federal
Communications Commission, the term "NACN" refers to the North American
Cellular Network, the term "PRTC" refers to the Puerto Rico Telephone Company
and the "1996 Act" refers to the Telecommunications Act of 1996. Additionally,
"MSA" means Metropolitan Statistical Area in the United States, "RSA" means
Rural Service Area in the United States and "MTSO" means mobile telephone
switching office.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in, or incorporated by reference in, this Prospectus. Capitalized
terms used and not otherwise defined in this summary have the meanings given to
them elsewhere in this Prospectus.
THE COMPANY
The Company owns, operates and markets its cellular and paging services
throughout the Commonwealth of Puerto Rico ("Puerto Rico") and the U.S. Virgin
Islands ("USVI") under the CELLULARONE(R) service mark. The Company's interests
total 3.52 million Pops. In addition, the Company has entered into agreements
to operate or holds interim operating authority granted by the FCC in the two
remaining RSAs within Puerto Rico and the USVI which it does not own. The
Company began actively marketing its island-wide cellular system in May 1993
and, as of March 31, 1997, had 166,600 cellular subscribers and 35,100 paging
subscribers representing an increase in subscribers of 38,800 and 17,300,
respectively, since March 31, 1996. Despite commencing active marketing of its
services almost five years after its primary cellular competitor, management
believes the Company's market share represents an approximately 44% share of
cellular subscribers in Puerto Rico.
The Company believes that Puerto Rico is an attractive market for cellular
and paging services. The largest MSA in its service area, the San Juan/Caguas
MSA with over two million Pops, is characterized by a high population density
of 1,880 persons per square mile (mainland U.S. MSA average is 325) with 46% of
commuters reporting a commute time of 30 minutes or greater (mainland U.S. MSA
average is 30%).
Puerto Rico did not experience the benefits of island-wide competition until
early 1993, seven years after most major mainland U.S. markets.
Notwithstanding, management estimates that at the end of 1996 cellular
penetration in Puerto Rico was slightly less than 10% while the Cellular
Telecommunications Industry Association ("CTIA") reported that cellular
penetration in the U.S. as a whole first surpassed 10% during the first half of
1995. Average revenue for the Company's subscribers continues to exceed the
average revenue for mainland U.S. subscribers at a similar penetration level;
the average revenue for the Company's cellular subscribers in 1996 was over $70
per month, while the average revenue in the mainland U.S. as reported by the
CTIA at a similar market penetration (10%) in early 1995 was less than $60 per
month.
The Company believes that the USVI also represents an attractive cellular and
paging market, particularly because of the large amount of roaming traffic
generated by visitors.
The Company's primary strategy is to differentiate itself from its
competition by providing superior customer service and call quality by offering
state-of-the-art complementary wireless services, thereby strengthening its
image as the premium provider of wireless communications in its service areas.
The Company continually promotes its reliable Puerto Rico and USVI-wide mobile
cellular and paging services. The Company has stressed the quality of its
customer service, network, and value-added services as well as the breadth of
its coverage and distribution channels in Puerto Rico and the USVI rather than
the price of its services. In 1996, CELLULARONE(R) of San Juan received the
"Quality One" award from the Cellular One Group, recognizing the highest level
of customer service in the United States among MSAs using the CELLULARONE(R)
service mark. Management believes that this strategy has attracted higher
quality subscribers which generate higher than average revenues and
consequently believes its market share of revenues may be somewhat higher than
its market share based on number of subscribers.
The Company's management is experienced in providing new product innovations
to generate additional revenue as the industry's customer base shifts to lower
usage subscribers. This experience has enabled the
4
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Company to target specific groups of customers and provide them with value-
added features. The Company was the first to offer one-stop sales in its
service areas and service centers, roaming capabilities, bilingual and detailed
billing service, voice mail service, 24-hour customer service, free safety and
security numbers, prepaid cellular service and integrated paging and cellular
service. The Company also plays an active role in the community helping to
sponsor such safety initiatives as Crime Watch and *CG, a cellular number for
boaters needing Coast Guard assistance and has been a significant civil defense
resource during and after several major hurricanes. In addition, the Company
has stressed education and employee involvement in other initiatives such as
environmental programs (including The Caribbean Stranding Network hotline, tree
plantings, cleanup days), educational exhibits (at Science Park and the Arecibo
Observatory), and Company-sponsored scholarships in engineering at the
University of Puerto Rico.
Services is the principal operating subsidiary of CCPR. It operates and
manages the Company's Puerto Rico cellular system.
The Company's executive offices are located at 110 East 59th Street, New
York, N.Y. 10022 and its telephone number is (212) 355-3466.
5
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THE RESTRUCTURING
CCPR is a Delaware corporation which was originally organized under the name
EC Acquisition, Inc. on May 18, 1988. Prior to February 28, 1992, CCPR was a
wholly owned subsidiary of Cellular Communications, Inc. ("CCI"). On February
28, 1992, CCI distributed to its stockholders the common stock, par value $.01
per share (the "Common Stock"), of CCPR (the "Distribution").
Effective as of January 31, 1997, CCPR and Services effected a corporate
restructuring (the "Restructuring") whereby (i) a new entity, named CoreComm
Incorporated, was formed, (ii) shareholders of CCPR became shareholders of
CoreComm upon the completion of a merger of a subsidiary of CoreComm with and
into CCPR, (iii) CCPR and Services repaid all amounts outstanding under their
existing bank credit facility with Citibank, N.A. (the "Existing Bank
Facility"), (iv) Services made a cash payment to CCPR of $80 million for a 21%
interest in San Juan Cellular Telephone Company ("SJCTC"), which interest was
previously held by CCPR and (v) CCPR distributed to CoreComm the $80 million in
cash received from Services. As a result of the Restructuring, Services owns
approximately 27% of SJCTC and CCPR (directly and through subsidiaries other
than Services) owns the remaining interests in SJCTC.
The restructured companies will pursue opportunities both inside and outside
of Puerto Rico and the USVI. CoreComm has not guaranteed or is otherwise
obligated with respect to the Notes, and neither the $80 million distributed by
CCPR to CoreComm or any assets of CoreComm are available to make payments on
the Notes.
Under the terms of certain administrative and management agreements (the
"Administration and Management Agreements"), dated as of February 28, 1992,
between Services and each of the Company's subsidiaries that owns or controls
an FCC cellular license for Puerto Rico (collectively, the "Company Entities"),
each of the Company Entities agreed to share, on an allocated basis, all the
direct and indirect costs associated with the operation of the Company's Puerto
Rico cellular system. Currently, Services is the principal operating subsidiary
of the Company that operates and manages the Puerto Rico cellular system. The
Company Entities hold the various FCC and other licenses and permits necessary
to operate the Company's Puerto Rico cellular system. The Administration and
Management Agreements require the Company Entities to reimburse Services for
their allocable share of system expenses and to make additional payments to
Services based on allocable shares of revenue and capital costs pursuant to
agreed formulas. Services charges an administrative fee based on revenues
generated in the Company's Puerto Rico cellular system and a capital usage fee
which is the recovery of Services' capital costs. There is no financial effect
on the Company from Administration and Management Agreements because the
agreements only allocate costs among Services and the Company Entities.
An organizational chart of CoreComm, which includes the Company and its
active subsidiaries is set forth below:
[CHART]
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THE EXCHANGE OFFER
On January 28, 1997, Services issued $200 million principal amount of Old
Notes. The Old Notes were sold pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws, in order to enable Services to raise funds on
a more expeditious basis than necessarily would have been possible had the
initial sale been pursuant to an offering registered under the Securities Act.
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc and
Wasserstein Perella Securities, Inc. (the "Initial Purchasers"), as a condition
to their purchase of the Old Notes, requested that Services agree to commence
the Exchange Offer following the offering of the Old Notes. The Notes are
unconditionally guaranteed by CCPR.
Securities Offered.......... Up to $200,000,000 principal amount of 10% Senior
Subordinated Notes Due 2007, which have been
registered under the Securities Act. The terms of
the New Notes and the Old Notes are identical in
all material respects, except (i) that the New
Notes have been registered under the Securities
Act, (ii) for certain transfer restrictions and
registration rights relating to the Old Notes and
(iii) that the New Notes will not contain certain
provisions relating to an additional payment to
be made to the Holders of Old Notes under certain
circumstances relating to the timing of the
Exchange Offer described below under "--Summary
Description of the New Notes."
The Exchange Offer.......... The New Notes are being offered in exchange for a
like principal amount of Old Notes. The issuance
of the New Notes is intended to satisfy
obligations of Services contained in the
Registration Rights Agreement, dated January 31,
1997, among CCPR, Services and the Initial
Purchasers (the "Registration Rights Agreement").
For procedures for tendering, see "The Exchange
Offer."
Tenders, Expiration Date; The Exchange Offer will expire at 5:00 p.m., New
Withdrawal................. York City time, on 1997, or such later date
and time to which it is extended. Each Holder
tendering Old Notes must acknowledge that it is
not engaging in, nor intends to engage in, a
distribution of the New Notes. The tender of Old
Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration
Date (as defined herein). Any Old Note not
accepted for exchange for any reason will be
returned without expense to the tendering Holder
thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Federal Income Tax The exchange pursuant to the Exchange Offer
Considerations............. should not result in any income, gain or loss to
the Holders or Services for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
Use of Proceeds............. There will be no proceeds to Services from the
exchange pursuant to the Exchange Offer. See "Use
of Proceeds."
Exchange Agent.............. The Chase Manhattan Bank is serving as Exchange
Agent in connection with the Exchange Offer.
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Shelf Registration Under certain circumstances, certain holders of
Statement.................. Notes (including holders who are not permitted to
participate in the Exchange Offer or who may not
freely resell New Notes received in the Exchange
Offer) may require Services to file, and cause to
become effective, a shelf registration statement
under the Securities Act, which would cover
resales of Notes by such holders. See
"Description of the Notes--Exchange Offer;
Registration Rights."
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Services does not currently anticipate that
it will register the Old Notes under the Securities Act. See "Description of
the Notes--Exchange Offer; Registration Rights." Based on interpretations by
the staff of the Commission, as set forth in no-action letters issued to third
parties, Services believes that New Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by Holders thereof (other than any Holder which is an "affiliate"
of Services within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such Holder's business and such Holder, other than broker-dealers,
has no arrangement with any person to participate in the distribution of such
New Notes. However, the Commission has not considered the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each Holder, other than a broker-dealer,
must acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of such New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. Each broker-dealer that receives
New Notes for its own account in exchange for Old Notes must acknowledge that
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution." In
addition, to comply with the securities laws of certain jurisdictions, it may
be necessary to qualify for sale or register thereunder the New Notes prior to
offering or selling such New Notes. Services has agreed, pursuant to the
Registration Rights Agreement, subject to certain limitations specified
therein, to register or qualify the New Notes for offer or sale under the
securities laws of such jurisdictions as any Holder reasonably requests in
writing. Unless a Holder so requests, Services does not intend to register or
qualify the sale of the New Notes in any such jurisdictions. See "The Exchange
Offer--Consequences of Exchanging Old Notes."
8
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except (i) that the New Notes have been registered under the
Securities Act, (ii) for certain transfer restrictions and registration rights
relating to the Old Notes and (iii) that the New Notes will not contain certain
provisions relating to an additional payment to be made to Holders of Old Notes
under certain circumstances relating to the timing of the Exchange Offer. The
New Notes will bear interest from the most recent date to which interest has
been paid on the Old Notes or, if no interest has been paid on the Old Notes,
from January 31, 1997. Accordingly, registered Holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from January 31, 1997. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
whose Old Notes are accepted for exchange will not receive any payment in
respect of interest on such Old Notes otherwise payable on any interest payment
date the record date for which occurs on or after consummation of the Exchange
Offer.
Securities Offered.......... Up to $200,000,000 aggregate principal amount of
10% Senior Subordinated Notes due 2007, which
have been registered under the Securities Act.
February 1, 2007.
Maturity Date...............
Interest Payment Dates...... February 1 and August 1, commencing August 1,
1997.
Guarantee................... The Notes are fully and unconditionally
guaranteed by CCPR on a senior subordinated
basis. The Guarantee is subordinated in right of
payment to all existing and future Senior Debt of
CCPR. See "Description of the Notes--Guarantee."
At April 28, 1997, CCPR and Services did not have
any Senior Debt outstanding. The Indenture
permits Services, CCPR and (under limited
circumstances) their subsidiaries to incur
additional Senior Debt, subject to certain
limitations, and Services, CCPR and their
subsidiaries expect from time to time to incur
additional indebtedness, including Senior Debt,
subject to such limitations.
Ranking.....................
The Notes are general unsecured obligations of
Services, subordinated in right of payment to all
existing and future Senior Debt. See
"Management's Discussion and Analysis of
Financial Condition and Results of Operations--
The Company--The Potential Credit Facility." At
present, Services is the principal operating
subsidiary of the Company that operates and
manages a Puerto Rico cellular system. The
Company Entities own or control a FCC cellular
license for Puerto Rico, and the Additional
Company Entities operate a paging business in
Puerto Rico and cellular and paging businesses in
the USVI. As of March 31, 1997, the Company
Entities and the Additional Company Entities had
$3.7 million of trade and other indebtedness.
Indebtedness of the Company Entities and the
Additional Company Entities would rank prior to
the claim of the holders of the Notes and the
Guarantee. At present, neither Services nor CCPR
or their subsidiaries have any secured
indebtedness that is outstanding. As of March 31,
1997, Services
9
<PAGE>
and CCPR had in the aggregate approximately $22.9
million of indebtedness that ranks pari passu
with the obligations of the Notes and the
Guarantee.
Optional Redemption......... The Notes are redeemable, in whole or in part, at
the option of Services at any time on or after
February 1, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest to
the redemption date. In addition, Services may,
at its option, redeem prior to February 1, 2000
up to a maximum of 33 1/3% of the original
aggregate principal amount of the Notes at 109%
of the principal amount thereof, plus accrued and
unpaid interest with (i) the proceeds of a public
offering of $50 million or more or (ii) the
proceeds from the sale of capital stock to one or
more Strategic Equity Investors for an aggregate
purchase price of $35 million or more. See
"Description of the Notes--Redemption--Optional
Redemption."
Change of Control...........
Upon the occurrence of a Change of Control
Triggering Event (the occurrence of a Change of
Control and a Rating Decline) each Holder shall
have the right to require the repurchase of its
Notes by Services in cash at a purchase price
equal to 101% of the principal amount thereof,
plus accrued and unpaid interest thereon, to the
date of purchase. See "Description of the Notes--
Change of Control; --Certain Definitions." The
failure of Services to repurchase Notes of any
Holder exercising such right will constitute an
Event of Default. There can be no assurance that
either Services or CCPR will have the financial
resources necessary to repurchase the Notes upon
a Change of Control Triggering Event. Based upon
the definition of a Change of Control Triggering
Event in the Indenture, it is possible that
transactions could occur involving CCPR or
Services or a Ratings Decline that would not
cause a Change of Control Triggering Event. In
such a case, the Holders of the Notes would not
have the foregoing purchase rights. While at
present no outstanding indebtedness of the
Company or its subsidiaries exists that has a
similar triggering event or would result in a
default in such an event, future indebtedness
could be created that would contain such
provisions. If created, upon the happening of a
Change of Control, such provisions would make it
less likely that Services or CCPR could meet its
obligations to repurchase any Notes. Furthermore,
if any of such outstanding indebtedness was
senior to the Notes, such senior indebtedness
would be repaid in full before Services' and
CCPR's redemption obligations could be satisfied.
Certain Covenants........... The Indenture under which the Notes were issued
contains certain covenants with respect to
Services, CCPR and certain of their subsidiaries
that limit the ability of Services, CCPR and
certain of their subsidiaries to, among other
things, (i) incur additional indebtedness, (ii)
pay dividends or make other distributions or make
certain other restricted payments, (iii) create
certain liens, (iv) sell
10
<PAGE>
assets of Services, CCPR or the Restricted
Subsidiaries (as defined herein), (v) enter into
certain transactions with affiliates, (vi) enter
into certain mergers or consolidations or (vii)
sell or issue capital stock of CCPR's
subsidiaries. See "Description of the Notes--
Certain Covenants." The Indenture permits
Services, CCPR and the Restricted Subsidiaries to
make an aggregate of up to $100 million of
Restricted Payments (as defined herein) to
CoreComm that are not otherwise permitted by the
Indenture. See "Description of the Notes--Certain
Covenants--Limitation of Restricted Payments."
The Indenture also requires Services to offer to
repurchase the Notes at par under certain
circumstances. See "Description of the Notes--
Certain Covenants--Limitation on Asset Sales and
Sales of Restricted Subsidiary Stock."
Form, Denomination and
Registration of Notes...... New Notes exchanged for Old Notes will be
eligible for trading through the facilities of
The Depository Trust Company ("DTC"). New Notes
traded through the facilities of DTC will be
represented by a global note or notes in
definitive, fully registered form without
interest coupons deposited with the trustee for
the New Notes (the "Trustee") as custodian for
and registered in the name of a nominee of DTC.
New Notes exchanged for Old Notes which are in
the form of registered definitive certificates
will be issued in the form of registered
definitive certificates until otherwise directed
by the holders of such New Notes. See
"Description of the Notes--Book-Entry, Delivery
and Form."
Use of Proceeds............. Services will not receive any proceeds from the
Exchange Offer. The net proceeds of the offering
of the Old Notes were used to repay all
outstanding indebtedness under the Existing Bank
Facility (as defined herein) and to fund payments
to CCPR which were further distributed to
CoreComm in connection with a corporate
restructuring. See "The Restructuring" and "Use
of Proceeds."
RISK FACTORS
In addition to the information contained elsewhere in this Prospectus,
Holders of the Old Notes should carefully consider the matters set forth under
"Risk Factors" before making a decision to tender their Old Notes in the
Exchange Offer.
11
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT RATIOS AND AVERAGE MONTHLY REVENUE PER CELLULAR
SUBSCRIBER)
The summary financial and operating data of the Company presented below has
been derived from financial statements of the Company appearing elsewhere in
this Prospectus. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" herein and the Company's Consolidated Financial Statements and
Notes thereto included herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ----------------
1996 1995 1994 1997 1996
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $133,818 $108,668 $67,141 $37,271 $31,476
Operating expenses............... 115,817 97,647 65,187 32,108 26,742
Operating income................. 18,001 11,021 1,954 5,163 4,734
Net income (loss)................ 5,114 (1,451) (4,812) (3,683) 1,289
OTHER FINANCIAL DATA:
Ratio of earnings to fixed
charges(1)...................... 2.0:1 1.2:1 0.4:1 1.3:1 2.4:1
End of period cellular
subscribers..................... 159.3 115.5 68.3 166.6 127.8
Average monthly revenue per
cellular subscriber............. $ 73 $ 86 $ 94 $ 68 $ 78
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
--------------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................ $ 8,493
Property, plant and equipment--net......................... 100,533
Total assets............................................... 305,124
Long-term debt............................................. 200,000
Shareholders' equity....................................... 78,524
</TABLE>
- --------------------
(1) Fixed charges consist of interest expense, including capitalized interest,
amortization of fees related to debt financing and rent expense deemed to
be interest.
12
<PAGE>
CCPR SERVICES, INC.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIOS)
The summary financial data of Services presented below has been derived from
financial statements of Services appearing elsewhere in this Prospectus. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
herein and Services' Financial Statements and Notes thereto included herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------------
1996 1995 1994 1997 1996
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $26,924 $17,212 $ 3,656 $ 8,612 $ 5,896
Operating expenses.............. 13,006 9,669 6,843 4,166 2,970
Operating income (loss)......... 13,918 7,543 (3,187) 4,446 2,926
Net income (loss)............... 6,580 5,389 (3,090) (3,131) 1,412
OTHER FINANCIAL DATA:
Ratio of earnings to fixed
charges(1)..................... 1.8:1 2.5:1 -- 1.1:1 1.7:1
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
--------------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................ $ 3,230
Property, plant and equipment--net......................... 92,339
Total assets............................................... 252,861
Long-term debt............................................. 200,000
Shareholder's equity....................................... 3,620
</TABLE>
- --------------------
(1) Fixed charges consist of interest expense, including capitalized interest,
amortization of fees related to debt financing and rent expense deemed to
be interest. The fixed charges coverage deficiency amounted to $3.1 million
for the year ended December 31, 1994.
13
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, Holders
of Old Notes should consider carefully the following factors in evaluating the
Company and its business before tendering their Old Notes in the Exchange
Offer. The risk factors set forth below (other than "--Consequences of Failure
to Exchange") are generally applicable to the Old Notes as well as the New
Notes.
The Private Securities Litigation Reform Act of 1995 provides a new "safe
harbor" for certain forward-looking statements. This "safe harbor" does not
apply to initial public offerings. The factors discussed below, among others,
could cause actual results to differ materially from those contained in
forward-looking statements made in this Prospectus, in future filings by the
Company with the Commission, in the Company's press releases and in oral
statements made by authorized officers of the Company. When used in this
Prospectus, the words "estimate," "project," "anticipate," "expect," "intend,"
"believe" and similar expressions are intended to identify forward-looking
statements.
Consequences of Failure to Exchange. Holders of Old Notes who do not
exchange their Old Notes for New Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such Old Notes as
set forth in the legend thereon as a consequence of the issuance of the Old
Notes pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. Services does not currently anticipate that it will register
the Old Notes under the Securities Act. Based on interpretations by the staff
of the Commission, as set forth in no-action letters issued to third parties,
Services believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by Holders thereof (other than any such Holder which is an
"affiliate" of Services within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired
in the ordinary course of such Holder's business and such Holder, other than
broker-dealers, has no arrangement with any person to participate in the
distribution of such New Notes. However, the Commission has not considered the
Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Each
Holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of such New Notes and has
no arrangement or understanding to participate in a distribution of New Notes.
If any Holder is an affiliate of Services, is engaged in or intends to engage
in or has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such Holder (i)
could not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. Services has agreed that, for a period of 90 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
However, to comply with the securities law of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. Services has
agreed, pursuant to the Registration Rights Agreement, subject to certain
limitations specified therein, to register or qualify the New Notes for offer
or sale under the securities laws of such jurisdictions as any Holder
reasonably requests in writing. Unless a Holder so requests, Services does not
currently intend to register or qualify the sale of the New Notes in any such
jurisdictions. See "The Exchange Offer--Consequences of Exchanging Old Notes."
14
<PAGE>
Substantial Leverage; Incurrence of Additional Senior Debt. As of April 28,
1997, after giving effect to the use of proceeds from the offering of the Old
Notes, Services and CCPR had $200 million of total indebtedness, consisting
solely of the Notes and the related Guarantee. See "Capitalization."
Services' and CCPR's ability to make principal and interest payments on the
Notes will be dependent on Services' and CCPR's future operating performance,
which is itself dependent on a number of factors, many of which are out of
Services' and CCPR's control. These factors include prevailing economic
conditions and financial, competitive, regulatory and other factors affecting
Services' and CCPR's business and operations, and may be dependent on the
availability of borrowings. Although Services and CCPR believe that, based on
current levels of operations, their cash flow from operations, together with
other sources of liquidity, will be adequate to make required payments of
principal and interest on their debt (including the Notes), whether at or
prior to maturity, finance anticipated capital expenditures and fund working
capital requirements, there can be no assurance in this regard.
Additionally, Services' and CCPR's leverage could have a material adverse
effect on Services' and CCPR's future operating performance, including, but
not limited to, the following: (i) a substantial portion of Services' and
CCPR's cash flow must be dedicated to debt service payments, thereby reducing
the funds available to Services and CCPR for other purposes; (ii) Services'
and CCPR's ability to obtain additional debt financing in the future for
working capital, capital expenditures, acquisitions or general corporate
purposes or other purposes may be impaired; (iii) Services and CCPR are
substantially more leveraged than certain of their competitors, which may
place Services and CCPR at a competitive disadvantage; (iv) Services' and
CCPR's leverage may limit their ability to expand capacity and otherwise meet
their growth objectives; and (v) Services' and CCPR's leverage may hinder
their ability to adjust rapidly to changing market conditions and could make
either of them more vulnerable in the event of a downturn in general economic
conditions or their businesses.
The Indenture permits the incurrence of Senior Debt, subject to certain
limitations, and prohibits the incurrence by Services of indebtedness that is
subordinate in right of payment to any Senior Debt and senior in any respect
in right of payment to the Notes. See "Description of the Notes."
Subordination. The Notes are general unsecured obligations of Services, and
both payments under the Notes and payments under the Guarantee are subordinate
in right of payment to all existing and future Senior Debt of Services and
Senior Debt of CCPR, as the case may be. As of April 28, 1997, after giving
effect to the application of the net proceeds from the offering of the Old
Notes, neither Services nor CCPR had any Senior Debt. The Indenture permits
Services, CCPR and (under limited circumstances) their subsidiaries to incur
additional Senior Debt, subject to certain limitations, and Services, CCPR and
their subsidiaries expect from time to time to incur additional indebtedness,
including Senior Debt, subject to such limitations. By reason of the
subordination provisions of the Indenture, in the event of the insolvency,
liquidation, reorganization, dissolution or other winding-up of Services,
other creditors who are holders of Senior Debt must be paid in full before
payment of amounts due on the Notes. Accordingly, there may be insufficient
assets remaining after such payments to pay amounts due on the Notes.
In addition, Services may not pay principal of, premium, if any, or interest
on, or any other amounts owing in respect of, the Notes, or purchase, redeem
or otherwise retire the Notes, or make any deposit pursuant to defeasance
provisions for the Notes, if Designated Senior Debt (as defined in the
Indenture) is not paid when due, unless such default is cured or waived or has
ceased to exist or such Designated Senior Debt has been repaid in full. Under
certain circumstances, no payments may be made for a specified period with
respect to the principal of, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes if a default, other than a payment
default, exists with respect to Designated Senior Debt unless such default is
cured, waived or has ceased to exist or such indebtedness has been repaid in
full. See "Description of the Notes-- Subordination." If any Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. In such an event, the subordination provisions of
the Indenture prohibit any payments to Holders of the Notes unless and until
such obligations (and any other accelerated Senior Debt) have been repaid in
full. See "Description of the Notes--Subordination."
15
<PAGE>
In addition, CCPR, as guarantor, may not pay principal of, premium, if any,
or interest on, or any other amounts owing in respect of, the Notes, or
purchase, redeem or otherwise retire the Notes, or make any deposit pursuant
to defeasance provisions for the Notes, if Designated Senior Debt is not paid
when due, unless such default is cured or waived or has ceased to exist or
such Designated Senior Debt has been repaid in full. Under certain
circumstances, no payments may be made for a specified period with respect to
the principal of, premium, if any, and interest on, and any other amounts
owing in respect of, the Notes if a default, other than a payment default,
exists with respect to Designated Senior Debt unless such default is cured,
waived or has ceased to exist or such indebtedness has been repaid in full.
See "Description of the Notes--Subordination." If any Event of Default occurs
and is continuing, the Trustee or the holders of at least 25% in principal
amount of the then outstanding Notes may declare all the Notes to be due and
payable immediately. In such an event, the subordination provisions of the
Indenture prohibit any payments to Holders of the Notes unless and until such
obligations (and any other accelerated Senior Debt) have been repaid in full.
See "Description of the Notes--Subordination."
At present, Services is the principal operating subsidiary of the Company
that operates and manages a Puerto Rico cellular system. The Company Entities
own or control a FCC cellular license for Puerto Rico, and the Additional
Company Entities operate a paging business in Puerto Rico and cellular and
paging businesses in the USVI. As of March 31, 1997, the Company Entities and
the Additional Company Entities had $3.7 million of trade and other
indebtedness. Indebtedness of the Company Entities and the Additional Company
Entities would rank prior to the claim of the holders of the Notes and the
Guarantee. At present, neither Services nor CCPR or their subsidiaries have
any secured indebtedness that is outstanding. As of March 31, 1997, Services
and CCPR had in the aggregate approximately $22.9 million of indebtedness that
ranks pari passu with the obligations of the Notes and the Guarantee.
Because of the subordination provisions of the Notes and the Guarantee, and
after the occurrence of certain events, creditors whose claims are senior to
the Notes or the Guarantee may recover more, ratably, than the Holders of the
Notes. See "Description of the Notes--Guarantee."
Competition. The sale of cellular and paging services in each of the
Company's markets is becoming increasingly competitive. In Puerto Rico and the
USVI, where the Company previously had one cellular competitor in each market,
the Company in the near future may face many wireless competitors due to the
introduction of broadband personal communications services ("PCS") on
frequencies auctioned over the last two years by the FCC and specialized
mobile radio ("SMR") services on existing SMR frequencies. At least one
competitor, Centennial Cellular Corp. ("Centennial"), has been awarded and is
offering PCS services in several of the Company's markets. In addition to
Centennial, AT&T Wireless, Inc. ("AT&T") and SprintCom, Inc. ("Sprint") have
been awarded PCS licenses, but have not begun operations of PCS services in
the Company's markets. Such services will in the future be competitive with
the Company's cellular service as they develop competitive voice quality,
system reliability, system coverage, product offerings, marketing techniques
and pricing. The 1996 Act removed certain restrictions on the ability of the
Company's competitors to offer as a single package a variety of services, such
as wireless voice and data, paging, long-distance, local landline and cable
services, some of which the Company does not currently provide. Increased
competition could result in pricing pressure, which could contribute to lower
revenues per customer, and higher customer acquisition costs resulting in
lower profit margins.
The Company's significant competitor is the PRTC, which is the other
cellular licensee and the landline telephone service provider in Puerto Rico.
The PRTC is owned by the government of Puerto Rico. The PRTC is significantly
larger and better capitalized than the Company. The Company believes the PRTC
currently provides service to approximately 56% of the subscribers to cellular
service in Puerto Rico. In addition, the Company faces competition from
alternative communications technologies, both those currently existing and
those that may be introduced in the future. Continuing technological advances
in the communications industry make it impossible to predict the extent of
future competition for the Company. See "Business--Competition."
Potential Need for Additional Capital. The acquisition, development,
ownership and operation of wireless communications networks require
substantial capital investment. Services does not intend to use any proceeds
of
16
<PAGE>
the offering of the Old Notes to satisfy capital requirements for the Company.
The net proceeds received by Services from the sale of the Old Notes, after
deducting the underwriting discounts and commissions and other expenses of the
offering of the Old Notes, were approximately $194 million. Of this amount,
approximately $115 million was used to repay all borrowings under the Existing
Bank Facility and the balance of $79 million was used for substantially all of
the $80 million payment to CCPR, which was further distributed by CCPR to
CoreComm in connection with the Restructuring.
The Company and Services each currently believes that it will have adequate
internal resources to meet its capital requirements. The Company expects to
use approximately $34,000,000 in 1997 for contemplated additions to the
cellular system, the paging network and for other non-cell site related
capital expenditures. Additionally, the 1997 amount includes one time
expenditures of approximately $4,000,000 for the occupancy of a new building
and $5,000,000 for hardware and software for an in-house billing system. The
Company's commitments at March 31, 1997 of $13,000,000 for cellular network
and other equipment and for construction services are included in the total
anticipated expenditures.
History of Losses. Although the Company generated net earnings for the year
ended December 31, 1996, the Company has never generated earnings on an annual
basis prior to 1996. After the application of the net proceeds of the offering
of the Old Notes, and giving effect to interest requirements on the Notes, the
Company does not anticipate that it will generate any net earnings for fiscal
year 1997. The Company has incurred aggregate net losses of approximately
$59.0 million from March 8, 1989 (i.e., date operations commenced) through
March 31, 1997. There can be no assurance that the Company will achieve
profitability in the near future.
Regulation. The Company is subject to significant government regulation at
the Federal level by the FCC and, to some extent, the Federal Aviation
Administration (the "FAA"). In Puerto Rico, the Company is subject to
regulation by the Puerto Rico Planning Board (the "Planning Board"), the
Administration of Regulations and Permits ("ARPE") and the newly-created
Puerto Rico Telecommunications Regulatory Board (the "Board"). The Board's
powers include a number of matters, such as cost based rate making, that could
have an adverse effect on the Company. See "Business--Government Regulation."
The Company's wireless licenses are granted for specific periods of time.
The most significant cellular and paging licenses are granted for a period of
ten years. The Company believes that each of its expiring licenses will be
renewed based upon its prior experience with expired licenses and upon FCC
rules establishing a presumption in favor of licensees that have substantially
complied with their regulatory obligations during the initial license period.
However, there can be no assurance that any license will be renewed.
Wireless communications operations are subject to governmental regulation,
which may change from time to time. There can be no assurance that material
and adverse changes in the regulation of the Company's existing operating
systems will not occur in the future and will not have an adverse effect on
the Company's business.
Lack of Geographic Diversification. The Company's business is confined to
the operation of a cellular telephone system and paging operations in Puerto
Rico and the USVI. As such, it is highly dependent on trends in the use of
cellular telephone and paging services and is subject to economic, social,
political and governmental conditions in Puerto Rico and the USVI.
Technology. The operations of the Company and its ventures depend in part
upon the successful deployment of continuously evolving wireless
communications technologies. There can be no assurance that such technologies
will be developed according to anticipated schedules, that they will perform
according to expectations or that they will achieve commercial acceptance. The
Company may be required to make more capital expenditures than is currently
expected if a technology's performance falls short of expectations or if
commercial acceptance is not achieved. Thus, there can be no assurance that
technological developments will not have a material adverse effect on the
Company.
Value of FCC Licenses. A substantial portion of the Company's assets consist
of intangible assets in the form of investments in cellular licenses, the
value of which will depend upon the success of the operations of such entities
and the growth and future direction of the cellular industry generally. Values
of licenses also have
17
<PAGE>
been affected by fluctuations in the level of supply and demand for such
licenses. In addition, the infrequency with which licenses are traded or sold
may increase the difficulty of establishing values for the Company's license
interests. Any transfer of control of an entity holding a domestic license is
subject to prior FCC (and possibly state or Commonwealth of Puerto Rico
regulatory) approval and the future value of such interests will depend
significantly upon future regulatory actions affecting the Company or its
market and the success of the Company's businesses. While the Company believes
that there is currently a market for such assets, such market may not exist in
the future or the values obtainable may be significantly lower than at
present. As a consequence, there can be no assurance that the proceeds from
the liquidation or sale of the Company's assets would be sufficient to pay the
Company's obligations and a significant reduction in the value of the licenses
could require a charge to the Company's results of operations. Finally, under
FCC rules, a license is subject to renewal. There may be competition for
licenses upon the expiration of their initial ten-year terms. The Company's
San Juan/Caguas license expires in 1998 and its other licenses expire in 1997
through 2002. There can be no assurance that any such license will be renewed.
See "--Regulation" and "Business--Regulation."
Reliance on Use of Third-Party Service Mark. The Company currently uses the
registered service mark CELLULARONE(R) to market the services of its non-
wireline systems. The Company's use of this service mark is governed by five-
year contracts between the Company and Cellular One Group, the owner of the
service mark. Such contracts expire on various dates and each is renewable at
the option of the Company for three additional five-year terms, subject to the
attainment of certain customer satisfaction ratings. See "Business--Customer
Service." Under these agreements, the Company has agreed to meet a consistent
set of operating and service quality standards for its cellular service areas.
If these agreements were not renewed upon expiration or if the Company were to
fail to meet the applicable operating or service quality standards, and
therefore was no longer permitted to use the CELLULARONE(R) service mark, the
Company's ability both to attract new subscribers and retain existing
subscribers could be materially impaired. In addition, if for some reason
beyond the Company's control, the name CELLULARONE(R) were to suffer
diminished marketing appeal, the Company's ability both to attract new
subscribers and retain existing subscribers could be materially impaired.
McCaw/AT&T Wireless, which had been the single largest user of the
CELLULARONE(R) brand name, has significantly reduced its use of the brand name
as a primary service mark. There can be no assurance that such reduction in
use by McCaw/AT&T Wireless will not have an adverse effect on the marketing
appeal of the brand name.
Radio Frequency Emissions Concerns. Media reports have suggested that
certain radio frequency ("RF") emissions from portable cellular telephones
might be linked to cancer. The Company has collected and reviewed relevant
scientific information and, based on such information, is not aware of any
credible evidence linking the usage of portable cellular telephones with
cancer. The FCC recently updated the guidelines and methods it uses for
evaluating RF emissions in radio equipment, including cellular telephones.
While the new rules impose more restrictive standards on RF emissions from
low-power devices such as portable cellular telephones, the Company believes
that all cellular telephones currently marketed and in use comply with those
standards. Additional concerns have been expressed about the safety of
emissions from cellular facilities which transmit calls to customers'
telephone handsets. The Company's facilities are licensed by the FCC and
comply with the prior exposure levels set by the FCC and the Company believes
that they comply with the new levels. The 1996 Act provides that state and
local governments may not regulate the placement, construction or modification
of personal wireless service facilities on the basis of the environmental
effects of RF emissions as long as such facilities comply with the FCC's
regulations concerning such emissions. However, local authorities still have
jurisdiction over zoning and permitting of such facilities.
Fraud. The cellular industry continues to be subject to fraudulent activity.
Cloning, which is one form of such fraud, results from the use of scanners and
other electronic devices to illegally obtain telephone numbers and electronic
serial numbers during cellular transmission. These stolen telephone and serial
number combinations can be programmed into a cellular phone and used to obtain
fraudulent access to cellular networks. Roaming fraud occurs when a phone
programmed with a number stolen from the Company's customer is used to place
fraudulent calls from another carrier's market, resulting in a roaming fee
charged to the Company that cannot be collected from the customer. The Company
is working to reduce the negative impacts of fraud through investment in new
technologies and the deployment of other measures. In its own markets, the
Company has
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had significant success in detecting and reducing fraudulent usage of numbers
stolen from the Company's customers. However, the Company continues to
experience average levels of roaming fraud. The cost of cellular fraud could
have a significant impact on the Company's operating results for the
foreseeable future. See "Business--Customer Service."
Certain Investment Company Matters. Each of CCPR, Services and CoreComm
believes that it is not an investment company as defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and each
intends to continue its business and conduct its operations so as not to
become regulated by the Investment Company Act. If the Commission or its staff
were to take the position that any of CoreComm, CCPR or Services were an
investment company, each could be required either (a) to change the manner in
which it conducts its operations to avoid being required to register as an
investment company or (b) to register as an investment company, either of
which could have an adverse effect on Services, CCPR or CoreComm.
Fraudulent Conveyance Considerations. Under applicable provisions of the
Bankruptcy Code or comparable provisions of state or Commonwealth of Puerto
Rico fraudulent transfer law, if either Services or CCPR (as guarantor), at
the time it incurred its indebtedness in connection with the offering of the
Old Notes, (i) incurred such indebtedness with the intent to hinder, delay or
defraud a present or future creditor or (ii)(a) received or receives less than
reasonably equivalent fair value or fair consideration and (b)(1) was or is
insolvent or rendered insolvent by reason of such incurrence or (2) was or is
engaged in a business or transaction for which the assets remaining with it
constituted unreasonably small capital or (3) intended or intends to incur, or
believed or believes that it would incur, debts beyond its ability to pay such
debts as they mature or (4) was a defendant in an action for money damages
docketed against it (if, in either case, after final judgment the judgment is
unsatisfied), the Notes (or related guarantees) could be voided, or claims in
respect of the Notes (or related guarantees) could be subordinated to all
other debts of Services or CCPR. In addition, the payment of principal by
Services or CCPR pursuant to the Notes (or related guarantees) could be voided
and be required to be returned to any such present or future creditor, or to a
fund for the benefit of the creditors of Services or CCPR or to any judgment
creditor referred to in clause (4) above.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, Services or CCPR would be considered insolvent
if the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets at a fair valuation or if the
present fair saleable value of its assets were less than the amount that would
be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature. There can be no
assurance, however, as to what standard a court would apply in making such
determination.
Lack of Public Market for the Notes; Volatility; Restrictions on Resale. The
New Notes are being offered only to the Holders of the Old Notes. The Old
Notes were issued on January 28, 1997 to institutional investors and are
eligible for trading in the Private Offering, Resale and Trading through
Automatic Linkages ("PORTAL") Market of the National Association of Securities
Dealers, Inc. screenbased, automated market for trading of securities eligible
for resale under Rule 144A. To the extent that the Old Notes are tendered and
accepted in the Exchange Offer, the trading market for the remaining
untendered Old Notes could be adversely affected.
There is no existing market for the New Notes, and there can be no assurance
regarding the future development of a market for the New Notes, or the ability
of the holders of the New Notes, or the price at which such holders may be
able, to sell their New Notes. If such a market were to develop, the New Notes
could trade at prices that may be higher or lower than the initial offering
price of the Old Notes. Prevailing market prices from time to time will depend
on many factors, including then existing interest rates, operating results and
cash flow of Services and CCPR and the market for similar securities. The
Initial Purchasers have advised Services that they currently intend to make a
market in the New Notes. The Initial Purchasers are not obligated to do so,
however, and any market-making with respect to the New Notes may be
discontinued at any time without notice. Accordingly, even if a trading market
for the New Notes does develop, there can be no assurance as to the liquidity
of that market. Services does not intend to apply for listing or quotation of
the New Notes on any securities exchange or stock market.
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USE OF PROCEEDS
Services will not receive any proceeds from the issuance of the New Notes
offered pursuant to the Exchange Offer. In consideration for issuing the New
Notes as contemplated in this Prospectus, Services will receive in exchange
Old Notes in like principal amount, the terms of which are identical in all
material respects to the New Notes except (i) that the New Notes have been
registered under the Securities Act, (ii) for certain transfer restrictions
and registration rights relating to the Old Notes and (iii) that the New Notes
will not contain certain provisions relating to an additional payment to be
made to Holders of Old Notes under certain circumstances relating to the
timing of the Exchange Offer. The Old Notes surrendered in exchange for New
Notes will be retired and cancelled and cannot be reissued. Accordingly,
issuance of the New Notes will not result in any increase in the indebtedness
of Services.
The net proceeds received by Services from the sale of the Old Notes, after
deducting the underwriting discounts and commissions and estimated expenses of
the offering of the Old Notes, were approximately $194 million. Of this
amount, approximately $115 million was used to repay all borrowings under the
Existing Bank Facility and the balance of $79 million was used for
substantially all of the $80 million payment to CCPR, which was further
distributed by CCPR to CoreComm in connection with the Restructuring. The
Existing Bank Facility was available until March 31, 1999, on which date it
would have converted into a term loan with principal payments based on an
amortization schedule until September 30, 2003. The Existing Bank Facility
required the payment of interest each quarter at a floating rate, which was,
at the borrower's option, either (a) the higher of the bank's base rate or the
Federal Funds Rate plus 1/2%, (b) the London Interbank Offering Rate or (c)
the 936 Rate, plus, based on the ratio of the Company's debt to cash flow and
the floating rate in effect, either .25% to 1.875% or 1.25% to 2.875%. The
effective rate on the Company's borrowings as of December 31, 1996 was 7.01%.
See "The Restructuring," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--The
Company" and "--Liquidity and Capital Resources--Services."
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal (which together constitute the Exchange
Offer), Services will accept for exchange Old Notes which are properly
tendered on or prior to the Expiration Date and not withdrawn as permitted
below. As used herein, the term "Expiration Date" means 5:00 p.m., New York
City time, on , 1997; provided, however, that if Services, in its sole
discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $200,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997, to all Holders of Old
Notes known to Services. Services' obligation to accept Old Notes for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
under "--Certain Conditions to the Exchange Offer" below.
Services expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any Old Notes, by giving oral or written
notice of such extension to the Holders thereof as described below. During any
such extension, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by Services. Any Old Notes not
accepted for exchange for any reason will be returned without expense to the
tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
Services expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "--Certain Conditions to the Exchange Offer."
Services will give oral or written notice of any extension, amendment, non-
acceptance or termination to the Holders of the Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to Services of Old Notes by a Holder thereof as set forth below
and the acceptance thereof by Services will constitute a binding agreement
between the tendering Holder and Services upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a Holder who wishes to tender Old
Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal or (in the case of a book-
entry transfer) an Agent's Message in lieu of such Letter of Transmittal, to
The Chase Manhattan Bank (the "Exchange Agent") at the address set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the Exchange Agent
along with the Letter of Transmittal, or (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange
Agent prior to the Expiration Date with the Letter of Transmittal or an
Agent's Message in lieu of such Letter of Transmittal, or (iii) the Holder
must comply with the guaranteed delivery procedures described below. The term
"Agent's Message" means a message, transmitted by the Book-Entry Transfer
Facility to and received by the Exchange Agent and forming a part of a Book-
Entry Confirmation, which states that the Book-Entry Transfer Facility has
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received an express acknowledgment from the tendering participant, which
acknowledgment states that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Company may enforce such
Letter of Transmittal against such participant. THE METHOD OF DELIVERY OF OLD
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
SERVICES.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a Holder of the Old Notes who has not
completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If Old Notes are registered in the name of a person
other than a signer of the Letter of Transmittal, the Old Notes surrendered
for exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by
Services in its sole discretion, duly executed by the registered national
securities exchange with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by Services in its sole discretion, which determination shall be final and
binding. Services reserves the absolute right to reject any and all tenders of
any particular Old Note not properly tendered or to not accept any particular
Old Note which acceptance might, in the judgment of Services or its counsel,
be unlawful. Services also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Note either before or after the Expiration Date (including the right to waive
the ineligibility of any Holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
as to any particular Old Note either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by Services
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as Services shall determine.
Neither Services, the Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability
for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by powers of attorney, in either case signed exactly as the name
or names of the registered Holder or Holders that appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorneys are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
Services, proper evidence satisfactory to Services of their authority to so
act must be submitted with the Letter of Transmittal.
By tendering, each Holder will represent to Services that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder and that neither the Holder
nor such other person has any arrangement or understanding with any person to
participate in the distribution of the New Notes. If any Holder or any such
other person is an "affiliate", as defined under Rule 405 of the Securities
Act, of Services, is engaged in or intends to engage in or has an arrangement
or understanding with any person to participate in a distribution of such New
Notes to be acquired pursuant to the Exchange Offer, such Holder or any such
other person (i) could not rely on the applicable interpretations of the staff
of the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading
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activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
Services will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, Services shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if Services has given
oral (promptly confirmed in writing) or written notice thereof to the Exchange
Agent.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered Holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid or, if no interest has been paid, from January
31, 1997. Old Notes accepted for exchange will cease to accrue interest from
and after the date of consummation of the Exchange Offer. Pursuant to the
Registration Rights Agreement, certain additional payments are required to be
made to Holders of Old Notes under certain circumstances relating to the
timing of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, (ii) a properly completed and duly executed
Letter of Transmittal or an Agent's Message in lieu thereof and (iii) all
other required documents. If any tendered Old Notes are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer or if Old
Notes are submitted for a greater principal amount than the Holder desires to
exchange, such unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering Holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration
or termination of the Exchange Offer.
BOOK-ENTRY TRANSFERS
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus
unless an Exchange Agent already has established an account with the Book-
Entry Transfer Facility suitable for the Exchange Offer, and any financial
institution that is a participant in the Book-Entry Transfer Facility systems
may make book-entry delivery of Old Notes by causing the Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Old Notes
may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal or facsimile thereof or an Agent's Message
in lieu thereof, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address set forth below under "--Exchange Agent" on or prior to
the Expiration Date or the guaranteed delivery procedures described below must
be complied with.
GUARANTEED DELIVERY PROCEDURES
If a Holder of the Old Notes desires to tender such Old Notes and the Old
Notes are not immediately available, or time will not permit such Holder's Old
Notes or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if (i) the tender is made through
an Eligible Institution, (ii) prior to the Expiration Date,
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the Exchange Agent received from such Eligible Institution a Notice of
Guaranteed Delivery, substantially in the form provided by Services (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the Holder of the Old Notes and the amount of Old
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within five New York Stock Exchange ("NYSE") trading days after the date
of execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, together with a properly completed and duly
executed appropriate Letter of Transmittal (or facsimile thereof or Agent's
Message in lieu thereof) with any required signature guarantees and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, together with a properly completed and
duly executed appropriate Letter of Transmittal (or facsimile thereof or
Agent's Message in lieu thereof) with any required signature guarantees and
all other documents required by the Letter of Transmittal, are received by the
Exchange Agent within five NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under "--Exchange Agent." Any such notice of
withdrawal must (i) specify the name of the person having tendered the Old
Notes to be withdrawn, (ii) identify the Old Notes to be withdrawn (including
the principal amount of such Old Notes), and (iii) (where certificates for Old
Notes have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing Holder. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange
Agent, then, prior to the release of such certificates the withdrawing Holder
must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old
Notes have been tendered pursuant to the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name and number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Old Notes and otherwise comply with the procedures of such facility.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by Services, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are not exchanged for any reason will be returned to the Holder thereof
without cost to such Holder (or, in the case of Old Notes tendered by book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described above, such
Old Notes will be credited to an account maintained with such Book-Entry
Transfer Facility for the Old Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Old Notes may be retendered by following one of the procedures described under
"--Procedures for Tendering Old Notes" above at any time on or prior to 5:00
p.m., New York City time, on the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, Services shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes, any of the following events shall
occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of Services to accept for exchange or exchange some or all of the
Old Notes pursuant to the Exchange Offer; or any statute, rule, regulation,
order or injunction shall be sought, proposed, introduced, enacted,
promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the
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Exchange Offer by any government or governmental authority, domestic or
foreign, or any action shall have been taken, proposed or threatened, by
any government, governmental authority, agency or court, domestic or
foreign, that in the sole judgment of Services might directly or indirectly
result in any of the consequences referred to in clauses (i) or (ii) above
or, in the sole judgment of Services, might result in the holders of New
Notes having obligations with respect to resales and transfers of New Notes
which are greater than those described in the interpretation of the
Commission referred to on the cover page of this Prospectus, or would
otherwise make it inadvisable to proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by an governmental agency or authority which may adversely affect the
ability of Services to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of Services and its subsidiaries taken as a whole that, in the
sole judgment of Services, is or may be adverse to Services, or Services
shall have become aware of facts that, in the sole judgment of Services,
have or may have adverse significance with respect to the value of the Old
Notes or the New Notes;
which in the sole judgment of Services in any case, and regardless of the
circumstances (including any action by Services) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of Services and may be
asserted by Services regardless of the circumstances giving rise to any such
condition or may be waived by Services in whole or in part at any time and from
time to time in its sole discretion. The failure by Services at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, Services will not accept for exchange any Old Notes tendered,
and no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
Main Delivery to: The Chase Manhattan Bank,
As Exchange Agent
By Mail, By Hand and Overnight By Facsimile:
Courier:
(212) 638-7380
The Chase Manhattan Bank Corporate
Trust--Securities Window Room 234--
North Building 55 Water Street New
York, NY 10041
Confirm by Telephone:
Sharon Lewis: (212) 638-0454
25
<PAGE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN
AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
FEES AND EXPENSES
Services will not make any payment to brokers, dealers, or others soliciting
acceptances of the Exchange Offer except for reimbursement of mailing
expenses.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by Services and are estimated in the aggregate to be
$200,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that Holders who instruct
Services to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering Holder will be responsible for the payment of
any applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Services does not
currently anticipate that it will register Old Notes under the Securities Act.
See "Description of the Notes--Exchange Offer; Registration Rights." Based on
interpretations by the staff of the Commission, as set forth in no-action
letters issued to third parties, Services believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any
such Holder which is an "affiliate" of Services within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder has no arrangement or understanding with any person to participate in
the distribution of such New Notes. However, the Commission has not considered
the Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Each
Holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of such New Notes and has
no arrangement or understanding to participate in a distribution of New Notes.
If any Holder is an affiliate of Services, is engaged in or intends to engage
in or has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such Holder (i)
could not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes must acknowledge that such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities and
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution." In addition, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdiction or an exemption from registration or qualification is available
and is complied with. Services has agreed, pursuant to the Registration Rights
Agreement, subject to certain limitations specified therein, to register or
qualify the New Notes for offer or sale under the securities laws of such
jurisdictions as any Holder reasonably requests in writing. Unless a Holder so
requests, Services does not intend to register or qualify the sale of the New
Notes in any such jurisdictions.
26
<PAGE>
CAPITALIZATION
SERVICES. The following table sets forth the capitalization of Services as
of March 31, 1997. This table should be read in conjunction with the
historical financial statements of Services, including the notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Services" and other financial information included in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
(IN THOUSANDS)
<S> <C>
Long Term Debt:
10% Senior Subordinated Notes due 2007........................ $200,000
--------
Total Long Term Debt........................................ 200,000
Shareholder's Equity:
Common stock-$1 par value; 1,000 shares authorized, issued and
outstanding.................................................. 1
Additional paid-in capital.................................... 5,258
(Deficit)..................................................... (1,639)
--------
Total Shareholder's Equity.................................. 3,620
--------
Total Capitalization............................................ $203,620
========
</TABLE>
THE COMPANY. The following table sets forth the consolidated capitalization
of the Company as of March 31, 1997. This table should be read in conjunction
with the historical consolidated financial statements of the Company,
including the notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations--the Company" and other
financial information included in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
(IN THOUSANDS)
<S> <C>
Long Term Debt:
10% Senior Subordinated Notes due 2007........................ $200,000
--------
Total Long Term Debt........................................ 200,000
Shareholder's Equity:
Common Stock-$.01 par value; authorized, issued and
outstanding 1,000 shares..................................... --
Additional paid-in capital.................................... 137,570
(Deficit)..................................................... (59,046)
--------
Total Shareholder's Equity.................................. 78,524
--------
Total Capitalization............................................ $278,524
========
</TABLE>
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
The selected consolidated financial information of the Company presented
below under the captions Statement of Operations Data for each of the five
years in the period ended December 31, 1996 and Balance Sheet Data as of
December 31, 1996, 1995, 1994, 1993 and 1992 has been derived from
consolidated financial statements of the Company audited by Ernst & Young LLP.
The selected consolidated financial information of the Company as of March 31,
1997 and for the three months ended March 31, 1997 and 1996 has been derived
from unaudited financial statements which, in the opinion of management,
include all adjustments, consisting of only normal recurring accruals,
necessary for a fair presentation of such information for the unaudited
interim periods. The operating results for the three months ended March 31,
1997 are not necessarily indicative of the results for the full fiscal year.
The Company did not declare or pay any cash dividends during the periods
indicated. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--The Company" and the Company's Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ -----------------------
1996 1995 1994 1993 1992 1997 1996
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Service revenue....... $119,839 $ 94,409 $ 55,900 $ 22,256 $ 9,624 $ 33,352 $28,513
Equipment revenue..... 13,979 14,259 11,241 6,890 2,362 3,919 2,963
-------- -------- -------- -------- -------- -------- -------
133,818 108,668 67,141 29,146 11,986 37,271 31,476
-------- -------- -------- -------- -------- -------- -------
Costs and expenses:
Cost of equipment
sold................. 17,962 20,635 13,818 8,386 2,250 4,779 4,680
Operating expenses.... 15,214 10,207 8,501 4,913 3,368 3,890 3,885
Selling, general and
administrative
expenses............. 63,223 51,148 30,944 18,512 9,432 17,899 13,647
Depreciation of rental
equipment............ 521 225 312 278 158 177 115
Depreciation expense.. 12,710 9,638 6,400 4,887 3,697 3,806 2,888
Amortization expense.. 6,187 5,794 5,212 5,047 4,687 1,557 1,527
-------- -------- -------- -------- -------- -------- -------
115,817 97,647 65,187 42,023 23,592 32,108 26,742
-------- -------- -------- -------- -------- -------- -------
Operating income
(loss)................. 18,001 11,021 1,954 (12,877) (11,606) 5,163 4,734
Interest income and
other, net............. 646 358 867 551 414 65 60
Interest expense........ (8,181) (8,501) (7,305) (6,249) (3,658) (3,984) (1,779)
-------- -------- -------- -------- -------- -------- -------
Income (loss) before
income tax provisions,
minority interests and
extraordinary item..... 10,466 2,878 (4,484) (18,575) (14,850) 1,244 3,015
Income tax (provision)
benefit................ (5,352) (4,007) (328) (156) 724 (1,176) (1,726)
-------- -------- -------- -------- -------- -------- -------
Income (loss) before
minority interests and
extraordinary item..... 5,114 (1,129) (4,812) (18,731) (14,126) 68 1,289
Minority interests...... -- (322) -- -- -- -- --
Income (loss) before
extraordinary item..... 5,114 (1,451) (4,812) (18,731) (14,126) 68 1,289
Extraordinary item(1)... -- -- -- -- -- (3,751) --
-------- -------- -------- -------- -------- -------- -------
Net income (loss)....... $ 5,114 $ (1,451) $ (4,812) $(18,731) $(14,126) $ (3,683) $ 1,289
======== ======== ======== ======== ======== ======== =======
Net income (loss) per
common share(2)........ $ .36 $ (.13) $ (.49) $ (1.93) $ (1.56) NA $ .09
======== ======== ======== ======== ======== ======== =======
Weighted average number
of Common Shares used
in computation of net
income (loss) per share
including common stock
equivalents(2)......... 14,027 11,070 9,867 9,699 9,073 NA 13,932
======== ======== ======== ======== ======== =======
Ratio of earnings to
fixed charges(3)....... 2.0:1 1.2:1 0.4:1 -- -- 1.3:1 2.4:1
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------------------ ---------------
1996 1995(4) 1994 1993 1992 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 11,078 $ 12,444 $ 10,808 $ 18,658 $ 33,934 $ 8,493
Property, plant and
equipment-net.......... 97,945 75,769 55,077 42,653 38,733 100,533
Total assets............ 300,722 256,997 231,371 218,669 222,745 305,124
Long-term debt.......... 115,000 90,000 101,212 95,506 92,456 200,000
Shareholders' equity.... 162,608 144,152 112,784 111,621 124,454 78,524
</TABLE>
- -------------------
(1) In January 1997, in connection with the repayment of the Existing Bank
Facility, the Company recorded an extraordinary loss of $4,067,000
($3,751,000 net of income tax benefit) from the write-off of unamortized
deferred financing costs.
(2) After giving retroactive effect to the five-for-four stock split by way of
stock dividend paid in October 1992.
(3) Fixed charges consist of interest expense, including capitalized interest,
amortization of fees related to debt financing and rent expense deemed to
be interest. The fixed charges coverage deficiency amounted to $18.6
million and $14.9 million for the years ended December 31, 1993 and 1992,
respectively.
(4) In 1995, the entire $40 million principal amount of 8 1/4% Convertible
Senior Subordinated Notes due 2000 were converted into approximately
2,778,000 shares of common stock.
28
<PAGE>
SELECTED FINANCIAL INFORMATION
CCPR SERVICES, INC.
The selected financial information of Services presented below under the
captions Statement of Operations Data for each of the five years in the period
ended December 31, 1996 and Balance Sheet Data as of December 31, 1996, 1995,
1994, 1993 and 1992 have been derived from financial statements of Services
audited by Ernst & Young LLP. The selected financial information of Services
as of March 31, 1997 and for the three months ended March 31, 1997 and 1996
has been derived from unaudited financial statements which, in the opinion of
management, include all adjustments, consisting of only normal recurring
accruals, necessary for a fair presentation of such information for the
unaudited interim periods. The operating results for the three months ended
March 31, 1997 are not necessarily indicative of the results for the full
fiscal year. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Services" and Services' Pro Forma Financial Statements and
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ------------------------
1996 1996 1995 1994 1993 1992 1997 1997 1996
PRO FORMA (IN THOUSANDS, EXCEPT RATIOS) PRO FORMA
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $40,893 $26,924 $17,212 $ 3,656 $ 2,225 $ 1,600 $ 8,612 $ 9,770 $5,896
Depreciation and
amortization........... 14,996 13,006 9,669 6,843 5,393 4,138 4,166 4,332 2,970
------- ------- ------- ------- ------- ------- ------- ------- ------
Operating income
(loss)................. 25,897 13,918 7,543 (3,187) (3,168) (2,538) 4,446 5,438 2,926
Interest income and
other, net ............ 1,343 1,343 707 97 15 (108) 205 205 251
Interest expense........ (20,073) (8,094) (2,751) -- -- -- (3,983) (4,975) (1,732)
Equity in net income
(loss) of SJCTC........ (72) 304 -- -- -- -- 135 (29) 54
------- ------- ------- ------- ------- ------- ------- ------- ------
Income (loss) before
income tax provision
and extraordinary
item................... 7,095 7,471 5,499 (3,090) (3,153) (2,646) 803 639 1,499
Income tax provision.... (891) (891) (110) -- -- -- (182) (182) (87)
------- ------- ------- ------- ------- ------- ------- ------- ------
Income (loss) before
extraordinary item..... 6,204 6,580 5,389 (3,090) (3,153) (2,646) 621 457 1,412
Extraordinary item(1)... -- -- -- -- -- -- (3,752) (3,752) --
------- ------- ------- ------- ------- ------- ------- ------- ------
Net income (loss)....... $ 6,204 $ 6,580 $ 5,389 $(3,090) $(3,153) $(2,646) $(3,131) $(3,295) $1,412
======= ======= ======= ======= ======= ======= ======= ======= ======
Ratio of earnings to
fixed charges(2)....... 1.3:1 1.8:1 2.5:1 -- -- -- 1.1:1 1.1:1 1.7:1
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
---------------------------------------------- ---------
1996 1995(3) 1994 1993 1992 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 5,454 $ 15,194 $(33,694) $(20,486) $(13,535) $ 3,230
Property, plant and
equipment--net......... 89,912 69,507 52,656 42,362 38,358 92,339
Total assets............ 167,268 113,496 75,194 54,477 55,594 252,861
Long-term debt.......... 115,000 90,000 -- -- -- 200,000
Shareholder's equity.... 6,751 171 19,930 23,020 26,173 3,620
</TABLE>
- ---------------------
(1) In January 1997, in connection with the repayment of the Existing Bank
Facility, the Company recorded an extraordinary loss of $4,068,000
($3,752,000 net of income tax benefit) from the write-off of unamortized
deferred financing costs.
(2) Fixed charges consist of interest expense, including capitalized interest,
amortization of fees related to debt financing and rent expense deemed to
be interest. The fixed charges coverage deficiency amounted to $3.1
million, $3.2 million and $2.6 million for the years ended December 31,
1994, 1993 and 1992, respectively.
(3) In 1995, Services assumed CCPR's liability under the Existing Bank
Facility of $80 million, net of deferred financing costs of $5 million.
This transaction was recorded by Services as a $50 million reduction of
the amount due to CCPR included in current liabilities and a $25 million
return of capital to CCPR.
29
<PAGE>
CCPR SERVICES, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The unaudited pro forma condensed financial statements of CCPR Services,
Inc. ("Services") reflect the following transactions (the "Transactions"): (1)
the issuance of $200,000,000 principal amount Senior Subordinated Notes due
2007, (2) the use of a portion of the proceeds from the issuance of the Notes
to repay the amounts outstanding under the revolving credit facility with
various banks, and (3) the use of the balance of the proceeds from the
issuance of the Notes and cash on hand of $2,678,000 to acquire a portion of
the partnership interests in the San Juan Cellular Telephone Company ("SJCTC")
from Cellular Communications of Puerto Rico, Inc. The unaudited pro forma
condensed statements of operations for the three months ended March 31, 1997
and for the year ended December 31, 1996 give effect to the Transactions as if
they had occurred at the beginning of the period.
The pro forma condensed financial statements have been prepared by Services'
management. These pro forma condensed financial statements may not be
indicative of the results that actually would have occurred if the
Transactions had been in effect on the dates indicated or which may be
obtained in the future. The pro forma condensed financial statements should be
read in conjunction with the financial statements and notes of Services and
SJCTC included elsewhere in this Prospectus.
30
<PAGE>
CCPR SERVICES, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
Revenues......................... $ 8,612,000 $1,158,000 (a) $ 9,770,000
Depreciation and amortization.... 4,166,000 166,000 (b)(c) 4,332,000
----------- ---------- -----------
Operating income................. 4,446,000 992,000 5,438,000
Interest income.................. 205,000 -- 205,000
Interest expense................. (3,983,000) (992,000)(d) (4,975,000)
Equity in net income (loss) of
SJCTC........................... 135,000 (164,000)(e) (29,000)
----------- ---------- -----------
Income before income taxes and
extraordinary item.............. 803,000 (164,000) 639,000
Provision for income taxes....... (182,000) -- (182,000)
----------- ---------- -----------
Income before extraordinary
item............................ 621,000 (164,000) 457,000
Loss from early extinguishment of
debt, net of income tax benefit
of $316,000..................... (3,752,000) -- (3,752,000)
----------- ---------- -----------
Net loss......................... $(3,131,000) $ (164,000) $(3,295,000)
=========== ========== ===========
</TABLE>
See accompanying notes.
31
<PAGE>
CCPR SERVICES, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
Revenues....................... $26,924,000 $ 13,969,000 (a) $ 40,893,000
Depreciation and amortization.. 13,006,000 1,990,000 (b)(c) 14,996,000
----------- ------------ ------------
Operating income............... 13,918,000 11,979,000 25,897,000
Interest income................ 1,343,000 -- 1,343,000
Interest expense............... (8,094,000) (11,979,000)(d) (20,073,000)
Equity in net income (loss) of
SJCTC......................... 304,000 (376,000)(e) (72,000)
----------- ------------ ------------
Income before income taxes..... 7,471,000 (376,000) 7,095,000
Provision for income taxes..... (891,000) -- (891,000)
----------- ------------ ------------
Net income..................... $ 6,580,000 $ (376,000) $ 6,204,000
=========== ============ ============
</TABLE>
See accompanying notes.
32
<PAGE>
CCPR SERVICES, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
For purposes of determining the effect of the Transactions on Services'
Condensed Statements of Operations for the three months ended March 31, 1997
and for the year ended December 31, 1996, the following pro forma adjustments
have been made. The pro forma condensed financial statements give effect to
the acquisition of a 21% SJCTC partnership interest for cash of $80,000,000.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
(a)Additional capital usage fee charged to
affiliates................................ $13,969,000 $1,158,000
(b)Amortization of deferred financing
costs:
Notes.................................... $ 600,000 $ 50,000
Bank loan................................ (610,000) (51,000)
----------- ----------
(10,000) (1,000)
(c) Amortization of excess of cost over
book value of investment in SJCTC over
40 years............................... 2,000,000 167,000
----------- ----------
$ 1,990,000 $ 166,000
(d)Interest expense:
Notes at 10% per annum................... $20,000,000 $1,667,000
Bank loan................................ (8,021,000) (675,000)
----------- ----------
$11,979,000 $ 992,000
(e)Equity in pro forma net (loss) of
SJCTC..................................... $ (376,000) $ (164,000)
</TABLE>
The write-off of the deferred financing costs related to the bank loan is
not reflected in the pro forma condensed statements of operations for the year
ended December 31, 1996 since it is a nonrecurring charge directly
attributable to the Transactions. The unamortized deferred financing costs as
of December 31, 1996 were $4,118,000.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
The following discussion of the financial condition and results of
operations of the Company relates to the fiscal years ended December 31, 1996,
1995, and 1994, and the three months ended March 31, 1997 and 1996 and should
be read in conjunction with the preceding Selected Consolidated Financial
Information and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. The following information does
not purport to be indicative of results that may occur in the future. All
references to full years are to the applicable fiscal year of the Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Service revenues increased to $33,352,000 from $28,513,000 as a result of
subscriber growth that increased the Company's current revenue stream. Average
monthly revenue per cellular subscriber for the first quarter decreased to $68
in 1997 from $78 in 1996. Ending subscribers were 166,600 and 127,800 as of
March 31, 1997 and 1996, respectively. Ending pagers in use were 35,100 and
17,800 as of March 31, 1997 and 1996, respectively.
The loss from equipment, before depreciation of rental equipment, decreased
to $860,000 from $1,717,000 primarily because of reductions in the cost of
cellular telephones. The Company sells cellular telephones and pagers below
cost in response to competition and to generate subscriber growth.
Operating expenses increased to $3,890,000 from $3,885,000 primarily due to
additional costs associated with the expanded network (including paging
operations), offset by a reduction in interconnection charges. Operating
expenses as a percentage of service revenue decreased to 12% in 1997 from 14%
in 1996.
Selling, general and administrative expenses increased to $17,899,000 from
$13,647,000 as a result of increased selling and marketing to increase the
customer base and additional personnel to service the expanding customer base.
Increases in bad debt expense, property taxes and subscriber billing expense
also contributed to this increase. The increases in selling and marketing
costs, personnel costs, bad debt expense, property taxes and subscriber
billing expense were 40%, 9%, 14%, 7% and 8%, respectively, of the total
$4,252,000 increase.
Depreciation of rental equipment increased to $177,000 from $115,000 due to
an increase in the number of rental pagers.
Depreciation expense increased to $3,806,000 from $2,888,000 primarily
because of an increase in property, plant and equipment.
Amortization expense increased to $1,557,000 from $1,527,000 primarily due
to increases in license acquisition costs.
Interest expense increased to $3,984,000 from $1,779,000 as a result of the
increase in long-term debt at a higher effective interest rate during the
first quarter of 1997.
The provision for income taxes, net of income tax benefit of $316,000 from
the loss from the early extinguishment of debt, decreased to $860,000 from
$1,726,000 primarily as a result of a decrease in Puerto Rico taxable income
of certain of the Company's consolidated subsidiaries.
In connection with the repayment of the Existing Bank Facility, the Company
recorded an extraordinary loss of $4,067,000 ($3,751,000 net of income tax
benefit) from the write-off of unamortized deferred financing costs.
34
<PAGE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Service revenues increased to $119,839,000 from $94,409,000 as a result of
subscriber growth that increased the Company's current revenue stream. Average
monthly revenue per subscriber decreased to $73 in 1996 from $86 in 1995.
Ending subscribers were 159,300 and 115,500 as of December 31, 1996 and 1995,
respectively.
The loss from equipment, before depreciation of rental equipment, decreased
to $3,983,000 from $6,376,000 primarily because of reductions in the cost of
cellular telephones offset by an increase in the loss from pager sales. The
Company sells cellular telephones and pagers below cost in response to
competition and to generate subscriber growth.
Operating expenses increased to $15,214,000 from $10,207,000 primarily due
to increased usage of the network and additional costs associated with the
expanded network (including paging operations), which account for 90% and 10%
of the increase, respectively.
Selling, general and administrative expenses increased to $63,223,000 from
$51,148,000 as a result of increased selling and marketing to increase the
customer base and additional personnel to service the expanding customer base.
Increases in bad debt expense, customer retention expense, property taxes and
subscriber billing expense also contributed to this increase. The increases in
selling and marketing costs, personnel costs, bad debt expense, customer
retention expense, property taxes and subscriber billing expense were 31%, 8%,
12%, 13%, 8% and 11%, respectively, of the total $12,075,000 increase.
Depreciation of rental equipment increased to $521,000 from $225,000 due to
an increase in the number of rental pagers, offset by a decrease in rental
telephone depreciation due to rental telephones becoming fully depreciated.
Depreciation expense increased to $12,710,000 from $9,638,000 primarily
because of an increase in property, plant and equipment.
Amortization expense increased to $6,187,000 from $5,794,000 primarily due
to increases in license acquisition costs.
Interest income and other, net, increased to $646,000 from $358,000
primarily due to an increase in interest income on short term investments.
Interest expense decreased to $8,181,000 from $8,501,000 as a result of
lower effective interest rates on long-term debt outstanding during 1996.
The provision for income taxes increased to $5,352,000 from $4,007,000 as a
result of an increase in Puerto Rico or U.S. Virgin Islands taxable income of
certain of the Company's consolidated subsidiaries and an increase in deferred
Puerto Rico income tax liability.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Service revenues increased to $94,409,000 from $55,900,000 as a result of
subscriber growth that increased the Company's current revenue stream. Average
monthly revenue per subscriber decreased to $86 for the year ended December
31, 1995 from $94 for the year ended December 31, 1994. Ending subscribers
were 115,500 and 68,300 as of December 31, 1995 and 1994, respectively. Paging
operations commenced in the second quarter of 1995. As of December 31, 1995,
there were 13,300 pagers in use.
The loss from equipment, before depreciation of rental telephones, increased
to $6,376,000 from $2,577,000 as a result of the increase in new subscribers.
The Company sells telephone and accessories below cost in response to
competition and to increase subscriber growth.
Operating expenses increased to $10,207,000 from $8,501,000 primarily due to
additional costs associated with the expanded cellular network and increased
usage of the network, which account for 74% and 26% of the
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<PAGE>
increase, respectively. Operating expenses declined to 11% of service revenue
for the year ended December 31, 1995 from 15% for the year ended December 31,
1994.
Selling, general and administrative expenses increased to $51,148,000 from
$30,944,000 as a result of increased selling and marketing to increase the
customer base and additional personnel to service the expanding customer base.
Increases in bad debt expense and subscriber billing expense also contributed
to this increase. The increases in selling and marketing costs, personnel
costs, bad debt expense and subscriber billing expense were 53%, 11%, 17% and
8%, respectively, of the total $20,204,000 increase.
Depreciation of rental telephones decreased to $225,000 from $312,000 due to
rental telephones in the corporate account rental program being fully
depreciated.
Depreciation expense increased to $9,638,000 from $6,400,000 primarily
because of an increase in property, plant and equipment.
Amortization expense increased to $5,794,000 from $5,212,000 due to
increases in license acquisition costs as a result of the USVI acquisitions in
July and October 1994.
Interest income and other, net, decreased to $358,000 from $867,000 due to
an increase in losses on disposals of equipment.
Interest expense increased to $8,501,000 from $7,305,000 as a result of a
higher average balance of long-term debt outstanding during 1995.
Income tax provision increased to $4,007,000 from $328,000 as a result of an
increase in Puerto Rico or USVI taxable income of certain of the Company's
consolidated subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to expand its cellular and paging networks, for
debt service and, potentially, for the acquisition and development of
additional wireless licenses or communication businesses. The Company is
currently adding cell sites and increasing capacity throughout its Puerto Rico
and USVI markets. The Company expects to use approximately $34,000,000 in 1997
for contemplated additions to the cellular system, the paging network and for
other non-cell site related capital expenditures. Additionally, the 1997
amount includes one time expenditures of approximately $4,000,000 for the
occupancy of a new building and $5,000,000 for hardware and software for an
in-house billing system. The Company's commitments at March 31, 1997 of
$13,000,000 for cellular network and other equipment and for construction
services are included in the total anticipated expenditures. The Company
expects to be able to meet these requirements with cash and marketable
securities on hand and cash from operations.
In April 1995, CCPR and Services entered into the Existing Bank Facility,
which was a $200,000,000 revolving credit facility with various banks. The
line of credit was available until March 31, 1999, on which date it would have
converted into a term loan with principal payments based on an amortization
schedule until September 30, 2003.
In January 1997, Services issued $200,000,000 principal amount of Old Notes
and received proceeds of $193,968,000 after discounts, commissions and other
related costs. The Notes are unconditionally guaranteed by CCPR. CCPR and
Services used approximately $116,000,000 of the proceeds to repay the
$115,000,000 principal outstanding plus accrued interest and fees under the
Existing Bank Facility. In addition, Services used the balance to make a cash
payment to CCPR of $80,000,000 in exchange for a 21% interest in SJCTC, and
CCPR distributed that amount to CoreComm.
The Notes are due February 1, 2007. Interest on the Notes is payable
semiannually commencing on August 1, 1997. The Notes are redeemable, in whole
or in part, at the option of Services at any time on or after February 1,
2002, at a redemption price of 105% that declines annually to 100% in 2005, in
each case together with accrued and unpaid interest to the redemption date.
The Indenture contains certain covenants with respect to
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CCPR, Services and certain subsidiaries that limit their ability to, among
other things, (i) incur additional indebtedness, (ii) pay dividends or make
other distributions or restricted payments, (iii) create liens, (iv) sell
assets, (v) enter into mergers or consolidations or (vi) sell or issue stock
of subsidiaries.
Cash provided by operating activities was $8,130,000 and $9,987,000 for the
three months ended March 31, 1997 and 1996, respectively. The decrease in cash
provided by operating activities is a result of changes in operating assets
and liabilities. Purchases of property, plant and equipment of $7,210,000 in
1997 were primarily for additional cell sites and increased capacity in the
Company's cellular and paging systems.
Cash provided by operating activities was $28,912,000 for the year ended
December 31, 1996 and cash used in operating activities was $7,779,000 for the
year ended December 31, 1995. Cash used in operating activities in 1995
included $12,978,000 of accrued interest expense that was paid in connection
with the repayment of outstanding debt. The increase in cash flow from
operating activities is also a result of the increase in net income and from
changes in operating assets and liabilities. Purchases of property, plant and
equipment of $36,564,000 in 1996 were primarily for additional cell sites and
increased capacity in the Company's cellular and paging systems. Purchases of
cellular license interests of $5,811,000 in 1996 are comprised of $5,755,000
(including expenses of $5,000) paid to acquire the remaining interests,
aggregating 49%, in Star Associates, Inc., the company which owns the FCC
license for the non-wireline cellular system in Adjuntas, Puerto Rico (RSA-2),
plus $56,000 in expenses paid in connection with the acquisition by Services
of the remaining minority interests aggregating 6.14% in SJCTC. This
acquisition was in exchange for approximately 820,000 shares of CCPR's common
stock which was valued at $21,536,000, the fair market value on the date of
acquisition. As a result of these acquisitions, CCPR owns, either directly or
through its subsidiaries, 100% of Star Associates, Inc. and SJCTC. SJCTC made
a special cash distribution of $1,172,000 to its minority interest holders in
1996.
The allowance for doubtful accounts was $3,889,000 as of March 31, 1997,
$3,767,000 as of December 31, 1996 and $3,233,000 as of December 31, 1995.
Write-offs net of recoveries as a percentage of service revenue was 6.0% for
the three months ended March 31, 1997, 5.8% for the year ended December 31,
1996 and 4.8% for the year ended December 31, 1995. This percentage increased
because the Company has attracted and continues to attract new segments of the
market. The Company continues to attempt to reduce this percentage by
improving credit procedures and instituting innovative forms of payment such
as prepaid billing.
The Company may also require additional capital for acquisitions of minority
interests in its Aguadilla market or for the acquisition of certain other
RSAs. The Company has from time to time engaged in discussions with third
parties regarding such acquisitions.
EFFECT OF INFLATION
The results of operations of the Company have not been significantly
affected by inflation.
B. CCPR SERVICES, INC.
The following discussion of the financial condition and results of
operations of Services relates to the fiscal years ended December 31, 1996,
1995 and 1994, and the three months ended March 31, 1997 and 1996, and should
be read in conjunction with the preceding Selected Financial Information and
Services' Financial Statements and Notes thereto included elsewhere in this
Prospectus. The following information does not purport to be indicative of
results that may occur in the future. All references to full years are to the
applicable fiscal year of Services.
Services operates and manages the Company's Puerto Rico cellular system on
behalf of each of the Company Entities. See "Business--Intercompany
Administration and Management Agreements." Services charges an administrative
fee based on revenues generated in the Company's Puerto Rico cellular system
and a capital usage fee which is the recovery of Services' capital costs.
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<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Administrative and capital usage fees charged to affiliates increased to
$8,612,000 from $5,896,000 as a result of increases in revenues and capital
costs in CCPR's Puerto Rico cellular system.
Depreciation and amortization increased to $4,166,000 from $2,970,000
primarily because of an increase in property, plant and equipment.
Interest expense increased to $3,983,000 from $1,732,000 as a result of the
increase in long-term debt at a higher effective interest rate during the
first quarter of 1997.
Equity in net income of SJCTC increased to $135,000 from $54,000 as a result
of the acquisition of an additional 21% ownership interest in the partnership
in January 1997.
The provision for income taxes, net of income tax benefit of $316,000 from
the loss from the early extinguishment of debt, changed to a benefit of
$134,000 from a provision of $87,000 as a result of the federal income tax
benefit of the tax sharing agreement with CCPR beginning in 1997.
In connection with the repayment of the Existing Bank Facility, Services
recorded an extraordinary loss of $4,068,000 ($3,752,000 net of income tax
benefit) from the write-off of unamortized deferred financing costs.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Administrative and capital usage fees charged to affiliates increased to
$26,924,079 from $17,212,735 as a result of increases in revenues and capital
costs in CCPR's Puerto Rico cellular system.
Depreciation and amortization increased to $13,005,623 from $9,669,381
primarily because of an increase in property, plant and equipment.
Intercompany interest income increased to $741,010 from $536,775 as a result
of the increase in amounts due from affiliates.
Interest and other income increased to $601,533 from $169,398 as a result of
increases in cash available for short term investment.
Interest expense increased to $8,094,399 from $2,750,576 as a result of a
higher average balance on long-term debt outstanding during 1996.
Equity in net income of SJCTC of $304,374 in 1996 is the result of the
acquisition of an approximately 6% ownership interest in the partnership in
February 1996.
The provision for income taxes increased to $890,766 from $109,955 as a
result of an increase in Puerto Rico income tax, a substantial portion of
which is a deferred liability.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Administrative and capital usage fees charged to affiliates increased to
$17,212,735 from $3,656,492 as a result of increases in revenues and capital
costs in CCPR's Puerto Rico cellular system, as well as an increase in the
administrative fee rate and a change in the capital usage fee computation.
Depreciation and amortization increased to $9,669,381 from $6,843,383
primarily because of an increase in property, plant and equipment.
Intercompany interest income increased to $536,775 from $198,507 as a result
of the increase in amounts due from affiliates.
Interest and other income increased to income of $169,398 from expense of
$101,982 as a result of increases in cash available for short term investment
and a reduction in losses on disposals of equipment.
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<PAGE>
Interest expense increased to $2,750,576 from none as a result of long-term
debt incurred in 1995.
The provision for income taxes increased to $109,955 from none as a result
of an increase in Puerto Rico taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Services requires capital to expand the Company's Puerto Rico cellular
system and for debt service. Services is currently adding cell sites and
increasing capacity throughout Puerto Rico on behalf of CCPR's operating
subsidiaries. Services expects to use approximately $31,000,000 in 1997 for
contemplated additions to the Puerto Rico cellular system and for other non-
cell site related capital expenditures. Additionally, the 1997 figure includes
one time expenditures of approximately $4,000,000 for the occupancy of a new
building and $5,000,000 for hardware and software for an in-house billing
system. Services' commitments at March 31, 1997 of $12,600,000 for cellular
network and other equipment and for construction services are included in the
total anticipated expenditures. Services expects to be able to meet these
requirements with cash, cash equivalents and marketable securities on hand and
cash from operations.
In April 1995, CCPR and Services entered into the Existing Bank Facility,
which was a $200,000,000 revolving credit facility with various banks. As of
December 31, 1996, Services had $115,000,000 principal amount outstanding. The
line of credit was available until March 31, 1999, on which date it would have
converted into a term loan with principal payments based on an amortization
schedule until September 30, 2003.
In January 1997, Services issued $200,000,000 principal amount of Old Notes
and received proceeds of $193,968,000 after discounts, commissions and other
related costs. The Notes are unconditionally guaranteed by CCPR. Services used
approximately $116,000,000 of the proceeds to repay the principal outstanding
plus accrued interest and fees under the Existing Bank Facility. In addition,
Services used the balance to make a cash payment to CCPR of $80,000,000 in
exchange for a 21% interest in SJCTC.
The Notes are due on February 1, 2007. Interest on the Notes is payable
semiannually commencing on August 1, 1997. The Notes are redeemable, in whole
or in part, at the option of Services at any time on or after February 1,
2002, at a redemption price of 105% that declines annually to 100% in 2005, in
each case together with accrued and unpaid interest to the redemption date.
The Indenture contains certain covenants with respect to Services, CCPR and
certain subsidiaries of CCPR that limit their ability to, among other things,
(i) incur additional indebtedness, (ii) pay dividends or make other
distributions or restricted payments, (iii) create liens, (iv) sell assets,
(v) enter into mergers or consolidations or (vi) sell or issue stock of
subsidiaries.
Cash provided by operating activities was $6,569,000 and $6,782,000 for the
three months ended March 31, 1997 and 1996, respectively. The decrease in cash
provided by operating activities is primarily a result of changes in operating
assets and liabilities. Purchases of property, plant and equipment of
$6,720,000 in 1997 were primarily for additional cell sites and increased
capacity in the Puerto Rico cellular and paging systems.
Cash provided by operating activities was $8,941,892 and $21,809,188 for the
years ended December 31, 1996 and 1995, respectively. The decrease is
primarily a result of an increase in cash paid for interest (exclusive of
amounts capitalized) and income taxes of $5,164,879 and changes in other
operating assets and liabilities. Purchases of property, plant and equipment
of $34,846,405 were primarily for additional cell sites and increased capacity
in the Puerto Rico cellular system. Proceeds from borrowings of $52,000,000
were used for loans to affiliates of $42,000,000 and for purchases of
property, plant and equipment of $10,000,000.
The allowance for doubtful accounts was $3,583,000 as of March 31, 1997,
$3,471,653 as of December 31, 1996 and $2,903,430 as of December 31, 1995.
Write-offs net of recoveries as a percentage of service revenues of affiliates
was 6.4% for the three months ended March 31, 1997, 6.0% for the year ended
December 31, 1996 and 5.0% for the year ended December 31, 1995. This
percentage increased because Services has attracted and continues to attract
new segments of the market. Services continued to attempt to reduce this
percentage by improving credit procedures and instituting innovative forms of
payment such as prepaid billing.
EFFECT OF INFLATION
The results of operations of Services have not been significantly affected
by inflation.
39
<PAGE>
BUSINESS
GENERAL
The Company owns, operates and markets its cellular and paging services
throughout Puerto Rico and the USVI under the CELLULARONE(R) service mark. The
Company's interests total 3.52 million Pops. In addition, the Company has
entered into agreements to operate or holds interim operating authority
granted by the FCC in the two remaining RSAs within Puerto Rico and the USVI
which it does not own. The Company began actively marketing its island-wide
cellular system in May 1993 and, as of March 31, 1997, had 166,600 cellular
subscribers and 35,100 paging subscribers representing an increase in
subscribers of 38,800 and 17,300, respectively, since March 31, 1996. Despite
commencing active marketing of its services almost five years after its
primary cellular competitor, management believes the Company's market share
represents an approximately 44% share of cellular subscribers in Puerto Rico.
The Company believes that Puerto Rico is an attractive market for cellular
and paging services. The largest MSA in its service area, the San Juan/Caguas
MSA with over two million Pops, is characterized by a high population density
of 1,880 persons per square mile (mainland U.S. MSA average is 325) with 46%
of commuters reporting a commute time of 30 minutes or greater (mainland U.S.
MSA average is 30%).
Puerto Rico did not experience the benefits of island-wide competition until
early 1993, seven years after most major mainland U.S. markets.
Notwithstanding, management estimates that at the end of 1996 cellular
penetration in Puerto Rico was slightly less than 10% while the CTIA reported
that cellular penetration in the U.S. as a whole first surpassed 10% during
the first half of 1995. Average revenue for the Company's subscribers
continues to exceed the average revenue for mainland U.S. subscribers at a
similar penetration level; the average revenue for the Company's cellular
subscribers in 1996 was over $70 per month, while the average revenue in the
mainland U.S. as reported by the CTIA at a similar market penetration (10%) in
early 1995 was less than $60 per month.
The Company believes that the USVI also represents an attractive cellular
and paging market, particularly because of the large amount of roaming traffic
generated by visitors.
The Company's primary strategy is to differentiate itself from its
competition by providing superior customer service and call quality by
offering state-of-the-art complementary wireless services, thereby
strengthening its image as the premium provider of wireless communications in
its service areas. The Company continually promotes its reliable Puerto Rico
and USVI-wide mobile cellular and paging services. The Company has stressed
the quality of its customer service, network, and value-added services as well
as the breadth of its coverage and distribution channels in Puerto Rico and
the USVI rather than the price of its services. In 1996, CELLULARONE(R) of San
Juan received the "Quality One" award from the Cellular One Group, recognizing
the highest level of customer service in the United States among MSAs using
the CELLULARONE(R) service mark. Management believes that this strategy has
attracted higher quality subscribers which generate higher than average
revenues and consequently believes its market share of revenues may be
somewhat higher than its market share based on number of subscribers.
The Company's management is experienced in providing new product innovations
to generate additional revenue as the industry's customer base shifts to lower
usage subscribers. This experience has enabled the Company to target specific
groups of customers and provide them with value-added features. The Company
was the first to offer one-stop sales in its service areas and service
centers, roaming capabilities, bilingual and detailed billing service, voice
mail service, 24-hour customer service, free safety and security numbers,
prepaid cellular service and integrated paging and cellular service. The
Company also plays an active role in the community helping to sponsor such
safety initiatives as Crime Watch and *CG, a cellular number for boaters
needing Coast Guard assistance and has been a significant civil defense
resource during and after several major hurricanes. In addition, the Company
has stressed education and employee involvement in other initiatives such as
environmental programs (including The Caribbean Stranding Network hotline,
tree plantings, cleanup days), educational exhibits (at Science Park and the
Arecibo Observatory), and Company-sponsored scholarships in engineering at the
University of Puerto Rico.
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CELLULAR TELEPHONE OWNERSHIP INTERESTS
The following table sets forth the Company's cellular MSA and RSA markets
and approximate percentage ownership as of December 31, 1996:
<TABLE>
<CAPTION>
MARKET POPULATION(1)(2) OWNERSHIP POPS
------ ---------------- --------- ---------
<S> <C> <C> <C>
San Juan/Caguas MSA(3).................. 2,124,891 100.00% 2,124,891
Aguadilla MSA........................... 180,687 99.01 178,898
Mayaguez MSA............................ 227,941 100.00 227,941
Ponce MSA............................... 261,585 100.00 261,585
Arecibo MSA............................. 195,843 100.00 195,843
PR-1 Rincon RSA......................... 13,726 100.00 13,726
PR-2 Adjuntas RSA....................... 276,517 100.00 276,517
PR-3 Ciales RSA......................... 126,052 100.00 126,052
PR-4 Aibonito RSA(4).................... 295,140 0.00 0
PR-5 Ceiba RSA(5)....................... 42,172 0.00 0
PR-6 Vieques RSA........................ 8,975 100.00 8,975
PR-7 Culebra RSA........................ 1,598 100.00 1,598
USVI-1 St. Thomas/St. John.............. 51,670 100.00 51,670
USVI-2 St. Croix........................ 50,139 100.00 50,139
--------- ---------
Total................................. 3,856,936 3,517,835
========= =========
</TABLE>
- ---------------------
(1) 1995 U.S. Census Bureau Population Estimates for Puerto Rico.
(2) 1990 U.S. Census Bureau Population Estimates for the USVI.
(3) In February 1996, the Company acquired the remaining minority interests
aggregating 6.14% in the San Juan Cellular Telephone Company, the entity
holding the operating license for the San Juan/Caguas MSA.
(4) In December 1995, the Company signed various agreements with the holder of
the construction permit for the PR-4 Aibonito RSA setting forth the
material terms and obligations between both parties. These agreements
include: (i) a Dual Licensing Agreement, (ii) a Switching and Interconnect
Agreement, (iii) a Tower and Building Lease Agreement and (iv) a Roaming
Agreement.
(5) The Company has received interim operating authority in the PR-5 Ceiba RSA
from the FCC and from Puerto Rico authorities. The FCC is currently
considering whether permanent operating authority with respect to PR-5
Ceiba RSA should be issued by lottery or by auction.
The Company had, as of March 31, 1997, an aggregate of 166,600 subscribers
which represents a penetration rate (i.e., the number of subscribers divided
by the total estimated population of the Company's markets) for the Company of
approximately 4.3%. See "--Sales and Marketing."
PAGING
A subsidiary of the Company has received authorization from the FCC to
operate two 900 MHz paging systems to serve Puerto Rico and the USVI. The
Company completed the construction of the Puerto Rico paging system and began
operations during March 1995. The Company completed construction of the USVI
paging system and began operations in November 1995. As of March 31, 1997, the
Company's paging operations had 38,800 pagers in use.
COMMONWEALTH OF PUERTO RICO
Puerto Rico has been a territory of the United States since 1898 and a
Commonwealth since 1952. Puerto Ricans are U.S. citizens with non-voting
representation in Congress, but cannot vote in national elections unless they
reside in the United States. The system of government is modeled after the
state governments of the United States, with an executive branch headed by a
Governor and a legislature consisting of a 27-member Senate and a 53-member
House of Representatives. The judicial system is closely linked to the United
States system. Most United States laws apply in Puerto Rico and Puerto Rico is
under the jurisdiction of the First Circuit, United
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<PAGE>
States Court of Appeals, which maintains a United States District Court in
Puerto Rico. Judicial decisions may be appealed to the Supreme Court of the
United States in the same manner that decisions are appealed from state
courts. The United States and Puerto Rico also share common monetary, defense
and postal systems.
Puerto Rico has a land area approximately 70 percent the size of Connecticut
and has a population of approximately 3.7 million people. The population is
concentrated primarily in Puerto Rico's coastal regions, in particular, the
San Juan metropolitan area. Puerto Rico maintains a highway and road network
of approximately 8,600 miles, including a partially completed all island
beltway loop. The largest MSA in Puerto Rico, the San Juan/Caguas MSA with
over 2 million Pops, is characterized by a high population density of 1,880
persons per square mile (mainland U.S. MSA average is 325) with 46% of
commuters reporting a commute time of greater than 30 minutes (mainland U.S.
average is 30%).
THE U.S. VIRGIN ISLANDS
The USVI has been a territory of the United States since 1917. Virgin
Islanders are U.S. citizens with non-voting representation in Congress, but
cannot vote in national elections unless they reside in the United States. The
system of government is modeled after the state governments of the United
States, with three main branches of government. The executive branch is headed
by a Governor, elected every four years through a direct vote. The legislative
branch consists of one chamber having 14 members. The judicial system is
closely linked to the United States system with a Territorial Court that has
jurisdiction over local matters and a United States District Court, which
falls under the jurisdiction of the Third Circuit, United States Court of
Appeals. Judicial decisions may be appealed to the Supreme Court of the United
States in the same manner that decisions are appealed from state courts.
United States Federal law applies in the USVI. The United States and the USVI
share common monetary, defense and postal systems.
The USVI has a land area of approximately 84 square miles and has a
population of approximately 102,000 people. The population is divided in three
islands: St. Thomas (with a population of approximately 46,000 people), St.
Croix (with a population of approximately 50,000 people) and St. John (with a
population of approximately 6,000 people).
SALES AND MARKETING
Through its direct and indirect distribution channels and aggressive
advertising, the Company targets subscribers. The Company relies on its direct
sales force, indirect channels such as dealers, retailers and resellers, sales
literature, sponsorship of local events, and substantial television, print and
radio advertising campaigns to create awareness of its services and to
communicate the benefits and promotional offers associated with it.
Sales are targeted at two primary segments: individual and corporate
accounts. Each segment has its own dedicated direct sales force. The Company
has over 300 employees in sales and marketing functions. Direct sales,
including corporate accounts, represented over 50% of the Company's total
sales in 1996. The 120-person direct sales force is distributed among twelve
fixed sales and service centers throughout Puerto Rico and the USVI, with five
in San Juan/Caguas, one in Ponce, one in Fajardo, one in Arecibo, one in
Mayaguez and three in the USVI, as well as four kiosks located in major
shopping centers, 19 mini-kiosks inside large retail stores (WalMart, Sams,
Western Auto) and four mobile units. The sales and service centers are
designed for up-market consumers, have convenient hours of operation, and the
ability to sell and service cellular telephones while the customer waits. The
sales and service centers also play a major role in the Company's ability to
provide superior customer service. See "--Customer Service." In addition, the
Company utilizes a network of carefully selected independent dealers and large
retailers (such as Sears and Radio Shack) which accounted for over 40% of the
Company's new activations in 1996. Currently, resellers account for only a
small percentage of new activations.
The use of a broad mix of different distribution channels in Puerto Rico
gives the Company a widespread marketing presence and provides easy access to
its subscriber base while maintaining a premium quality of service to its
subscribers. In addition, the Company's growing network of direct sales,
dealers and large retailers
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<PAGE>
provide it with strong marketing clout in preparation for upcoming
competition. The Company markets its services under the nationally recognized
CELLULARONE(R) brand name and its sales and marketing strategy carefully
promotes CELLULARONE(R)'s premium brand image.
Although the Company employs a segmented pricing approach whereby specific
pricing plans are developed to attract different segments of the market, the
Company has differentiated itself from the PRTC primarily by offering premium
services at premium prices and directing significant efforts toward customer
service, technical excellence and advanced calling features. In contrast, the
Company believes that the PRTC has tended to compete on the basis of name
recognition and appeal to local sentiment.
CUSTOMER SERVICE
An important element in the Company's business strategy is to provide the
highest quality, localized customer service in the individual markets it
serves. This is especially significant because, in the Company's view,
customer service has not been emphasized by the PRTC.
The Company's strict adherence to superior quality service is reflected by
the 96% overall satisfaction rating--the highest in the United States--it
received from its subscribers in an annual independent survey of customer
satisfaction conducted by the Cellular One Group. This rating far exceeded the
86% U.S. national average.
The Company has introduced a full-service program utilizing customer service
representatives and local customer service centers in all of its major
markets. A recent introduction to the Puerto Rican cellular market, customer
service centers are located within existing sales and service distribution
outlets, offering a specific, non-sales-oriented point of contact where
existing customers can pay their bills, ask questions about their cellular
service or hardware, etc.
In addition, the Company provides a 24-hour customer service hotline. This
full-service policy means that a customer service person is available at all
times to answer inquiries and to respond rapidly to customer emergencies. The
Company proactively implements fraud detection and sophisticated prevention
mechanisms to protect its subscribers and in 1992 implemented the Coral
System's Fraud Buster program. Through programs such as this, the Company has
taken a leading role in the industry to educate the public about the growing
problem of cellular telephone fraud and how to detect and prevent its
occurrence. In addition, through its participation in the NACN, the Company is
assured that only bona-fide subscribers enjoy roaming services. As a result of
all of its efforts, the Company maintains one of the lowest percentages of
fraud losses in the industry.
The Company also employs a proactive, segment-driven approach to customer
retention and loyalty, beginning with a "welcome call" shortly after a
subscriber receives its first bill. Subsequently, each subscriber is classed
according to segment (corporate or individual), usage (high, medium, low),
tenure, payment history, etc., and subsequent contact patterns and methods
depend on a subscriber's class. This allows the Company to cost effectively
service and satisfy its subscriber base according to their value to the
Company.
CELLULAR TECHNOLOGY
Cellular mobile radio technology was developed to provide high quality, high
capacity mobile and portable telephone systems. In a cellular telephone
system, the service area is subdivided into smaller geographic areas or
"cells." Each cell has its own relatively low power transmitter and receiver
that communicates by radio signal with cellular telephones located in the
cell. Each cell is connected by microwave or telephone line to a MTSO, which
in turn is connected to the worldwide telephone network. See "--Regulation--
Federal Communications Commission Regulation" for the interconnection
arrangements with the worldwide telephone network.
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When a cellular subscriber in a particular cell dials a number, the mobile
telephone sends the call by radio to the cell's transmitter/receiver, where it
is sent to the MTSO. The MTSO then completes the call through its connection
with the landline telephone network. Conversely, incoming calls are received
by the MTSO, which instructs the appropriate cell to complete the
communications link by radio signal between the cell's transmitter/receiver
and the cellular telephone.
The MTSO controls communications within the cellular system, including the
"hand-off" process as a cellular telephone moves from one cell to another. In
this process, the system recognizes that a cell boundary has been crossed,
finds an available channel in the new cell, and transfers the call to that
channel--all within a fraction of a second.
Cellular telephone systems have a high capacity because of the substantial
frequency spectrum generally allocated for the purpose of cellular service by
the FCC and because all frequencies can be reused throughout the system.
Frequency reuse is possible because the transmission power of cell site
equipment and mobile units is relatively low and signals on the same channel
will not interfere with each other if they are transmitted in cells that are
sufficiently far apart. Reuse multiplies the number of channels available to
the system operator and thereby increases the telephone calling capacity. A
cellular licensee may also use its cellular frequencies to provide paging,
data transmission, and other services so long as the provision of these
services does not impair its ability to provide cellular service, cause
interference to other cellular licensees and, when required, has the
appropriate regulatory approval.
NETWORK AND SYSTEM CONSTRUCTION
The Company designs its network in order to ensure quality service and
maximum geographic coverage. The Company's network was designed specifically
for the Puerto Rico market, using management's accumulated knowledge gained
from developing a network of over 500 cell sites in Ohio and Michigan and
using extensive geographic and engineering studies. The Company has completed
a network that, as of March 31, 1997, included 84 cell sites and two MTSOs
covering over 90% of the population of Puerto Rico and the USVI. Engineering
and system construction is carried out by approximately 85 employees.
Cell sites are equipped with a digital-ready Northern Telecom Inc. analog
radio system. Digital TDMA was installed in 1995. Digital technology offers
many advantages over analog technology, including substantially increased
capacity, lower costs and the opportunity to provide enhanced services such as
improved data transmission. The Company has introduced and distributed to
selected groups of subscribers, including internal users, dual mode phones
using the TDMA format for digital signaling. Because existing analog cellular
telephones will not be able to receive digital transmissions from the base
station, the Company expects that the transition from analog to digital will
be phased in over a number of years, during which time the system will
maintain both analog and digital transmitting equipment and will thus be able
to serve both analog and digital forms of cellular telephones and transmitting
equipment.
In order to hasten cell site commissioning, increase network reliability and
reduce ongoing operating costs, the Company has built its own digital
microwave transmission network to connect its cell sites and switches. The
backbone of the network is a ring around the mountainous regions, providing
substantial capacity (135 Mb/sec). The ring network provides redundant
communication paths to ensure minimal network disruption in the event of a
cell site outage and spurs provide at least 6 Mb/sec of capacity to each cell
site. The Company resells spare capacity on this network to major
telecommunications users.
The Company uses a UNIX-based Computer Automated Design system to choose the
proper network configuration that will provide maximum capacity and service
reliability in the island's heavily populated coastal areas. The design is
based on the ring network concept, which provides a good fit with Puerto
Rico's topography. In addition, to test the network design, the Company uses a
performance testing system to predict and measure signal levels. By utilizing
proper network design and system testing techniques, the Company's completed
network provides similar geographic coverage to the PRTC with fewer cell sites
and with greater service reliability.
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Cellular systems are capital intensive, requiring significant levels of
investment for equipment, construction and cell site acquisition. As of March
31, 1997, the Company had operating plant and equipment and construction-in-
progress with a historical cost of approximately $124,000,000.
SOURCES OF REVENUE
The cellular mobile telephone services available to customers and the
sources of revenue available to a system operator are similar to those
available with standard home and office telephones. Cellular telephone
subscribers are charged separately for monthly access, air time, toll calls
and custom calling features such as voice mail, call forwarding, call waiting
and third party conferencing. Cellular telephone subscribers are generally
responsible for purchasing or otherwise obtaining their own cellular mobile
telephone. Paging subscribers are charged on a monthly basis for service and
are generally responsible for purchasing their own pager. The Company also
generates some revenue from the resale of its digital transmission network.
When service is provided to "roamers" (i.e., registered customers of a
cellular system other than the Company's cellular system that place calls on
the Company's cellular system), the Company charges a daily access fee and the
roamer air time rate, which is typically higher than standard usage rates.
Roaming is an added service offered by the Company which allows a customer to
place or receive a call in a cellular service area away from the customer's
home market area. The Company has entered into "automatic roaming agreements"
with operators of other cellular systems covering most of the U.S. cellular
systems. These reciprocal agreements allow a subscriber of a participating
system to roam (i.e., travel) into a Company market and make and receive calls
on the Company's system. The charge for this service is billed by the Company
to the subscriber's home system, which then bills the subscriber. Roamers from
systems that do not participate in this arrangement are routed to an outside
service bureau which completes the call upon the receipt of a valid credit
card number. The Company receives a fee from the service bureau for each
completed call. The Company provides roaming services under the NACN, which
allows calls to and from roamers from systems who participate in NACN to be
delivered automatically without the use of access codes. NACN also provides
such roamers the ability to use their custom calling features in roaming
markets. The FCC has recently asked for comment on whether it should mandate
automatic roaming among all broadband wireless operators to the extent
technically feasible. It is not possible to predict the outcome of this
proceeding at this time.
The cellular telephone industry is typically characterized by high fixed
costs and low variable costs. Therefore, once revenues exceed fixed costs,
incremental revenues should yield a high incremental operating profit. In
addition, once initial system capacity has been reached, additional cellular
system capacity can be added in increments that closely match demand and at
less than the proportionate cost of the initial capacity.
PATENT, COPYRIGHTS AND LICENSES
The Company does not have any patents or copyrights nor does the Company
believe patents or copyrights play a material role in its business. Other than
the Company's FCC licenses, the Company's only license is for the use of the
service mark and trademark CELLULARONE(R), which is also licensed to many of
the non-wireline systems in the United States. In 1992, the owners of such
mark entered into a new agreement with the Company, with an effective twenty-
year term, under which the Company is required to maintain certain service
quality standards. Under this agreement, the Company is required to pay
licensing and other fees for the use of the service mark. The total fees paid
in the year ended December 31, 1996 were $202,000, which were determined by
the size of the Company's markets.
COMPETITION
FCC rules formerly provided that two licensees will be authorized to provide
service in each market. PRTC is one of the licensees (the "Wireline Licensee")
in each Puerto Rico market. VitelCellular, Inc., an affiliate of Virgin
Islands Telephone Company (the provider of landline telephone service in each
market in the USVI) is the Wireline Licensee in each USVI market. The second
authorization in each of Puerto Rico and the USVI was available for
applications by a non-telephone company carrier (the "Non-Wireline
Licensees"). The Company
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is a Non-Wireline Licensee. The FCC's regulation of cellular system licensing,
construction and operation is substantially the same for both the Non-Wireline
Licensee and the Wireline Licensee. Each Licensee is assigned 25 megahertz of
the radio spectrum, which is further divided into 416 two-way channels. Given
the cellular market duopoly, the Company faces facilities-based competition in
each of its Puerto Rico markets from the PRTC and in each of its USVI markets
from VitelCellular, Inc. Although the cellular services offered by the
Company, the PRTC and VitelCellular, Inc. are similar in terms of price, the
Company has attempted to differentiate itself from the PRTC and VitelCellular,
Inc. by directing significant efforts toward customer service, technical
services and calling features.
The PRTC and VitelCellular, Inc. are significantly larger and better
capitalized than the Company. The Company believes the PRTC currently provides
service to approximately 56% of the subscribers of cellular service in Puerto
Rico. In the USVI, the Company believes that VitelCellular, Inc. currently
provides service to approximately 45% of the subscribers of cellular service
in the USVI.
In 1990, the Commonwealth of Puerto Rico attempted to sell the PRTC to an
independent third party, but did not consummate such a transaction. The
Commonwealth has halted this process, but there can be no assurances that it
will not again attempt to sell, or otherwise alter its ownership of the PRTC.
Such sale could be to another experienced cellular operator or to a
telecommunications company, such as an affiliate of a Bell Operating Company
("BOCs"). Given that the FCC-defined markets and the technical standards are
the same for both licensees in a market, the Company believes that its ability
to make and implement decisions rapidly and its customer service oriented
strategy should enable it to compete effectively with the PRTC or any other
competitor.
Broadband PCS will in the near future be competitive with cellular services.
Broadband PCS is a digital, wireless communications service consisting of a
variety of new mobile and portable services and technologies, such as small,
lightweight telephone handsets that work at home, in the office, or on the
streets; portable, wireless facsimile machines; wireless electronic mail
services; advanced paging techniques; and other wireless communications
services. Broadband PCS base stations are expected to deploy a large number of
low power base stations to take advantage of the radio propagation
characteristics of the 2 GHz spectrum. Accordingly, more PCS base stations
than cellular base stations will be needed to cover a particular area;
although PCS facilities are expected to cost less than comparable cellular
facilities.
The FCC has allocated 120 MHz of 2 GHz spectrum for broadband PCS and has
commenced licensing the service to the public pursuant to three separate
consecutive auctions. In the first broadband PCS auction, approximately 30
different companies were granted a total of 102 MTA 30 MHz licenses on June
23, 1995. On May 6, 1996, the FCC concluded its second broadband PCS auction
of 493 smaller Basic Trading Area ("BTA") 30 MHz licenses. Eligibility for
this auction was limited to applicants meeting certain financial
qualifications. Grant of these BTA licenses created a third broadband PCS
service provider in the markets served by the Company. On January 14, 1997,
the FCC concluded the final broadband PCS auction for 1,479 10 MHz BTA
licenses. One block of those licenses (493 authorizations) was reserved for
applicants meeting certain financial qualifications. In late 1995, American
Personal Communications, Inc. launched the first PCS service to the
Washington, D.C. MTA, and several more broadband PCS licensees commenced
service in late 1996.
In total, the FCC will award six broadband PCS licenses by auction in each
market, with each licensee holding either 10 MHz, 20 MHz, 30 MHz, or 40 MHz of
spectrum in the service areas larger than most individual cellular markets.
Eligible entities are permitted to aggregate up to 45 MHz of commercial mobile
radio services spectrum in any given area. Thus, the Company, the PRTC, and
VitelCellular, Inc. are eligible for 20 MHz each of PCS spectrum in their
cellular markets. Like cellular licensees, PCS licensees will also be
permitted to aggregate markets to create regional and national systems. In
addition, the FCC recently modified its rules to permit broadband PCS
licensees to disaggregate their spectrum or geographically partition their
service areas. Therefore, the auction winners in Puerto Rico and the USVI may
now sell blocks of their spectrum or portions of their service areas to other
competitors. Cellular licensees are currently permitted to geographically
partition their license areas and the FCC has proposed to allow them to
disaggregate their spectrum in the same manner as PCS licensees.
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The FCC completed the first auction process for broadband PCS in March 1995.
The principal winners in the first PCS auction, which consisted of two 30 MHz
licenses in each of 51 MTAs comprising the entire United States, are large
telecommunications companies such as AT&T, the BOCs, major cable television
companies and large independent telephone companies. The Company cannot
predict the nature or extent to which PCS will actually develop as a viable
competitor. In the Puerto Rico-Virgin Islands MTA, the two high bidders were
AT&T and Centennial. Upon construction of their PCS systems, AT&T and
Centennial will each eventually be able to provide a single seamless system
overlapping the Company's system. Centennial began marketing its PCS services
in December 1996. In the recently-concluded D-F block PCS auction, the PRTC
and VitelCom, Inc., an affiliate of VitelCellular, Inc., each purchased 10 MHz
licenses that cover their respective cellular service areas. Accordingly,
after the FCC completes the licensing process, each of these companies will
hold 35 MHz of wireless spectrum in their regions. The E block PCS license was
acquired by Sprint and the remaining D and F block PCS licenses were acquired
by entities unaffiliated with existing wireless providers in Puerto Rico and
the USVI.
The FCC has also issued local and nationwide licenses in the 220-222 MHz
band for the provision of land mobile service. These licenses are expected to
provide various one-way acknowledgement, and certain two-way voice and data
services. Further, the FCC has completed the licensing of "narrowband PCS" in
the 900 MHz band, which includes, among other services, data messaging,
advanced one-way and two-way paging, and facsimile. The messaging and paging
services are expected to include electronic mail and digitized voice messages.
These licenses were issued by auction on a local, regional, and national
basis, including in the Company's markets. Narrowband PCS will likely be
competitive with the Company's paging operations.
Cellular telephone systems also face competition from, among others, SMR
systems. Although the rules for SMR service permit interconnection with the
landline network, the Company believes that SMR has been most effective as a
two-way radio (i.e., dispatch) service. Several SMR companies have received
waivers from the FCC of certain rules to permit them to overcome certain
technological limitations and offer service that is more competitive with
cellular service, including the use of digital technologies. This service is
known as enhanced SMR ("ESMR"). The waivers issued by the FCC are specific to
certain large markets, none of which are in Puerto Rico or the USVI. The FCC
has recently adopted rules applicable to SMR services in the 800 and 900 MHz
band to enable the creation of seamless regional or national SMR systems
similar to those which it has authorized under the waiver process.
With respect to the 800 MHz spectrum, on December 15, 1995, the FCC issued
new rules that establish a new category of 175 license service areas covering
the U.S. known as "EAs" for SMR licensees operating on three spectrum blocks
comprised of a total of 200 channels at 800 MHz (10 MHz total). The FCC
established three additional EA licensing regions for the five U.S.
possessions. EAs will be available in three spectrum blocks: a 120-channel
block, a 60-channel block and a 20-channel block. Like the rules applicable to
other commercial wireless services such as cellular, 800 MHz SMR licensees
will now be able to construct on any available site within the EA and add,
remove, or relocate site locations within the EA during the license term
without prior FCC approval. EA's will be permitted to use any spectrum within
the EA service area that is recovered by the FCC from an incumbent SMR
licensee in the event of termination of the incumbent's license. In addition,
525 EA licenses will be awarded for the upper 200 channels by a single
simultaneous multiple round auction. With respect to the 900 MHz spectrum, the
FCC adopted a licensing scheme that divides the 900 MHz SMR band into 20 ten-
channel blocks in each of 51 service areas based on Major Trading Areas
("MTAs"). SMR licensees will have the flexibility to construct or modify their
facilities similar to the rules applicable to cellular licensees. These rules
have the potential to increase the ability of SMR to compete with cellular. In
the same rulemaking proceeding the FCC also adopted rules applicable to the
auctioning of the MTA licenses in the 900 MHz SMR service. A total of 1,020
MTA licenses were awarded in the 900 MHz SMR service. The FCC closed the 900
MHz spectrum auction in April 1996.
Technological advances in the communications field continue to make it
impossible to predict the extent of future competition for cellular services.
For example, the FCC has licensed three mobile satellite systems and
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has pending two additional systems in which transmissions from mobile units to
satellites would augment or replace transmissions to cell sites. There are a
number of large, well-financed entities involved in the mobile satellite
business. One international investment consortium, Iridium LLC, has stated its
intent to provide a cellular-type telephone service via satellite technology
that will be available anywhere in the world beginning in September 1998.
Iridium also plans to offer a means of roaming among the world's major ground-
based cellular phone standards. A rocket launch mishap has caused Iridium to
delay the launch date of the first three of 66 satellites from January 1997 to
May 1997. Potential satellite competitors to Iridium include Globalstar LP,
which has announced its intention to be in operation by 1999; ICO Global
Communications LP; and Odyssey, a 12-satellite system developed by TRW Inc. In
addition, the FCC has recently allocated additional spectrum for use by the
Mobile-Satellite Service to provide mobile communications services. According
to the FCC, ten companies already have expressed an interest in utilizing this
spectrum. The FCC has also authorized Basic Exchange Telecommunications Radio
Service, which allows telephone companies to replace the local loop portion of
their facilities with a radio link, to make basic telephone service more
accessible to rural households and businesses.
Further, various other FCC rulemaking proceedings may affect the manner in
which radio frequency spectrum will be allocated among the various potential
competitors of cellular service. For example, the FCC has adopted rules
allocating 25 MHz below 5 GHz for commercial fixed and mobile radio services
which could eventually compete with cellular. The FCC has also adopted rules
allocating a portion of the spectrum above 40 GHz for commercial radio service
some of which could compete with cellular. There can be no assurance that
existing cellular operators will be permitted to receive licenses for such
spectrum, or that the adoption of auctions would not increase the cost to the
Company of obtaining such licenses or their renewal. In addition, Congress
recently allocated 30 MHz of spectrum in the 2.3 GHz band, and the FCC has
proposed that virtually any wireless service be permitted on this band.
Congress has mandated that the auction for these licenses be completed and all
money collected by September 30, 1997. In the auction, which commenced on
April 15, 1997, two types of licenses have been made available: (1) two 10-MHz
blocks in each of 46 Major Economic Area Groupings ("MEAs"); and (2) two 5-MHz
blocks in each of 11 Regional Economic Areas ("REAGs"). Puerto Rico and the
U.S. Virgin Islands will constitute a single MEA and a single REAG for initial
licensing purposes. Because the FCC has adopted restrictive out-of-band
emission limits for WCS spectrum, which it believes will render WCS spectrum
technologically infeasible for mobile operations, WCS licensees will probably
not present significant competition to the Company's operations for the
foreseeable future. Other technological advances or regulatory changes in the
future may make available other alternatives to cellular service, thereby
creating additional sources of competition.
REGULATION
Federal Communications Commission Regulation. The Communications Act of 1934
(the "Communications Act") requires cellular system, paging system and
microwave station operators such as the Company to obtain authorization from
the FCC prior to constructing or operating their systems.
For cellular licensing purposes, the FCC divided the United States,
including Puerto Rico and other areas under the FCC's jurisdiction, into
separate geographic markets, known as MSAs and RSAs. Licenses have been issued
in all 306 MSAs and in all 428 RSAs. There are no pre-designated microwave
markets. Applicants may apply for microwave licenses anywhere they seek to
provide microwave services, provided that operation of the microwave facility
at that location will not cause interference to other parties.
When the initial phase of a cellular system has been constructed in an
authorized manner, the licensee is required to notify the FCC that
construction has been completed before it is authorized to offer commercial
service to the public. The licensee then is said to have "operating authority"
and is issued an operating license. The Company has obtained operating
authority for each of its currently operating cellular systems. Initial
licenses are granted for 10-year periods and are renewable upon application to
the FCC for periods of 10 years.
The Company's initial operating licenses for its systems were issued in 1988
through 1993. Licenses may be revoked and license renewal applications denied
for cause. Prior to the expiration of its license term, each
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cellular licensee seeking renewal must file an application. Other parties
seeking authorization to serve the licensee's market may also file competing
applications. The FCC has ruled that an incumbent licensee would receive a
"renewal expectancy" if, during its license term, (i) its performance has been
"substantial," defined as "sound, favorable, and substantially above a level
of mediocre service;" and (ii) it had substantially complied with applicable
FCC rules, policies, and the Communications Act. Under rules currently in
effect, in granting a license renewal, the FCC would compare competing
applications at a hearing in which the incumbent's renewal expectancy is the
most important factor. The FCC has also adopted rules which would award an
incumbent its license renewal and not require a full comparative hearing if
the incumbent qualifies for a renewal expectancy. The FCC may grant an
uncontested renewal application without conducting a comparative hearing or
finding a renewal expectancy. There can be no assurance that a license will be
renewed.
The FCC has adopted regulations regarding auctions for the award of radio
spectrum licenses. Pursuant to such rules, the FCC at any time may require
auctions for new or existing services prior to the award of any license.
Accordingly, the Company can give no assurance with respect to its continued
ability to procure additional frequencies or to expand existing services using
frequencies for which the Company is licensed into new geographic areas.
Under FCC rules, the authorized cellular service area for the Company in
each of its markets is referred to as the "cellular geographic service area"
or "CGSA." The boundaries of the CGSA are determined by a mathematical formula
that is a function of transmitting station effective radiated power and
antenna height. The CGSA may be coincident with, smaller than, or in some
cases larger than the related MSA or RSA boundary. The right to serve areas
which fall within the licensee's MSA or RSA but outside of its CGSA is
exclusive to such licensee for a period of five years from the grant of its
initial construction permit. As licensees serve such areas, their CGSAs will
be extended to cover the additional served areas inside the MSA or RSA and, in
some cases, area beyond the MSA/RSA boundary. Although overlapping service
areas are common, under rules adopted by the FCC in 1993, service area
extensions into the CGSA of a neighboring system on the same frequency block
must be withdrawn from such CGSA at the request of the neighboring licensee.
At the conclusion of the initial five-year construction period any entity,
including the licensee, may file with the FCC an application to serve the
"unserved areas," of that MSA or RSA which are outside of the licensee's CGSA;
subject to certain restrictions. The FCC has begun accepting and granting
applications for unserved areas pursuant to lottery and recently has adopted
rules for auctioning other unserved areas. The Company has determined that
there are no significant unserved areas within its licensed markets. There are
no unserved areas in Puerto Rico currently on the FCC's slate to be auctioned.
In a comprehensive rewrite of its rules applicable to cellular service,
effective in 1995, the FCC revised the rules to allow cellular carriers more
flexibility to operate their systems. For example, except in limited
circumstances (i.e., environmental concerns), licensees will only have to
notify the FCC of new or modified transmission facilities that result in an
extension outside of the licensees' authorized CGSA.
The Communications Act requires telecommunications common carriers to file
and maintain with the FCC tariffs describing rates, terms and conditions under
which their international telecommunications services are offered to the
public. Accordingly, the Company must file tariffs for international
telecommunications services that it proposes to offer. These tariff filings
qualify for streamlined regulations. Two subsidiaries of the Company have
filed tariffs for provision of international long distance resale services.
The FCC's rules also prohibit common carrier licensees from imposing
restrictions on the resale of service by third parties who purchase blocks of
mobile telephone numbers from an operational system and then resell them to
the public. The Company currently provides service to third party resellers.
The FCC recently extended this nondiscriminatory resale requirement to
broadband PCS and certain SMR licensees. Further, under this new policy, all
resale obligations for cellular, broadband PCS and SMR operators will
terminate five years after the date that the last group of initial PCS
licenses are granted.
On February 8, 1996, Congress enacted the Telecommunications Act of 1996
(the "1996 Act"), which effected a sweeping overhaul of the Communications
Act. In particular, the 1996 Act substantially amended Title II of the
Communications Act, which governs common carriers. The 1996 Act imposes a duty
on all
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telecommunications carriers including cellular to interconnect with the
facilities of other telecommunications carriers. Only incumbent local exchange
carriers ("LECs") are required to provide "direct" interconnection with their
facilities, however. In addition, the 1996 Act requires that interconnection
be the subject of good faith negotiations leading to voluntary agreements that
must be filed with and approved by state commissions. Moreover, the 1996 Act
establishes certain guidelines for the manner in which LECs may charge for
providing interconnection services (e.g., tandem switching, transport and
termination) and provides that LECs must pay wireless providers, including
cellular and paging operators, for termination of landline-originated calls.
Furthermore, provisions of the 1996 Act may qualify PRTC for a suspension of
certain interconnection obligations.
In exchange for opening their local loops to competition, the 1996 Act
permits the BOCs, which previously had been prohibited from providing
interLATA services (i.e., long distance services), to provide such services,
including, but not limited to, the provision of interLATA services in
connection with commercial mobile radio service ("CMRS"). In addition, the
1996 Act permits registered public utilities to provide cellular and other
telecommunications services through separate affiliates authorized by the FCC
as "exempt telecommunications companies."
As directed by the 1996 Act, in August 1996, the FCC issued comprehensive
rules regarding the introduction of competition into the local telephone
market. These rules address most aspects of the provision of competitive local
telephony services from both facilities-based and non-facilities-based
competitors, including cellular and paging operators. The rules address the
process by which potential competitors negotiate with incumbent telephone
companies for interconnection, the facilities that must be available for
interconnection, the use of components of the incumbents' networks (referred
to as "unbundled access"), the resale of services of others, and the pricing
of interconnection and other services and facilities used for offering
competitive local telephone services. The rules also provide that incumbent
LECs, such as the PRTC and the Virgin Islands Telephone Company, must begin
paying the Company and other wireless providers immediately for terminating
landline-originated traffic on the wireless facilities. In October 1996, after
an appeal by the BOC's and other incumbent local exchange carriers, the U.S.
Court of Appeals for the Eighth Circuit stayed certain aspects of the FCC's
rules (primarily affecting the pricing provisions) after arguments were made
that the FCC may have exceeded its jurisdiction. Two weeks later, the Eighth
Circuit lifted the stay with regard to some of the FCC's rules affecting
compensation for CMRS providers. In addition, numerous parties have sought
reconsideration of the FCC's rules. Going forward, the manner in which the FCC
changes these rules, whether due to the legal mandate of the Court or due to
changes it makes on reconsideration, may affect substantially the pace and
development of wireless services.
Notwithstanding the Eighth Circuit's stay of some of the FCC's regulations
regarding rates and terms for interconnection with incumbent LECs, the Company
has continued negotiations initiated on September 20, 1996 to replace its
existing interconnection agreement with the PRTC with an interconnection
agreement at rates, terms and conditions consistent with the 1996 Act. The
Company currently interconnects with the PRTC pursuant to an agreement that
does not reflect the rates, terms, and conditions that the Company is entitled
to under the 1996 Act. The current effort to negotiate a new agreement has
failed to produce agreement on all material terms, and consequently, pursuant
to the 1996 Act and the FCC's implementing regulations, the Company filed a
Petition for Arbitration with the Puerto Rico Telecommunications Regulatory
Board (the "Board") on February 27, 1997. The Board will commence arbitration
hearings on May 13, 1997 and is required to act on the Company's petition by
June 20, 1997. The results of any arbitration or further negotiations between
the Company and the PRTC cannot be predicted at this time.
Following enactment of the 1996 Act, no CMRS provider, including those owned
or affiliated with BOCs, are required to provide equal access to long distance
service providers. The 1996 Act, however, does permit the FCC to impose rules
requiring CMRS providers to afford subscribers unblocked access to a long
distance provider of their choice through the use of carrier identification
codes or other mechanisms, but only if the FCC determines that cellular and
other CMRS subscribers are being denied access to their chosen long distance
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providers and that such denial is contrary to the public interest. It cannot
be predicted whether the FCC will subsequently order cellular carriers and
other CMRS providers to provide such unblocked access.
The overall impact of the 1996 Act on the business of the Company is unclear
and will likely remain so for the foreseeable future. The Company may benefit
from reduced costs in acquiring required communications services, such as LEC
interconnection. However, other provisions of the 1996 Act relating to
interconnection, telephone number portability, equal access and resale could
subject the Company to increased competition.
Several of the Company Entities also hold point-to-point common carrier
microwave licenses to transport the Company's traffic. These licenses have
been issued by the FCC for specified terms, and the licensed facilities, as
well as proposed new microwave facilities, must be authorized by the FCC and
operated in accordance with the FCC regulations. FCC rules had provided for a
universal expiration date every 10 years for all common carrier microwave
licenses, regardless of when they had been issued, with the next expiration
occurring in February 2001. Under new rules that became effective in August
1996, licensees may select either a full 10-year license term dating from the
original issuance, modification or renewal of license or a term of less than
10 years to allow for consolidated renewal application filings. Microwave
renewal applications are not subject to comparative proceedings. There can be
no assurance that a license will be renewed.
Alien Ownership. Section 310(b) of the Communications Act of 1934, as
amended, places significant restrictions on alien ownership in and involvement
with any companies that use electromagnetic spectrum frequencies under the
FCC's broadcast or common carrier authority. Section 310(b)(3) of the Act
places an absolute prohibition on aliens owning or voting more than 20 percent
of the capital stock of any corporation holding such a license. Section
310(b)(4) prohibits aliens from owning or voting more than 25 percent of the
capital stock of any holding company of such a corporate licensee. The FCC has
statutory discretion to refrain from applying the holding company
proscriptions of Section 310(b)(4) in a particular case if it determines that
doing so would not adversely affect the public interest. Through examination
of a recent list of the record holders of the outstanding stock, the Company
is not aware of alien ownership of its outstanding stock that would cause it
to be in violation of the Communications Act. However, a large percentage of
the Common Stock is held in nominee name and, accordingly, the Company is not
aware of the citizenship of the actual beneficial owners of such shares.
The FCC has determined that it will apply an "effective competitive
opportunities" test in the exercise of its statutory discretion to permit
indirect alien ownership of more than a 25% interest in a common carrier
licensee. If the FCC finds that U.S. investors are permitted to own an
interest greater than 25% in a communications carrier offering similar
services in the alien investor's home market, it will generally permit that
alien to own an equivalent interest in a U.S. licensed common carrier. Other
factors, such as the promotion of competition in the U.S. market and national
security concerns, may affect this determination.
Puerto Rico and USVI Regulation. On September 12, 1996, the Governor of
Puerto Rico signed into law Puerto Rico Bill 1500, the Puerto Rico
Telecommunications Act of 1996 ("P.R. Telecom Act"). The P.R. Telecom Act
created the Board. The Board has primary regulatory jurisdiction in Puerto
Rico over all telecommunications services, all service providers, and all
persons with a direct or indirect interest in said services or providers. On
October 17, 1996, the three members of the Board, having been selected by the
Governor of Puerto Rico, were sworn in. Among other things, the P.R. Telecom
Act provides the Board with the power to guarantee the availability of
universal service, ensure the reliability of telecommunications services,
guarantee services to rural areas, and promote competition. In this regard,
the law requires all providers of telecommunications services, except
commercial mobile radio services providers, to obtain certification to do
business in Puerto Rico and directs the Board to adopt regulations specifying
the form, contents, and procedures for such certification. Entities must be
certified to obtain access to government-owned property or notice of proposed
Board regulations. In addition, the P.R. Telecom Act provides interconnection
to their facilities at any technically feasible point in their networks at
cost-based rates. The P.R. Telecom Act provides detailed instructions
regarding the procedures for interconnection between the PRTC and other
telecommunications
51
<PAGE>
providers. Finally, the P.R. Telecom Act requires telecommunications providers
to submit fee and price lists to the Board and gives the Board jurisdiction to
impose fines if rates to end users are not cost-based.
The Company and two other telecommunications providers in Puerto Rico have
filed petitions with the FCC alleging that the P.R. Telecom Act constitutes
impermissible regulation of CMRS providers by enacting numerous statutory
provisions that operate as barriers to entry and to the continued
participation of CMRS providers in Puerto Rico. These companies argued that
the P.R. Telecom Act violates the Omnibus Budget Reconciliation Act of 1993
("1993 Budget Act") which prohibits states, including Puerto Rico and the
USVI, from regulating rates charged for cellular service unless and until the
state files with the FCC, and the FCC grants, a petition demonstrating that
such rate regulation is necessary to protect subscribers adequately from
unjust and unreasonable rates or rates that are unjustly or unreasonably
discriminatory. The FCC is required to act on any such petition within nine
months from the date it is filed. Neither Puerto Rico nor the USVI have filed
any such petition. In addition, the petitions allege that the P.R. Telecom Act
permits the Board to regulate the entry of CMRS providers into the Puerto Rico
market, in violation of the 1993 Budget Act's prohibition on state entry
regulation. Similarly, the petitions assert that the P.R. Telecom Act is
contrary to the 1996 Act, which requires the FCC to preclude enforcement of
state laws and regulations that prohibit or have the effect or prohibiting the
ability of any entity to provide any interstate or intrastate
telecommunications service. The FCC has initiated a proceeding regarding these
requests for preemption of the P.R. Telecom Act. At this time, the Company is
unable to predict the outcome of this proceeding.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act or the 1996 Act or the regulations and
policies of the FCC promulgated thereunder or of all the provisions of the
applicable Puerto Rico and USVI local laws, regulations or policies that
relate to cellular telecommunications services.
Other Regulation; Safety. In addition to FCC and other regulatory approvals
discussed above, the siting and construction of the cellular transmitter
towers and antennas are subject to certain FAA regulations. The Company has
obtained FAA clearance for the construction of antenna structures where such
approval is necessary. The siting and construction of cellular communications
facilities requires land use and construction approval in Puerto Rico and in
the USVI. In the past the Company has experienced delays in receiving the
required approvals in Puerto Rico. The 1996 Act prohibits the FCC from
preempting local and state regulations of the siting and construction of
antenna towers for commercial mobile radio service providers except in certain
limited circumstances.
Media reports have suggested that certain RF emissions from portable
cellular telephones might be linked to cancer. The Cellular Telecommunications
Industry Association, as a result of industry concern, has asked the Federal
Food and Drug Administration and the Environmental Protection Agency to
appoint a panel of experts to review and revalidate the previously existing
research that established the safety of cellular telephones, and which had
resulted in an FCC determination in 1987 that microwave and cellular radio
transmissions did not pose a material health hazard. The FCC recently adopted
new standards governing the emission of electromagnetic frequencies, including
those used by cellular systems, which are scheduled to become effective in
September 1997. In certain respects, these standards are more stringent than
existing regulations. While the rules impose more restrictive standards on
radio frequency emissions from low power devices such as portable cellular
telephones, the Company believes that all cellular telephones currently
marketed and in use comply with those standards.
CUSTOMER DEPENDENCE AND SEASONALITY
The Company is not dependent upon any single customer for any significant
portion of its business. The Company's business, as well as the cellular
communications industry, is not generally characterized as having a material
seasonal element and it is not expected to become seasonal in the foreseeable
future.
52
<PAGE>
EMPLOYEES
As of March 31, 1997, the Company and its subsidiaries had an aggregate of
approximately 740 employees. No employees are represented by any labor
organization. The Company believes that its relationship with its employees is
excellent.
INTERCOMPANY ADMINISTRATION AND MANAGEMENT AGREEMENTS
Under the terms of the Administration and Management Agreements, each of the
Company Entities agreed to share, on an allocated basis, all the direct and
indirect costs associated with the operation of the Company's Puerto Rico
cellular system. Currently, Services is the principal operating subsidiary of
the Company that operates and manages the Puerto Rico cellular system. The
purpose of operating the Company's cellular system in this fashion is to
enable a single company to efficiently manage multiple cellular systems. The
Company Entities hold the various FCC and other licenses and permits necessary
to operate the Company's Puerto Rico cellular system. The Administration and
Management Agreements require the Company Entities to reimburse Services for
their allocable share of system expenses and to make additional payments to
Services based on allocable shares of revenue and capital costs pursuant to
agreed formulas. Such payments include a "Capital Usage Fee" based on 3% of
direct and allocated capital costs and an "Administrative Fee" equal to 2% of
allocated revenues of the Company Entities. Beginning January 1, 1997, the
Administrative Fee is equal to 5% of allocated revenues of the Company
Entities. These fees may be subject to adjustment from time to time. There is
no financial effect on the Company from Administration and Management
Agreements because the agreements only allocate costs among Services and the
Company Entities.
PROPERTY
Certain of the Company's subsidiaries lease office space, sales and service
centers and warehouse space in Puerto Rico and in the USVI. In addition, the
Company Entities and other subsidiaries either own or lease transmitter sites
and lease a cellular switch site. The loss of any of these leases, either
because of a failure to obtain a renewal of a lease or for any reason not
known or anticipated by the Company, could have an adverse effect on the
Company's cellular operations until a substitute site could be found.
The Company believes that the properties that are currently under lease or
owned by the Company are adequate to serve its present business operations and
its goals of providing continuous coverage throughout Puerto Rico and the
USVI, although the Company may require additional properties for new cell
sites and sales and service centers as demand for cellular service increases.
See the Notes to the Company's Consolidated Financial Statements for
information concerning lease commitments.
LEGAL PROCEEDINGS
The Company is involved in various disputes, arising in the ordinary course
of business, which may result in pending or threatened litigation. The
Company's management expects no material adverse effect on the Company's
financial condition to result from these matters.
53
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF CCPR*
The directors and executive officers of CCPR and their ages and positions
with CCPR are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
George S. Blumenthal.. 53 Chief Executive Officer, Treasurer and Chairman
of the Board of Directors (Principal Executive
Officer)
J. Barclay Knapp...... 40 President and Director (Principal Operating and
Financial Officer)
Richard J. Lubasch.... 50 Senior Vice President--General Counsel and
Secretary
Gregg Gorelick........ 38 Vice President--Controller (Principal
Accounting Officer)
Stephen M. Shapiro.... 50 Senior Vice President--General Manager
Jose J. Davila........ 40 Vice President--Finance and Administration
Sidney R. Knafel...... 66 Director
Del Mintz............. 70 Director
Alan J. Patricof...... 62 Director
Warren Potash......... 65 Director
</TABLE>
* Each of the executive officers of CCPR holds the same position at Services,
except for Mr. Shapiro who is the President of Services. The directors of
Services are Messrs. Blumenthal, Knapp and Lubasch.
- ---------------------
George S. Blumenthal has been Chairman, Treasurer and a director of CCPR
from and prior to the Distribution and was appointed Chief Executive Officer
in March 1994. In addition, Mr. Blumenthal is Chairman, Treasurer and a
director of NTL Incorporated ("NTL"), which was formerly known as
International CableTel Incorporated. Mr. Blumenthal is also a director of
Andover Togs, Inc. Mr. Blumenthal was Chairman, Treasurer and a director of
Cellular Communications International, Inc. ("CCII") from its organization
until April 1994. Mr. Blumenthal was also Chairman, Treasurer and a director
of CCI, which positions he held from CCI's founding in 1981 until its merger
in 1996 into a subsidiary of AirTouch Communications, Inc. (the "CCI Merger").
J. Barclay Knapp was appointed President of CCPR in March 1994 and has been
Executive Vice President, Chief Operating Officer, Chief Financial Officer and
a director of CCPR from and prior to the Distribution. He is Executive Vice
President, Chief Operating Officer and a director of CCII and he is President,
Chief Executive Officer, Chief Financial Officer and a director of NTL. Mr.
Knapp was also Executive Vice President, Chief Operating Officer, Chief
Financial Officer and a director of CCI until the CCI Merger.
Richard J. Lubasch has been CCPR's Senior Vice President--General Counsel
and Secretary from the date of the Distribution. Mr. Lubasch is also Senior
Vice President--General Counsel and Secretary of CCII and NTL, as well as
Treasurer of CCII. Mr. Lubasch was Vice President, General Counsel and
Secretary of CCI from July 1987 until the CCI Merger.
Gregg Gorelick has been CCPR's Vice President--Controller from the date of
the Distribution. Mr. Gorelick is also Vice President--Controller of NTL and
CCII. From 1981 to 1986 he was employed by Ernst & Whinney (now known as Ernst
& Young LLP). Mr. Gorelick is a certified public accountant and was Vice
President--Controller of CCI from 1986 until the CCI Merger.
54
<PAGE>
Stephen M. Shapiro is President of Services having served as its Senior Vice
President-General Manager since 1993. In May 1995, Mr. Shapiro was appointed
Senior Vice President--General Manager of CCPR. From 1991 to 1993 he was
Senior Vice President--General Manager of OCOM Corporation, NTL's predecessor.
Jose J. Davila has been Vice President--Finance of Services since July 1992.
In May 1995, Mr. Davila was appointed Vice President--Finance and
Administration of CCPR. From 1990 to 1992, he was Vice President for Financial
Affairs of the Ana G. Mendez Foundation and from 1984 to 1990 held the
positions of General Auditor and Vice President--Controller of Banco de Ponce,
the second largest state bank in Puerto Rico at that time. From 1978 to 1984
he was employed by Peat, Marwick, Mitchell & Co.
Sidney R. Knafel, a director of CCPR since the Distribution, has been
Managing Partner of SRK Management Company, a private investment concern,
since 1981. In addition, Mr. Knafel is Chairman of Insight Communications,
Inc. and BioReliance Corporation. Mr. Knafel is also a director of General
American Investors Company, Inc., IGENE Biotechnology, Inc., CCII, NTL and
some privately owned companies.
Del Mintz, a director of CCPR from the date of the Distribution, is Chairman
of the Board and Chief Executive Officer of Tele Trak, Inc. and Cleveland
Mobile Radio Sales, Inc., companies providing telephone answering and radio
communications services. Mr. Mintz has held similar positions with the
predecessors of these companies since June 1967. Mr. Mintz is President of
several other companies, and was President and a principal stockholder of
Cleveland Mobile Cellular Telephone, Inc. before such company was acquired by
a merger with CCI's predecessor in May 1985. Mr. Mintz is also a director of
CCII, NTL and several privately owned companies.
Alan J. Patricof, a director of CCPR from the date of the Distribution, is
Chairman of Patricof & Co. Ventures, Inc., a venture capital firm he founded
in 1969. Mr. Patricof also serves as a director of CCII, NTL and other
privately owned companies.
Warren Potash has been a director of CCPR from the date of the Distribution.
Mr. Potash retired in 1991 as President and Chief Executive Officer of the
Radio Advertising Bureau, a trade association, a position he held since
February 1989. Prior to that time and beginning in 1986, he was President of
New Age Communications, Inc., a communications consultancy firm. Until his
retirement in 1986, Mr. Potash was a Vice President of Capital Cities/ABC
Broadcasting, Inc., a position he held since 1970. Mr. Potash is also a
director of CCII and NTL.
Executive officers of CCPR and Services are elected annually by their
respective Board of Directors and serve until their successors are duly
elected and qualified.
COMPENSATION AND OPTION COMMITTEE
Messrs. Knafel and Mintz serve as members of CoreComm's board of directors'
Compensation and Option Committee, which reviews and makes recommendations
regarding annual compensation for CCPR's and Services' officers. Messrs.
Patricof and Potash serve as members of CoreComm's board of directors' Audit
Committee, which oversees the Company's financial reporting process on behalf
of the Company's Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation and Option Committee of CoreComm's board of
directors (Messrs. Knafel and Mintz) was at any time an officer or employee of
CoreComm/CCPR or Services.
No executive officer of CoreComm/CCPR or Services serves as a member of the
board of directors or compensation committee of any entity which has one or
more executive officers serving as a member of CoreComm's board of directors
or Compensation and Option Committee.
55
<PAGE>
DIRECTOR AND EXECUTIVE COMPENSATION
The following table discloses, for CCPR's Chief Executive Officer and the
four other most highly paid executive officers in 1996, compensation for the
years ended December 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE*
<TABLE>
<CAPTION>
LONG-TERM
COMPEN-
SATION
AWARDS
-------------
ANNUAL OTHER COMMON
COMPENSATION** ANNUAL STOCK ALL OTHER
----------------------- COMPENSA- UNDERLYING COMPENSA-
NAME AND PRINCIPAL
POSITIONS YEAR SALARY($) BONUS($) TION($)(1) OPTIONS(#)(2) TION($)(3)
------------------ ---- --------- -------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
George S. Blumenthal.... 1996 30,000 -- -- -- --
Chairman, Chief 1995 25,000 75,000 -- -- --
Executive Officer and
Treasurer 1994 18,000 -- -- 250,000 --
J. Barclay Knapp........ 1996 30,000 -- -- -- --
President, Chief
Operating Officer 1995 25,000 50,000 -- -- --
and Chief Financial
Officer 1994 18,000 -- -- 250,000 --
Richard J. Lubasch...... 1996 20,000 -- -- 20,000 --
Senior Vice President--
General 1995 16,000 -- -- 20,000 --
Counsel and Secretary 1994 12,000 -- -- 25,000 --
Stephen M. Shapiro...... 1996 166,250 113,200 52,500(a) 50,000 2,000
Senior Vice President--
General 1995 151,250 101,500 67,900(b) 50,000 2,000
Manager 1994 138,750 84,300 44,100(c) 40,000 2,000
Jose J. Davila.......... 1996 120,000 66,000 7,600(d) 20,000 2,000
Vice President--Finance
and 1995 107,000 56,800 -- 20,000 2,000
Administration 1994 103,750 49,300 -- 15,000 2,000
</TABLE>
- ---------------------
* CCI provided management, financial and legal services to CCPR until the CCI
Merger. Amounts charged to CCPR by CCI consisted of salaries and indirect
costs allocated to CCPR. For the years ended December 31, 1996, 1995 and
1994, CCI charged CCPR approximately $429,000, $458,000 and $456,000,
respectively. In August 1996, after the CCI Merger, NTL commenced providing
management, financial and legal services to CCPR. In 1996, NTL charged CCPR
$207,000. It is not practicable to determine the amounts of these expenses
that would have been incurred had CCPR operated as an unaffiliated entity.
However, in the opinion of management of CCPR, the allocation method is
reasonable. The named executives had received salaries from CCI and now
receive salaries from NTL and spend portions of their time providing
executive management to CCPR and Services.
** All amounts for salary and bonus paid to Messrs. Blumenthal, Knapp and
Lubasch are paid by CoreComm. All amounts for salary and bonus paid to
Messrs. Shapiro and Davila are paid by Services.
(1) Other annual compensation reflects perquisites as follows:
(a) housing allowance of $38,400 and car allowance of $14,100.
(b) housing allowance of $38,400, car allowance of $11,500 and tax
equalization of $18,000.
(c) housing allowance of $36,200 and car allowance of $7,900.
(d) car allowance of $7,600.
(2) Options and securities underlying such options are options to purchase
shares and shares of CoreComm's Common Stock.
(3) All other compensation reflects a match to a defined contribution plan.
56
<PAGE>
OPTION GRANTS TABLE
The following table provides information on stock option grants during 1996
to the named executive officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
------------------------------------------------- -----------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION 5%($) 10%($)
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE $44.39 $70.69
---- ------------- ------------ ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
George S. Blumenthal.... -- -- -- -- -- --
J. Barclay Knapp........ -- -- -- -- -- --
Richard J. Lubasch...... 20,000 7.97% 27.25 03/25/06 342,805 868,730
Stephen M. Shapiro...... 50,000 19.92 27.25 03/25/06 857,013 2,171,825
Jose J. Davila.......... 20,000 7.97 27.25 03/25/06 342,805 868,730
</TABLE>
- ---------------------
(1) All options were granted on March 26, 1996 at an exercise price equal to
the closing price of the Common Stock on Nasdaq on such date; 20% were
exercisable upon issuance, 20% became exercisable on January 1, 1997 and
an additional 20% will become exercisable on each of January 1, 1998, 1999
and 2000. Upon a change of control of CoreComm all unvested options become
fully vested and exercisable. Options and securities underlying such
options are options to purchase shares and shares of CoreComm's Common
Stock.
(2) The amounts shown in these columns are the potential realizable value of
options granted at assumed rates of stock price appreciation (5% and 10%)
specified by the Commission, and have not been discounted to reflect the
present value of such amounts. The assumed rates of stock price
appreciation are not intended to forecast the future appreciation of the
Common Stock.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table presents the value at December 31, 1996 of unexercised
in-the-money options held by each of the named executive officers. None of the
named executive officers exercised options during 1996.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
EXERCISABLE(E)/ EXERCISABLE(E)/
NAME UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ---------------------- -----------------------
<S> <C> <C>
George S. Blumenthal....... 245,089 (E) 2,999,699 (E)
5,000 (U) 10,625 (U)
J. Barclay Knapp........... 221,478 (E) 2,538,687 (E)
5,000 (U) 10,625 (U)
Richard J. Lubasch......... 78,095 (E) 781,655 (E)
1,090 (U) 3,824 (U)
Stephen M. Shapiro......... 34,752 (E) 254,810 (E)
6,000 (U) 12,750 (U)
Jose J. Davila............. 12,000 (E) 25,500 (E)
3,000 (U) 6,375 (U)
</TABLE>
- ---------------------
(1) Based on the closing price on Nasdaq on December 31, 1996 of $19.75.
57
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL
STOCKHOLDERS AND MANAGEMENT
All of the shares of CCPR are beneficially owned by CoreComm, and all of the
shares of Services are beneficially owned by CCPR. See "The Restructuring."
The following table sets forth certain information regarding the beneficial
ownership of CoreComm's Common Stock, as of June 11, 1997, by (i) each
executive officer and director of CCPR, (ii) all of CCPR's directors and
executive officers as a group and (iii) each beneficial owner of 5% or more of
the Common Stock. CoreComm became a successor issuer to CCPR pursuant to a
Form 8-B filed with the Commission on February 12, 1997.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
------------------------------------------
PRESENTLY
EXECUTIVE OFFICERS, DIRECTORS COMMON EXERCISABLE
AND PRINCIPAL STOCKHOLDERS STOCK OPTIONS(1) TOTAL PERCENT(2)
----------------------------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C>
George S. Blumenthal(3)............. 24,173 450,089 474,262 3.41%
J. Barclay Knapp.................... 9,298 426,478 435,776 3.14
Richard J. Lubasch(4)............... 3,282 120,685 123,967 *
Stephen M. Shapiro(5)............... 3,150 92,752 95,902 *
Jose J. Davila...................... 30 37,000 37,030 *
Gregg Gorelick...................... 18,837 40,904 59,741 *
Stanton N. Williams................. 41 62,375 62,416 *
Ted H. McCourtney(6)................ 10,355 26,623 36,978 *
Del Mintz(7)........................ 212,286 26,623 238,909 1.77
Sidney R. Knafel(8)................. 199,249 26,623 225,872 1.68
Alan J. Patricof(9)................. 14,616 26,623 41,239 *
Warren Potash....................... 542 24,019 24,561 *
All directors and officers as a
group (12 in number)............... 495,859 1,360,794 1,856,653 12.53
The Equitable Companies
Incorporated(10)................... 760,333 -- -- 5.65
787 Seventh Avenue
New York, NY 10019
Lazard Freres & Co., LLC(11)........ 681,883 -- -- 5.07
30 Rockefeller Plaza
New York, NY 10020
Lehman Brothers Holdings Inc.(12)... 1,104,663 -- -- 8.21
3 World Financial Center
New York, NY 10285
Southeastern Asset Management,
Inc.(13)........................... 1,430,000 -- -- 10.63
Longleaf Partners Small-Cap Fund
6075 Poplar Ave.
Memphis, TN 38119
</TABLE>
- ---------------------
* Represents less than one percent.
(1) Includes shares of Common Stock purchasable upon the exercise of options
which are presently exercisable or become exercisable in the next 60 days
("Presently Exercisable Options").
(2) Includes Common Stock and Presently Exercisable Options.
(3) Includes 1,980 shares of Common Stock held by trusts for the benefit of
Mr. Blumenthal's children.
58
<PAGE>
(4) Includes 104 shares of Common Stock owned by Mr. Lubasch as custodian for
his child as to which shares Mr. Lubasch disclaims beneficial ownership.
(5) Includes 2,000 shares of Common Stock owned by Mr. Shapiro's children, as
to which shares Mr. Shapiro disclaims beneficial ownership.
(6) Includes 520 shares of Common Stock held by trusts for the benefit of Mr.
McCourtney's children, as to which shares Mr. McCourtney disclaims
beneficial ownership.
(7) Includes 20,732 shares of Common Stock owned by Mr. Mintz's children or by
Mr. Mintz's children as trustees for their children and 25 shares owned by
Mr. Mintz's wife, as to which shares Mr. Mintz disclaims beneficial
ownership.
(8) Includes 100,449 shares of Common Stock owned by trust accounts for the
benefit of, Mr. Knafel's children, as to which shares Mr. Knafel disclaims
beneficial ownership. An additional 44,617 shares are owned by an adult
child of Mr. Knafel, as to which shares Mr. Knafel disclaims beneficial
ownership.
(9) Includes 65 shares of Common Stock owned by Mr. Patricof's wife and 1,557
shares owned by, or in a trust account for the benefit of, Mr. Patricof's
children as to which shares Mr. Patricof disclaims beneficial ownership.
(10) Based solely upon a Schedule 13G (Amendment No. 4), dated February 12,
1997, filed by The Equitable Companies Incorporated with the Commission.
(11) Based solely upon a Schedule 13G (Amendment No. 1), dated April 7, 1997,
filed by Lazard Freres & Co., LLC with the Commission.
(12) Based solely upon Schedule 13D, dated April 25, 1997, filed by Lehman
Brothers Holdings Inc. with the Commission. Included in these holdings is
a 6.91% interest in CoreComm held by Leham Brothers Finance S.A. due to
two three-month swap transactions entered into with Baron Asset Fund and
Baron Growth and Income Fund that terminate on July 30, 1997 (as reported
by Ronald Baron in a Schedule 13-D Amendment filed on May 1, 1997 with
the Commission).
(13) Based solely upon a Schedule 13G, dated June 10, 1997, filed jointly by
Southeastern Asset Management, Inc. and Longleaf Partners Small-Cap Fund
with the Commission.
59
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From August 16, 1996 to December 31, 1996, NTL has provided management,
financial and legal services to the Company. Prior to August 16, 1996, such
services were provided to the Company by CCI. Amounts charged to the Company
include direct costs where identifiable and allocated corporate overhead based
upon the amount of time incurred on Company business by the common officers
and employees of NTL (or, prior to August 16, 1996, CCI) and the Company.
Amounts charged to the Company included in general and administrative expenses
during the years ended December 31, 1996, 1995 and 1994 were $636,000,
$458,000 and $456,000, respectively. It is not practicable to determine the
amount of expenses that would have been incurred had the Company operated as
an unaffiliated entity. However, in the opinion of management of the Company,
the allocation method is reasonable.
On January 31, 1997, the date of the Restructuring, CoreComm and CCPR
entered into an agreement (the "Administrative Services Agreement") providing
for the allocation to CCPR of fixed and employee expenses of CoreComm
(including those payments due to NTL under the arrangements described in the
preceding paragraph) based upon time records of work performed by employees of
CoreComm for CCPR.
In addition, on January 31, 1997, CoreComm, CCPR and Services entered into a
tax sharing agreement (the "Tax Sharing Agreement") which provides that CCPR
and Services will pay to CoreComm (or to CCPR or Services, as appropriate) an
amount which would equal the amount of taxes for which CCPR and Services would
be liable if CCPR and Services were not part of the CoreComm consolidated
group.
60
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The New Notes offered hereby will be issued by Services under an Indenture,
dated as of January 31, 1997 (the "Indenture"), by and among Services, CCPR
and The Chase Manhattan Bank, as trustee (the "Trustee"). The terms of the New
Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The New Notes are subject to all such terms, and
Holders of New Notes are referenced to the Indenture and the Trust Indenture
Act for a statement thereof. The following summaries of certain provisions of
the Indenture are summaries only, do not purport to be complete and are
qualified in their entirety by reference to all of the provisions of that
document, a copy of which Indenture and the form of Notes are filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Indenture. Wherever particular provisions of
the Indenture are referred to in this summary, such provisions are
incorporated by reference as a part of the statements made and such statements
are qualified in their entirety by such reference.
The Notes are general unsecured obligations of Services, subordinated in
right of payment to all other existing and future Senior Debt of Services.
Services' payment obligations under the Notes are fully and unconditionally
guaranteed (the "Guarantee") on a senior subordinated basis by CCPR. As of
April 28, 1997, neither Services nor CCPR had any Senior Debt. However, CCPR
and its Subsidiaries (including Services) are considering entering into a
credit agreement with one or more banks. The Indenture permits Services, CCPR
and (under limited circumstances) its Subsidiaries, to incur additional Senior
Debt, subject to certain limitations, and Services, CCPR and its Subsidiaries
expect from time to time to incur additional indebtedness, including Senior
Debt, subject to such limitations. See "--Guarantee," "--Subordination" and
"--Certain Covenants--Limitation on Incurrence of Additional Indebtedness."
The New Notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 and integral multiples thereof.
The New Notes will mature on February 1, 2007. The New Notes will bear
interest at the rate per annum stated on the cover page of this Prospectus
from the most recent date to which interest has been paid on the Old Notes or,
if no interest has been paid on the Old Notes, from January 31, 1997, payable
semi-annually on August 1 and February 1 of each year, commencing August 1,
1997 to the persons in whose names such New Notes are registered at the close
of business on the July 15 or January 15 preceding such Interest Payment Date.
Accordingly, registered Holders of New Notes on the relevant record date for
the first interest payment date following the consummation of the Exchange
Offer will receive interest accruing from the most recent date to which
interest has been paid or, if no interest has been paid, from January 31,
1997. Old Notes accepted for exchange will cease to accrue interest from and
after the date of consummation of the Exchange Offer. Holders whose Old Notes
are accepted for exchange will not receive any payment in respect of interest
on such Old Notes otherwise payable on any interest payment date the record
date for which occurs on or after the consummation of the Exchange Offer.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
The Indenture does not contain provisions which would afford Holders of the
New Notes protection in the event of a decline in Services' credit quality
resulting from highly leveraged or other similar transactions involving
Services.
Principal, premium, if any, and interest on the New Notes will be payable,
and, subject to the following provisions, the New Notes may be presented for
registration of transfer or exchange, at the office or agency of Services
maintained for such purpose, which office or agency shall be maintained in the
Borough of Manhattan of the City of New York. At the option of Services,
payment of interest may be made by check mailed to the Holders of the New
Notes at the addresses set forth upon the registry books of Services. No
service charge will
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be made for any registration of transfer or exchange of New Notes, but
Services may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Until otherwise
designated by Services, its office or agency will be the corporate trust
office of the Trustee presently located at 450 West 33rd Street, New York, New
York 10001, c/o Corporate Trust Department.
Old Notes and New Notes will be treated as a single class of securities
under the Indenture.
REDEMPTION
Optional Redemption
Except as provided below, Services will not have the right to redeem any
Notes prior to February 1, 2002. On or after February 1, 2002, Services will
have the right to redeem all or any part of the Notes in cash at the
redemption prices (expressed as a percentage of the aggregate principal amount
thereof) set forth below, in each case plus accrued and unpaid interest to the
applicable Redemption Date (subject to the right of Holders of record on the
relevant record date to receive interest due on an Interest Payment Date that
is on or prior to the redemption date) if redeemed during the 12-month period
beginning February 1, of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2002................................................................. 105.000%
2003................................................................. 103.333%
2004................................................................. 101.667%
2005 and thereafter.................................................. 100.000%
</TABLE>
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis or in such other manner as
it deems appropriate and fair. The Notes may be redeemed in part in multiples
of $1,000 only.
In addition, in the event of the first to occur prior to February 1, 2000 of
(i) a public offering by Services or CCPR of Capital Stock (other than
Disqualified Capital Stock) for gross proceeds of $50 million or more or (ii)
a sale or series of related sales by Services or CCPR of its Common Stock to
one or more Strategic Equity Investors in a transaction not involving a Change
of Control for an aggregate purchase price of $35 million or more (a
"Strategic Equity Investor Sale"), Services may, at its option, use all or any
portion of the net proceeds thereof to redeem up to a maximum of 33 1/3% of
the original aggregate principal amount at maturity of the Notes at a
redemption price equal to 109% of the principal amount of the Notes plus
accrued and unpaid interest (determined at the Redemption Date); provided,
however, that such redemption may be effected only to the extent that not less
than 66 2/3% of the original aggregate principal amount at maturity of the
Notes shall remain outstanding immediately after such redemption. Any such
redemption may be effected only once and must be effected upon not less than
30 nor more than 60 days' notice given within 30 days following such public
equity offering or the most recent such sale to a Strategic Equity Investor,
as the case may be, provided, however, that if as a result of the same
transaction, Services is required to make an Asset Sale Offer, pursuant to the
covenant "Limitation on Asset Sales and Sales of Restricted Subsidiary Stock,"
concurrently with its making of a Strategic Equity Investor Sale, Services
shall make the Asset Sale Offer no later than 30 days following such Strategic
Equity Investor Sale and, if such Asset Sale Offer is made, any redemption
from the Strategic Equity Investor Sale must be effected upon not less than 30
nor more than 60 days' notice given within 30 days following the consummation
of the Asset Sale Offer.
Mandatory Redemption; Repurchase upon Change of Control Triggering Event or
Certain Asset Sales
Services is not required to make any mandatory redemption or sinking fund
payments with respect to the Notes. However, upon the occurrence of a Change
of Control Triggering Event, Services will be obligated to make an offer to
purchase all outstanding Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest thereon to the date of
purchase and as a result of an Asset Sale, Services may be obligated to make
an offer to purchase all or a portion of the outstanding Notes at a price
equal to 100% of the
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principal amount thereof, plus accrued and unpaid interest thereon to the date
of purchase. See "--Change of Control" and "--Certain Covenants--Limitation on
Asset Sales and Sales of Restricted Subsidiary Stock," respectively.
Selection; Effect of Redemption Notice
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate; provided, however that no Note of $1,000 in principal amount at
maturity or less shall be redeemed in part. If any Note is to be redeemed in
part only, the notice of redemption relating to such Note shall state the
portion of the principal amount at maturity thereof to be redeemed. A new Note
in principal amount at maturity equal to the unredeemed portion thereof will
be issued in the name of the Holder thereof upon cancellation of the original
Note. Upon giving of any redemption notice, the interest on Notes called for
redemption will cease to accrue from and after the date fixed for redemption
(unless Services defaults in providing the funds for such redemption) and such
Notes will then cease to be outstanding.
GUARANTEE
Services' payment obligations under the Notes are fully and unconditionally
guaranteed by CCPR. The Guarantee is subordinated to the prior payment in full
of all Senior Debt of CCPR and the amounts for which CCPR are liable under the
guarantee issued from time to time with respect to Senior Debt.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes is
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full in cash or Cash Equivalents of all Obligations with respect to
Senior Debt of Services, whether outstanding on the date of the Indenture or
thereafter incurred.
The payment of all Obligations under the Guarantee is subordinated in right
of payment, as set forth in the Indenture, to the prior payment in full in
cash or Cash Equivalents of all Obligations with respect to Senior Debt of
CCPR, whether outstanding on the date of the Indenture or thereafter incurred.
Upon any payment or distribution to creditors of Services or CCPR in a
liquidation or dissolution of Services or CCPR, as the case may be, in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to Services, CCPR or their respective properties, an assignment for
the benefit of creditors or any marshalling of Services' or CCPR's assets and
liabilities, the holders of Senior Debt will be entitled to receive payment in
full in cash or Cash Equivalents of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Debt whether or not such
interest is an allowed claim under applicable law) before the Holders of Notes
will be entitled to receive any payment with respect to the Notes or the
Guarantee, and until all Obligations with respect to Senior Debt are paid in
full in cash or Cash Equivalents, any distribution to which the Holders of
Notes would be entitled shall be made to the holders of Senior Debt (except
that Holders of Notes may receive Permitted Junior Securities and any other
Permitted Junior Securities issued in exchange for any Permitted Junior
Securities and any payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance").
Services and CCPR also may not make any payment or distribution upon or in
respect of the Notes or the Guarantee (except in such Permitted Junior
Securities, Permitted Junior Securities issued in exchange for such Permitted
Junior Securities or from the trust described under "--Legal Defeasance and
Covenant Defeasance" and except for Capital Stock of Services or a successor
entity that is not Disqualified Capital Stock of Services or such successor
entity) or make any deposit to the trust described under "--Legal Defeasance
and Covenant Defeasance" if (i) a default in the payment of the principal of,
premium, if any, or interest on Designated Senior Debt occurs and is
continuing or (ii) any other default occurs and is continuing with respect to
Designated Senior Debt that permits holders (or the authorized agent or
representative of such holders) of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a notice
of such default (a "Payment Blockage Notice") from Services, CCPR or the
holders of any Designated Senior Debt. Payments on the Notes or the Guarantee
may and shall be resumed (a) in the case of a payment default, upon the date
on
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which such default is cured or waived and (b) in case of a nonpayment default,
the earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage may be commenced unless and
until (i) 360 days have elapsed since the initial effectiveness of the
immediately prior Payment Blockage Notice; provided that if any Payment
Blockage Notice is delivered by the holders of Designated Senior Debt other
than Senior Debt under the Credit Agreement, the holders of Senior Debt under
the Credit Agreement may give another Payment Blockage Notice within such 360
day period so long as the total number of days during which a Payment Blockage
Notice is in effect during such 360 day period does not exceed 179 days and
(ii) all scheduled payments of principal, premium, if any, and interest on the
Notes that have come due have been paid in full in cash. No nonpayment default
that existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice unless such default has been cured or waived for a period of
not less than 90 consecutive days.
The Indenture further requires that Services will promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of Services or CCPR who are holders of Senior Debt. On April 28,
1997, neither Services nor CCPR had any Senior Debt. The Indenture limits,
subject to certain financial tests, the amount of additional Indebtedness,
including Senior Debt, that Services, CCPR and their subsidiaries can incur.
See "--Certain Covenants--Limitation on Incurrence of Additional
Indebtedness."
At present, Services is the principal operating subsidiary of the Company
that operates and manages a Puerto Rico cellular system. The Company Entities
own or control FCC cellular licenses for Puerto Rico, and the Additional
Company Entities operate a paging business in Puerto Rico and cellular and
paging businesses in the USVI. As of March 31, 1997, the Company Entities and
the Additional Company Entities had $3.7 million of trade and other
indebtedness. Indebtedness of the Company Entities and the Additional Company
Entities would rank prior to the claim of the holders of the Notes and the
Guarantee. At present, neither Services nor CCPR or their subsidiaries have
any secured indebtedness that is outstanding. As of March 31, 1997, Services
and CCPR had in the aggregate approximately $22.9 million of indebtedness that
ranks pari passu with the obligations of the Notes and the Guarantee.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control Triggering Event, each Holder
shall have the right to require Services to repurchase its Notes in cash
pursuant to the offer described below (the "Change of Control Offer") at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest thereon to the date of purchase (the "Change of Control
Payment"). Services is not required to make a Change of Control Offer
following a Change of Control Triggering Event if a third party makes a Change
of Control Offer that would be in compliance with the provisions described in
this section if it were made by Services and purchases the Notes validly
tendered and not withdrawn. Services' board of directors does not have the
ability unilaterally to waive Services' obligation to repurchase the Notes in
the event of a highly leveraged transaction.
Within 30 days following the Change of Control Triggering Event, Services
shall mail a notice to the Trustee and each Holder stating: (i) that a Change
of Control Triggering Event has occurred, that the Change of Control Offer is
being made pursuant to this "Change of Control" covenant and that all Notes
validly tendered will be accepted for payment; (ii) the purchase price and the
date of purchase (which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed) (the "Change of
Control Payment Date"); (iii) that any Note not tendered will continue to
accrue interest pursuant to its terms; (iv) that unless Services defaults in
the payment of the Change of Control Payment, any Note accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest on and
after the Change of Control Payment Date:
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(v) that Holders electing to have any Note or portion thereof purchased
pursuant to the Change of Control Offer will be required to surrender such
Note, together with the form entitled "Option of the Holder to Elect Purchase"
on the reverse side of such Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Change of Control Payment Date; (vi) that Holders
will be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the third Business Day immediately
preceding the Change of Control Payment Date, a telegraph, telex, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered;
provided, however, that each Note purchased and each new Note issued shall be
in a principal amount of $1,000 or integral multiples thereof.
On the Change of Control Payment Date, Services shall, to the extent lawful:
(i) accept for payment Notes or portions thereof properly tendered pursuant to
the Change of Control Offer; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee, all
Notes or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by Services. The
Paying Agent shall promptly mail, to the Holders of Notes so accepted, payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Notes surrendered; provided, however, that each
Note purchased and each new Note issued shall be in a principal amount of
$1,000 or integral multiples thereof. Services will notify the Holders of the
Notes of the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. For purposes of this
"Change of Control" covenant, the Trustee shall act as Paying Agent.
With respect to the sale of assets referred to in the definition of Change
of Control, the phrase "all or substantially all" as used in such definition
varies according to the facts and circumstances of the subject transaction,
has no clearly established meaning under relevant law and is subject to
judicial interpretation. Accordingly, in certain circumstances there may be a
degree of uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the assets of a person
and therefore it may be unclear whether a Change of Control Triggering Event
has occurred and whether the Notes are subject to a Change of Control Offer.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of Services or CCPR, and, thus, the removal of
incumbent management. The Change of Control purchase feature resulted from
negotiations between Services, CCPR and the Initial Purchasers and is not the
result of any intention on the part of Services or CCPR or their management to
discourage the acquisition of Services or CCPR. Based upon the definition of a
Change of Control Triggering Event in the Indenture, it is possible that
transactions could occur involving CCPR or Services or a Ratings Decline that
would not cause a Change of Control Triggering Event. In such a case, the
Holders of the Notes would not have the foregoing purchase rights.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under
the Exchange Act and the rules thereunder and all other applicable Federal and
state securities laws and Services and CCPR may modify a Change of Control
Offer to the extent necessary to effect such compliance.
CERTAIN COVENANTS
Limitation on Incurrence of Additional Indebtedness
Except as described below, the Indenture provides that after January 28,
1997, Services and CCPR will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, issue, create, incur, assume,
guarantee or otherwise directly or indirectly become liable for (including as
a result of an acquisition), or otherwise become responsible for, contingently
or otherwise (individually or collectively, to "incur" or, as
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appropriate, an "incurrence"), any Indebtedness. Neither the accrual of
interest (including the issuance of "pay in kind" securities or similar
instruments in respect of such accrued interest) pursuant to the terms of
Indebtedness incurred in compliance with this covenant, nor the accretion of
original issue discount, nor the mere extension of the maturity of any
Indebtedness shall be deemed to be an incurrence of Indebtedness.
Notwithstanding the foregoing, if there exists no Default or Event of
Default immediately prior and subsequent thereto, Services, CCPR and the
Restricted Subsidiaries may incur Indebtedness if CCPR's Annualized Operating
Cash Flow Ratio, after giving effect to the incurrence of such Indebtedness,
would have been less than 6.5 to 1.
In addition, if there exists no Default or Event of Default immediately
prior and subsequent thereto, the foregoing limitations will not apply to the
incurrence of (i) Senior Debt by Services, CCPR or any of the Restricted
Subsidiaries pursuant to the Credit Agreement, (ii) guarantees of the Senior
Debt permitted under or required by the Credit Agreement and Guarantees
permitted under or required by the Indenture, (iii) Indebtedness by Services,
CCPR or any of the Restricted Subsidiaries constituting Existing Indebtedness,
reduced by repayments of and permanent reductions in commitments in
satisfaction of the Net Cash Proceeds application requirement set forth in the
"Limitation on Asset Sales and Sales of Restricted Subsidiary Stock" covenant
and by repayments and permanent reductions in amounts outstanding pursuant to
scheduled amortizations and mandatory prepayments in accordance with the terms
thereof, (iv) Indebtedness of Services evidenced by the Notes and Indebtedness
of CCPR evidenced by the Guarantee, (v) Indebtedness between Services, CCPR
and any Restricted Subsidiary or between Restricted Subsidiaries, (vi)
Indebtedness under the Administrative Headquarters Lease, (vii) Capitalized
Lease Obligations and Purchase Money Indebtedness in an aggregate amount or
aggregate principal amount, as the case may be, outstanding at any time not to
exceed in the aggregate $10 million, provided that in the case of Purchase
Money Indebtedness, such Indebtedness shall not constitute less than 75% nor
more than 100% of the cost (determined in accordance with GAAP) to Services,
CCPR or such Restricted Subsidiary of the property purchased or leased with
the proceeds thereof, (viii) Indebtedness of Services, CCPR or any Restricted
Subsidiary arising from agreements providing for indemnification, adjustment
of purchase price or similar obligations, or from guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of
Services, CCPR or the Restricted Subsidiaries pursuant to such agreements, in
any case incurred in connection with the acquisition or disposition of any
business, assets or Restricted Subsidiary to the extent none of the foregoing
results in the obligation to repay an obligation for money borrowed by any
Person and are limited in aggregate amount to no greater than 10% of the fair
market value of such business, assets or Restricted Subsidiary so acquired or
disposed of, (ix) any guarantee by any Restricted Subsidiary of any (A) Senior
Debt incurred in compliance with this covenant or (B) Indebtedness incurred
pursuant to clause (xi) of this paragraph, (x) Indebtedness of Services, CCPR
or any Restricted Subsidiary under standby letters of credit or reimbursement
obligations with respect thereto incurred in the ordinary course of business
and consistent with industry practices limited in aggregate amount to $2.5
million at any one time outstanding, (xi) Indebtedness of Services or CCPR
(other than Indebtedness permitted by clauses (i) through (x) or (xii) hereof)
not to exceed $10 million at any one time outstanding and (xii) Refinancing
Indebtedness incurred to extend, renew, replace or refund Indebtedness
permitted under clauses (i), (iii) (as so reduced in amount), (iv) and (xi) of
this paragraph.
Indebtedness of any Person that is not a Restricted Subsidiary, which
Indebtedness is outstanding at the time such Person becomes such a Restricted
Subsidiary or is merged with or into or consolidated with Services, CCPR or a
Restricted Subsidiary shall be deemed to have been incurred, as the case may
be, at the time such Person becomes such a Restricted Subsidiary or is merged
with or into or consolidated with Services, CCPR or a Restricted Subsidiary.
Limitation on Restricted Payments
The Indenture provides that after January 28, 1997, Services and CCPR will
not, and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, make any Restricted Payment, if, immediately prior or after giving
effect thereto (a) a Default or an Event of Default would exist, (b) CCPR
could not incur at least $1.00 of
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additional Indebtedness pursuant to the Annualized Operating Cash Flow Ratio
provision set forth in the second paragraph of the "Limitation on Incurrence
of Additional Indebtedness" covenant or (c) the aggregate amount of all
Restricted Payments made by Services, CCPR and the Restricted Subsidiaries,
including such proposed Restricted Payment (if not made in cash, then the fair
market value of any property used therefor) from and after the Issue Date and
on or prior to the date of such Restricted Payment, shall exceed the sum of
(i) the excess of (A) Cumulative Operating Cash Flow over (B) the product of
1.5 times Cumulative Interest Expense, plus (ii) the aggregate Net Proceeds
received by Services or CCPR from the sale (other than to a Subsidiary of
Services or CCPR) of its Qualified Capital Stock after January 28, 1997 and on
or prior to the date of such Restricted Payment, plus (iii) the amount by
which Indebtedness of Services, CCPR or any Restricted Subsidiary is reduced
on CCPR's balance sheet upon the conversion or exchange (other than by a
Subsidiary) subsequent to the Issue Date of any Indebtedness of Services, CCPR
or any Restricted Subsidiary convertible or exchangeable for Capital Stock
(other than Capital Stock that is redeemable) of Services or CCPR (less the
amount of any cash or other property distributed by Services, CCPR or any
Restricted Subsidiary upon conversion or exchange), plus (iv) to the extent
not otherwise included in clauses (i), (ii) or (iii) above, an amount equal to
the net reduction in Investments in Unrestricted Subsidiaries resulting from
payments of dividends, repayment of loans or advances, or other transfers of
assets, in each case to Services, CCPR or any Wholly Owned Restricted
Subsidiary of Services or CCPR from Unrestricted Subsidiaries, or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed,
in the case of any Unrestricted Subsidiary, the amount of Investments
previously made by Services, CCPR and any Restricted Subsidiary in such
Unrestricted Subsidiary.
Notwithstanding the foregoing, the provisions set forth in clause (b) or (c)
of the immediately preceding paragraph will not prohibit (i) the use of an
aggregate of up to $100 million to be used for Restricted Payments made to
CoreComm not otherwise permitted by this "Limitation on Restricted Payments"
covenant, (ii) the payment of any dividend within 60 days after the date of
its declaration if such dividend could have been made on the date of its
declaration in compliance with the foregoing provisions, (iii) the redemption,
defeasance, repurchase or other acquisition or retirement of any Indebtedness
or Capital Stock of Services, CCPR or the Restricted Subsidiaries either in
exchange for or out of the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of Services or CCPR) of Qualified Capital Stock
(in the case of any redemption, defeasance, repurchase or other acquisition or
retirement of any Junior Indebtedness or Capital Stock of Services, CCPR or
the Restricted Subsidiaries) or Junior Indebtedness (in the case of any
redemption, defeasance, repurchase or other acquisition or retirement of any
Indebtedness of Services, CCPR or the Restricted Subsidiaries) of Services or
CCPR, (iv) any payments to CoreComm made pursuant to the Administrative
Services Agreement and (v) any payments made pursuant to the Tax Sharing
Agreement.
In determining the aggregate amount expended for Restricted Payments in
accordance with clause (c) of the first paragraph of this description of the
"Limitation on Restricted Payments" covenant, 100% of the amounts expended
under clauses (i) through (v) of the immediately preceding paragraph shall be
deducted.
Limitation on Restricting Subsidiary Dividends
The Indenture provides that Services and CCPR will not, and will not permit
any of the Restricted Subsidiaries to, directly or indirectly, create, assume
or suffer to exist any consensual encumbrance or restriction on the ability of
any Restricted Subsidiary to pay dividends or make other distributions on the
Capital Stock of any Restricted Subsidiary or pay or satisfy any obligation to
Services, CCPR or any of the Restricted Subsidiaries or otherwise transfer
assets or make or pay loans or advances to Services, CCPR or any of the
Restricted Subsidiaries, except encumbrances and restrictions existing as of
the date of determination under (i) the Indenture, the Guarantees and the
Notes, (ii) any Existing Indebtedness, (iii) the Credit Agreement, (iv) any
applicable law or any governmental or administrative regulation or order, (v)
Refinancing Indebtedness permitted under the Indenture, provided that the
restrictions contained in the instruments governing such Refinancing
Indebtedness are no more restrictive in the aggregate than those contained in
the instruments governing the Indebtedness being refinanced immediately prior
to such refinancing, (vi) restrictions with respect solely to a Restricted
Subsidiary imposed pursuant to a binding agreement which has been entered into
for the sale or
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disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary, provided such restrictions apply solely to the Capital
Stock or assets being sold of such Restricted Subsidiary, (vii) restrictions
contained in any agreement relating to the financing of the acquisition of a
Person or real or tangible personal property after January 28, 1997 which are
not applicable to any Person or property, other than the Person or property so
acquired and which were not put in place in anticipation of or in connection
with such acquisition or (viii) any agreement (other than those referred to in
clause (vii)) of a Person acquired by Services, CCPR or a Restricted
Subsidiary, which restrictions existed at the time of acquisition.
Notwithstanding the foregoing, neither (a) customary provisions restricting
subletting or assignment of any lease entered into the ordinary course of
business, consistent with past practices nor (b) Liens on assets securing
Senior Debt, shall in and of themselves be considered a restriction on the
ability of the applicable Restricted Subsidiary to transfer such agreement or
assets, as the case may be.
Limitation on Transactions with Related Persons
The Indenture provides that, after January 28, 1997, Services and CCPR will
not, and will not permit any of the Restricted Subsidiaries or Unrestricted
Subsidiaries to, enter into any contract, agreement, arrangement or
transaction with any Related Person (each a "Related Person Transaction"), or
any series of Related Person Transactions, except for transactions made in
good faith, the terms of which are (i) fair and reasonable to Services, CCPR
or such Subsidiary, as the case may be, and (ii) at least as favorable as the
terms which could be obtained by Services, CCPR or such Subsidiary, as the
case may be, in a comparable transaction made on an arm's length basis with
Persons who are not Related Persons.
Without limiting the foregoing, (a) any Related Person Transaction or series
of Related Person Transactions with an aggregate value in excess of $1 million
must first be approved by a majority of the Board of Directors of Services or
CCPR, as the case may be, who are disinterested in the subject matter of the
transaction pursuant to a Board Resolution, or (b) with respect to any Related
Person Transaction or series of Related Person Transactions (i) where there
are no members of the Board of Directors who are disinterested in the subject
matter of a transaction otherwise subject to clause (a) hereof or (ii) with an
aggregate value in excess of $5 million, Services or CCPR, as the case may be,
must first obtain a favorable written opinion from a financial advisor of
national reputation who is not an Affiliate of the Company as to the fairness
from a financial point of view of such transaction to Services, CCPR or such
Subsidiary, as the case may be.
Notwithstanding the foregoing, the following shall not constitute Related
Person Transactions: (i) reasonable and customary payments on behalf of
directors, officers or employees of Services, CCPR or any of the Restricted
Subsidiaries, or in reimbursement of reasonable and customary payments or
reasonable and customary expenditures made or incurred by such Persons as
directors, officers or employees, (ii) any contract, agreement, arrangement,
or transaction solely between or among Services, CCPR and any of the
Restricted Subsidiaries or between or among Restricted Subsidiaries, (iii) any
Restricted Payment of the type described by clauses (i) and (ii) of the
definition thereof made to all stockholders on a pro rata basis and not
prohibited by the "Limitation on Restricted Payments" covenant, (iv) any
payment made pursuant to the Tax Sharing Agreement, (v) any payment made
pursuant to the Administrative Services Agreement and (vi) any transaction
pursuant to an agreement described in or referred to under "The Restructuring"
as in effect on January 28, 1997.
Limitation on Asset Sales and Sales of Restricted Subsidiary Stock
The Indenture provides that after January 28, 1997, Services and CCPR will
not, and will not permit any of the Restricted Subsidiaries to, in one or a
series of related transactions, convey, sell, transfer, assign or otherwise
dispose of, directly or indirectly, any of their property, businesses or
assets, including by merger or consolidation, and including any sale or other
transfer or issuance of any Capital Stock of any Restricted Subsidiary,
whether by Services, CCPR or a Restricted Subsidiary (an "Asset Sale"),
unless:
(1) (a) within 360 days after the date of such Asset Sale, an amount
equal to the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount")
are applied to make the Asset Sale Offer (as defined below) in accordance
with the terms of the Indenture or to the redemption of other Indebtedness
of Services and CCPR
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ranking on a parity with the Notes from time to time outstanding with
similar provisions requiring Services and CCPR to make an offer to purchase
or to redeem such Indebtedness with the proceeds from asset sales, pro rata
in proportion to the respective principal amounts (or accreted values in
the case of Indebtedness issued with an original issue discount) of the
Notes and such other Indebtedness then outstanding or to the repurchase of
the Notes and such other Indebtedness pursuant to an irrevocable,
unconditional offer (the "Asset Sale Offer") to repurchase such
Indebtedness at a purchase price (the "Asset Sale Offer Price") of 100% of
the principal amount thereof in the case of the Notes or 100% of the
principal amount (or accreted value in the case of Indebtedness issued with
an original issue discount) plus, in each case, accrued interest to the
date of payment, or (b) within 330 days of such Asset Sale, the Asset Sale
Offer Amount is (i) invested (or committed, pursuant to a binding
commitment subject only to reasonable, customary closing conditions, to be
invested, and in fact is so invested, within an additional 120 days) in
tangible assets and property (other than notes, obligations or securities),
which in the good faith reasonable judgment of the Board of Directors of
Services or CCPR, as the case may be, are of a type used in a Related
Business, or Capital Stock of a Person (which, if such Person becomes a
Subsidiary of Services or CCPR, by virtue of such Asset Sale, shall
initially be designated a Restricted Subsidiary) all or substantially all
of whose assets and property (in the good faith reasonable judgment of the
Board of Directors of Services or CCPR, as the case may be) are of a type
used in a Related Business (provided that, with respect to such Capital
Stock, all of the requirements of the last proviso of clause (v) of the
following paragraph shall have been satisfied) or (ii) used to retire
Senior Debt;
(2) with respect to any transaction or related series of transactions of
securities, property or assets with an aggregate fair market value in
excess of $1 million, at least 75% of the value of consideration for the
assets disposed of in such Asset Sale, excluding (a) Senior Debt (and any
Refinancing Indebtedness issued to refinance any such Indebtedness) assumed
by a transferee which assumption permanently reduces the amount of
Indebtedness outstanding on January 28, 1997 and permitted to have been
incurred pursuant to the covenant "Limitation on Incurrence of Additional
Indebtedness" (including that in the case of a revolver or similar
arrangement that makes credit available, such commitment is permanently
reduced by such amount), (b) Purchase Money Indebtedness secured
exclusively by the assets subject to such Asset Sale which is assumed by a
transferee and (c) marketable securities that are promptly converted into
cash or Cash Equivalents, consists of cash or Cash Equivalents, provided
that any cash or Cash Equivalents received within 12 months following any
such Asset Sale upon conversion of any property or assets (other than in
the form of cash or Cash Equivalents) received in consideration of such
Asset Sale shall be applied promptly in the manner required of Net Cash
Proceeds of any such Asset Sale as set forth above;
(3) no Default or Event of Default shall occur or be continuing after
giving effect to, on a pro forma basis, such Asset Sale; and
(4) the Board of Directors of Services or CCPR, as the case may be,
determines in good faith that Services, CCPR or such Restricted Subsidiary,
as applicable, would receive fair market value in consideration of such
Asset Sale.
The Indenture provides that an Asset Sale Offer may be deferred until the
accumulated Net Cash Proceeds from Asset Sales not applied to the uses set
forth in (1) (b) above exceeds $5 million and that each Asset Sale Offer shall
remain open for 20 Business Days following its commencement and no longer,
except as otherwise required by applicable law (the "Asset Sale Offer
Period"). Upon expiration of the Asset Sale Offer Period, Services shall apply
the Asset Sale Offer Amount, plus an amount equal to accrued interest to the
purchase of all Indebtedness properly tendered (on a pro rata basis as
described above if the Asset Sale Offer Amount is insufficient to purchase all
Indebtedness so tendered) at the Asset Sale Offer Price (together with accrued
interest).
Notwithstanding the foregoing provisions:
(i) Services, CCPR and the Restricted Subsidiaries may, in the ordinary
course of business, convey, sell, lease, transfer, assign or otherwise
dispose of assets acquired and held for resale in the ordinary course of
business;
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(ii) Services, CCPR and the Restricted Subsidiaries may convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the "Limitation on Merger, Sale or Consolidation;"
(iii) Services, CCPR and the Restricted Subsidiaries may sell or dispose
of damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of Services, CCPR or such Restricted Subsidiary, as
applicable;
(iv) Services, CCPR and the Restricted Subsidiaries may convey, sell,
lease, transfer, assign or otherwise dispose of assets to Services, CCPR or
any of the Restricted Subsidiaries; and
(v) Services, CCPR and the Restricted Subsidiaries may, in the ordinary
course of business (or, if otherwise than in the ordinary course of
business, upon receipt of a favorable written opinion by a financial
advisor of national reputation who is not an Affiliate of the Company as to
the fairness from a financial point of view to Services, CCPR or such
Restricted Subsidiary of the proposed transaction), exchange all or a
portion of its property, businesses or assets that are outside the
Commonwealth of Puerto Rico and represent not more than 5.0% of the
aggregate Net Pops of Services, CCPR and the Restricted Subsidiaries as of
January 28, 1997 for property, businesses or assets which, or Capital Stock
of a Person all or substantially all of whose assets, are of a type used in
a wireless communications business (provided that such Person shall
initially be designated a Restricted Subsidiary if such Person becomes a
Subsidiary of Services or CCPR by virtue of such Asset Sale), or a
combination of any such property, businesses or assets, or Capital Stock of
such a Person and cash or Cash Equivalents; provided that (i) there shall
not exist immediately prior or subsequent thereto a Default or an Event of
Default, (ii) a majority of the independent directors of the Board of
Directors of Services or CCPR, as the case may be, shall have approved a
resolution of the Board of Directors that such exchange is fair to
Services, CCPR or such Restricted Subsidiary, as the case may be, (iii) any
cash or Cash Equivalents received pursuant to any such exchange shall be
applied in the manner applicable to Net Cash Proceeds from an Asset Sale as
set forth pursuant to the provisions of the immediately preceding paragraph
of this covenant, and (iv) the Net Pops so received in the exchange should
be at least equal to the New Pops so exchanged; provided, further, that any
Capital Stock of a Person received in an Asset Sale pursuant to this clause
(v) shall be owned directly by Services, CCPR or a Restricted Subsidiary
and, when combined with the Capital Stock of such Person already owned by
Services, CCPR and the Restricted Subsidiaries, shall constitute a majority
of the voting power and Capital Stock of such Person, unless Services or
CCPR has received a binding commitment from such Person (or the direct or
indirect parent of such Person) that such Person (or the direct or indirect
parent of such Person) will distribute to Services or CCPR in cash an
amount equal to CCPR's Annualized Operating Cash Flow (determined as of the
date of such Asset Sale) attributable to the property, business or assets
of Services, CCPR and the Restricted Subsidiaries exchanged in connection
with such Asset Sale during each consecutive 12-month period subsequent to
such Asset Sale (unless and until Services or CCPR shall have sold all of
such Capital Stock).
Restricted Payments that are made in compliance with, and are counted
against amounts available to be made as Restricted Payments pursuant to clause
(c) of, the "Limitation on Restricted Payments" covenant, without giving
effect to clause (i) of the second paragraph thereof, shall not be deemed to
be Asset Sales.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws.
Limitations on Liens
The Indenture provides that Services and CCPR will not, and will not permit
any Restricted Subsidiary, directly or indirectly, to incur or suffer to exist
any Lien (other than Permitted Liens) upon any of their property or assets,
whether now owned or hereafter acquired.
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Limitation on Status as Investment Company
The Indenture prohibits Services, CCPR and the Restricted Subsidiaries from
becoming "investment companies" (as that term is defined in the Investment
Company Act of 1940, as amended), or from otherwise becoming subject to
regulation under the Investment Company Act.
Limitation on Merger, Sale or Consolidation
The Indenture provides that Services and CCPR will not consolidate with or
merge with or into another Person, or sell, lease, convey, transfer or
otherwise dispose of all or substantially all of its assets (computed on a
consolidated basis), whether in a single transaction or a series of related
transactions, to another Person or group of affiliated Persons, unless (i)
either (a) Services or CCPR, as applicable, is the continuing entity or (b)
the resulting, surviving or transferee entity is a corporation organized under
the laws of the United States, any state thereof, the District of Columbia or
the Commonwealth of Puerto Rico and expressly assumes by supplemental
indenture all of the obligations of Services or CCPR in connection with the
Notes, the Guarantee and the Indenture, as applicable; (ii) no Default or
Event of Default shall exist or shall occur immediately after giving effect on
a pro forma basis to such transaction; (iii) except in the case of a merger of
Services or CCPR with or into one or more Wholly Owned Restricted Subsidiaries
of Services or CCPR, immediately after giving effect to such transaction on a
pro forma basis, the consolidated resulting surviving or transferee entity
would immediately thereafter be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Annualized Operating Cash Flow Ratio
provision set forth in the second paragraph of the "Limitation on Incurrence
of Additional Indebtedness" covenant; and (iv) Services or CCPR shall have
delivered to the Trustee an Officers' Certificate confirming compliance with
the requirements of this covenant, provided, however, that this provision
shall not prohibit any merger or consolidation between Services and CCPR. The
term "all or substantially all" is not defined in the Indenture. Accordingly,
the term would likely be interpreted by reference to applicable state law at
the time, and will be dependent on the facts and circumstances existing at the
time. As a result, under certain circumstances there could be uncertainty as
to whether a particular transaction is prohibited by the Indenture.
No Senior Subordinated Indebtedness
The Indenture provides that (i) Services will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinated or junior in right of payment to any Senior Debt of Services and
senior in any respect in right of payment to the Notes and (ii) CCPR will not
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinated or junior in right of payment to its Senior
Debt and senior in any respect in right of payment to its Guarantee.
Limitations on Guarantees of Services' Indebtedness by Restricted
Subsidiaries
The Indenture provides that in the event that any Restricted Subsidiary,
directly or indirectly, guarantees any Indebtedness of Services other than the
Notes (the "Other Indebtedness"), Services and CCPR shall cause such
Restricted Subsidiary to deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary shall concurrently guarantee
Services' Obligations under the Indenture and the Notes to the same extent
that such Restricted Subsidiary guaranteed Services' Obligations under the
Other Indebtedness (including waiver of subrogation, if any), provided that if
such Other Indebtedness is Senior Debt, the Additional Guarantee shall be
subordinated in right of payment to the guarantee of such Other Indebtedness,
as provided by the provisions of the Indenture described under the caption "--
Subordination," and such Additional Guarantee shall be on the same terms and
subject to the same conditions as the initial Guarantee given by CCPR under
the Indenture. Each Additional Guarantee shall by its terms provide that the
Additional Guarantor making such Additional Guarantee will be automatically
and unconditionally released and discharged from its obligations under such
Additional Guarantee upon the release or discharge of the guarantee of the
other Indebtedness that resulted in the creation of such Additional Guarantee,
except a discharge or release by, or as a result of, any payment under the
guarantee of such Other Indebtedness by such Additional Guarantor.
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Limitation on Lines of Business
The Indenture provides that neither Services, CCPR nor any of the Restricted
Subsidiaries shall directly or indirectly engage in any line or lines of
business activity other than that which, in the reasonable, good faith
judgment of the Board of Directors of Services or CCPR, is a Related Business.
REPORTS
The Indenture provides that whether or not Services or CCPR are subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act,
Services and CCPR shall deliver to the Trustee and to each Holder, within 15
days after they are or would have been required to file such with the
Commission, annual and quarterly financial statements substantially equivalent
to financial statements that would have been included in reports filed with
the Commission, if Services or CCPR were subject to the requirements of
Section 13 or 15(d) of the Exchange Act, including, with respect to annual
information only, a report thereon by Services and CCPR, or Services' or
CCPR's certified independent public accountants as such would be required in
such reports to the Commission, and in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required. In addition, whether or not required by the rules and
regulations of the Commission, Services and CCPR will file a copy of all such
information and reports with the Commission for public availability (unless
the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, Services and CCPR have agreed that, for so long as any Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by Services to
pay any installment of interest on the Notes as and when the same becomes due
and payable and the continuance of any such failure for 30 days, whether or
not prohibited by the subordination provisions of the Indenture, (ii) the
failure by Services to pay all or any part of the principal, or premium, if
any, on the Notes when and as the same becomes due and payable at maturity,
redemption, by acceleration or otherwise, including, without limitation,
payment of the Change of Control Payment or the Asset Sale Offer Price,
whether or not prohibited by the subordination provisions of the Indenture,
(iii) the failure by Services or CCPR to observe or perform any other covenant
or agreement contained in the Notes, the Guarantee or the Indenture and,
subject to certain exceptions, the continuance of such failure for a period of
30 days after written notice is given to Services or CCPR, as the case may be,
by the Trustee or to Services or CCPR, as the case may be, and the Trustee by
the Holders of at least 25% in aggregate principal amount of the Notes
outstanding, (iv) certain events of bankruptcy, insolvency or reorganization
in respect of Services or CCPR or, after delivery of the notice specified in
the next following paragraph, any of their Significant Restricted
Subsidiaries, (v) (1) a default in any Indebtedness (other than the Credit
Agreement) of Services, CCPR or any of the Restricted Subsidiaries with an
aggregate principal amount in excess of $5 million (a) resulting from the
failure to pay principal or interest (in the case of an interest default or a
default in the payment of principal other than at its stated maturity, after
the expiration of the applicable grace period) when due or (b) as a result of
which the maturity of such Indebtedness has been accelerated prior to its
stated maturity, or (2) a default in the Credit Agreement (with an aggregate
principal amount in excess of $5 million outstanding with respect thereto) (a)
resulting from the failure to pay principal at maturity or (b) as a result of
which the maturity of such Indebtedness has been accelerated prior to its
stated maturity, (vi) final unsatisfied judgments not covered by insurance
aggregating in excess of $5 million, at any one time rendered against
Services, CCPR or any of the Restricted Subsidiaries and not stayed, fully
bonded, discharged, paid or vacated within 60 days and (vii) except as
permitted by the Indenture, the Guarantee shall be held in any final judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be
in full force and effect or CCPR, or any Person acting on behalf of CCPR,
shall deny or disaffirm its obligations under its Guarantee. The Indenture
provides that if a default occurs and is continuing, the Trustee must, within
90 days after the occurrence of such default, give to the Holders notice of
such default.
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If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv) above) relating to Services, CCPR or any
Restricted Subsidiary, then in every such case, unless the principal of all of
the Notes shall have already become due and payable, either the Trustee or the
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to Services (and to the Trustee if given by
Holders) specifying the respective Event of Default and that it is a "notice
of acceleration" (the "Acceleration Notice"), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Credit Agreement, shall become immediately due and payable upon the first
to occur of an acceleration under the Credit Agreement or five Business Days
after receipt by Services and the Representative under the Credit Agreement of
such Acceleration Notice but only if such Event of Default is then continuing.
If an Event of Default specified in clause (iv) above, relating to Services,
CCPR or any Significant Restricted Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Restricted
Subsidiary occurs, all principal and accrued interest thereon will be
immediately due and payable on all outstanding Notes without any declaration
or other act on the part of Trustee or the Holders. In the event of a
declaration of acceleration of the Notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (v) of the preceding paragraph, the declaration of
acceleration of the Notes shall be automatically annulled if the holders of
any Indebtedness described in clause (v) have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of
such declaration and if (i) the annulment of the acceleration of the Notes
would not conflict with any judgment or decree of a court of competent
jurisdiction, and (ii) all existing Events of Default, except nonpayment of
principal or interest on the Notes that became due solely because of the
acceleration of the Notes, have been cured or waived. The Holders of a
majority in aggregate principal amount of Notes generally are authorized to
rescind such acceleration if all existing Events of Default, other than the
non-payment of the principal of, premium, if any, and interest on the Notes
which have become due solely by such acceleration, have been cured or waived.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of Services with the
intention of avoiding payment of the premium that Services would have had to
pay if Services then had elected to redeem the Notes pursuant to the optional
redemption provisions of the Indenture, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the Notes. If an Event of Default occurs prior to February
1, 2002, by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of Services with the intention of avoiding the prohibition on
redemption of the Notes prior to February 1, 2002, then the premium specified
in the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes at the
time outstanding may waive on behalf of all the Holders any default, except a
default in the payment of principal of, premium, if any, or interest on any
Note not yet cured, or a default with respect to any covenant or provision
which cannot be modified or amended without the consent of the Holder of each
outstanding Note affected. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of any of the Holders, unless such Holders have offered to the
Trustee reasonable security or indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the Notes at the time outstanding will have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred on the Trustee.
Services is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and Services is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that Services may, at its option and at any time.
elect to have its obligations discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that
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Services shall be deemed to have paid and discharged the entire indebtedness
represented, and the Indenture shall cease to be of further effect as to all
outstanding Notes, except as to (i) rights of Holders to receive payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due from the trust funds referred to below; (ii) Services'
obligations with respect to such Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes, and the
maintenance of an office or agency for payment and money for security payments
held in trust; (iii) the rights, powers, trust, duties, and immunities of the
Trustee, and Services' obligations in connection therewith; and (iv) the Legal
Defeasance provisions of the Indenture. In addition, Services may, at its
option and at any time, elect to have the obligations of Services released
with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default and Remedies" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either a Legal Defeasance or Covenant Defeasance, (i)
Services must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in United States dollars, non-callable
government securities or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
such Notes on the stated date for payment thereof or on the redemption date of
such principal or installment of principal of, premium, if any, or interest on
such Notes on the stated maturity or on the applicable redemption date, as the
case may be, and Services must specify whether the Notes are being defeased to
maturity or to a particular redemption date, and the Holders of Notes must
have a valid, perfected, exclusive security interest in such trust; (ii) in
the case of Legal Defeasance, Services shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) Services has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law,
in each case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders of such Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal Defeasance,
and will be subject to federal income tax in the same amount, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance,
Services shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to such Trustee confirming that the
Holders of such Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance shall not result in a breach or violation of, or
constitute a default under the Indenture or any other material agreement or
instrument to which Services, CCPR or any of the Subsidiaries is a party or by
which Services, CCPR or any of the Subsidiaries is bound; (vi) Services must
have delivered to the Trustee an opinion of counsel to the effect that after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) Services shall have
delivered to the Trustee an Officers' Certificate stating that the deposit was
not made by Services with the intent of preferring the Holders of such Notes
over any other creditors of Services or with the intent of defeating,
hindering, delaying or defrauding any other creditors of Services or others;
and (viii) Services shall have delivered to the Trustee an Officers'
Certificate stating that all conditions precedent provided for or relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting Services, CCPR and the Trustee
to enter into a supplemental indenture for certain limited purposes without
the consent of all of the Holders. With the consent of the Holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding Services, CCPR
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and the Trustee are permitted to amend or supplement the Indenture or any
supplemental indenture or modify the rights of the Holders; provided, that no
such modification may, without the consent of each Holder affected thereby:
(i) change the Stated Maturity of or the Change of Control Purchase Date or
the Asset Sale Offer Period on any Note, or reduce the principal amount
thereof or the rate (or extend the time for payment) of interest thereon or
any premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Note or any premium or
the interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or,
in the case of redemption, on or after the Redemption Date), or reduce the
Change of Control Payment or the Asset Sale Offer Price or alter the
redemption provisions or the provisions of the "Change of Control" covenant in
a manner adverse to the Holders, or (ii) reduce the percentage in principal
amount of the outstanding Notes, the consent of whose Holders is required for
any such amendment, supplemental indenture or waiver provided for in the
Indenture, or (iii) modify any of the waiver provisions, except to increase
any required percentage or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the Holder of
each outstanding Note affected thereby. In addition, any amendment to the
provisions of Article 10 and Section 11.04 of the Indenture (which relate to
subordination) will require the consent of the Holders of at least 75% in
aggregate principal amount of the Notes then outstanding if such amendment
would adversely affect the rights of Holders of Notes.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS OR DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of Services or CCPR or
any successor entity shall have any personal liability in respect of the
obligations of Services or CCPR under the Indenture, the Notes or the
Guarantee by reason of his or its status as such stockholder, employee,
officer or director. Each Holder of the Notes by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to CCPR Services,
Inc., 110 East 59th Street, New York, NY 10022, Attention: Secretary.
BOOK-ENTRY, DELIVERY AND FORM
New Notes exchanged for Old Notes through the Book-Entry Transfer Facility
may be represented by one or more Global Notes (the "New Global Notes"). One
New Global Note shall be issued with respect to each $200 million aggregate
principal amount at maturity of the New Notes. The New Global Notes will be
deposited
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on the date of the closing of the Exchange Offer with the Trustee, as
custodian of The Depository Trust Company (the "Depositary"), pursuant to a
FAST Balance Certificate Agreement between the Trustee and the Depositary and
registered in the name of Cede & Co., as nominee of the Depositary (such
nominee being referred to herein as the "Global Note Holder").
New Notes exchanged for Old Notes which are in the form of registered
definitive certificates (the "Certificated Notes") will be issued in the form
of Certificated Notes. Such Certificated Notes may, unless the New Global Note
has previously been exchanged for Certificated Notes, be exchanged for an
interest in the New Global Note representing the principal amount of New Notes
being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's direct Participants (the "Direct Participants")
include securities brokers and dealers (including the Initial Purchasers),
banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers, and trust companies (collectively,
the "Indirect Participants" or the "Depositary's Indirect Participants") that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only
through the Depositary's Participants or the Depositary's Indirect
Participants.
Services expects that pursuant to procedures established by the Depositary
(i) upon deposit of the New Global Note(s), the Depositary or its custodian
will credit the accounts of Participants with portions of the principal amount
of the New Global Note(s) and (ii) ownership of the New Notes evidenced by the
New Global Note(s) will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by the Depositary (with
respect to the interests of the Depositary's Participants), the Depositary's
Participants and the Depositary's Indirect Participants. The laws of some
states require that certain persons take physical delivery in definitive form
of securities that they own. Consequently, the ability to transfer New Notes
evidenced by the New Global Note(s) will be limited to such extent.
So long as the Global Note Holder is the registered owner of any New Notes,
the Global Note Holder will be considered the sole holder under the Indenture
of any Notes evidenced by the New Global Note(s). Beneficial owners of
interest in New Notes evidenced by the New Global Note(s) will not be
considered the owners or holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither Services nor the Trustee will
have any responsibility or liability for any aspect of the records of the
Depositary or for maintaining, supervising or reviewing any records of the
Depositary relating to the New Notes (including, without limitation, the
beneficial ownership of interest in the New Notes).
Payments in respect of the principal and interest on any New Notes
registered in the name of the Global Note Holder on the applicable record date
will be payable by the Trustee to or at the direction of the Global Note
Holder in its capacity as the registered holder under the Indenture. Under the
terms of the Indenture, Services and the Trustee may treat the persons in
whose names New Notes, including the New Global Note(s), are registered as the
owners thereof for the purpose of receiving such payments. Consequently,
neither Services nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of New Notes.
Services believes, however, that it is the policy of the Depositary to
immediately credit the accounts of the relevant Participants with such
payments, in accordance with their respective holdings shown on the records of
the Depositary. Payments by the Depositary's Participants to be beneficial
owners of New Notes will be governed by standing instructions and customary
practice and will be the responsibility of the Depositary's Participants or
the Depositary's Indirect Participants and not the responsibility of the
Depositary, the Trustee or Services.
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Subject to certain conditions, any person having a beneficial interest in
the New Global Note(s) may, upon request to the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Notes. Upon any such
issuance, the Trustee is required to register such Certificated Notes in the
name of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). In addition, if (i) Services notifies the Trustee in
writing that the Depositary is no longer willing or able to act as a
depositary and Services is unable to locate a qualified successor within 90
days, (ii) Services, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Notes in the form of Certificated Notes under
the Indenture, or (iii) the liquidation or bankruptcy of Services, then, upon
surrender by the New Global Note Holder of its New Global Note(s), Notes in
such form will be issued to each person that the New Global Note Holder and
the Depositary identify as being the beneficial owner of the related Notes.
Neither Services nor the Trustee will be liable for any delay by the New
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and Services and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the New Global Note Holder or the
Depositary for all purposes.
Although Services expects that DTC will agree to the foregoing procedures in
order to facilitate transfers of interest in a New Global Certificate among
participants of DTC, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither Services nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
TRANSFER EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and Services may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. Services is not required to transfer or exchange any Note selected
for redemption. Also, Services is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
EXCHANGE OFFER; REGISTRATION RIGHTS
Services, CCPR and the Initial Purchasers entered into the Registration
Rights Agreement on January 31, 1997. Pursuant to the Registration Rights
Agreement, Services and CCPR agreed to file within 120 days after January 28,
1997 with the Commission a registration statement on Form S-1, Form S-3 or
Form S-4, if the use of such form is then available (the "Exchange Offer
Registration Statement") relating to a registered exchange offer (the
"Exchange Offer") for the Notes under the Securities Act. As soon as
practicable after the effectiveness of the Exchange Offer Registration
Statement, Services and CCPR will offer to the holders of Transfer Restricted
Securities (as defined below) who are not prohibited by any law or policy of
the Commission from participating in the Exchange Offer the opportunity to
exchange their Transfer Restricted Securities for an issue of notes (the
"Exchange Notes") that are identical in all material respects to the Notes. In
the event that applicable interpretations of the staff of the Commission do
not permit Services and CCPR to effect the Exchange Offer ("Commission
Blockage") or do not permit any holder of Notes, subject to certain
limitations, to participate in the Exchange Offer, Services and CCPR will file
with the Commission a shelf registration statement (the "Shelf Registration
Statement") to cover resales of Transfer Restricted Securities by such holders
who satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. Services and CCPR will use
their reasonable best efforts to cause the applicable registration statement
to be declared effective by the Commission within 160 days after January 28,
1997. For purposes of the foregoing, "Transfer Restricted Securities" means
each Note until (i) the date on which such Note has been exchanged for an
Exchange Note in the Exchange Offer, (ii) the date on which the offer and sale
of such Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration
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Statement or (iii) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Securities Act or is salable pursuant to Rule
144(k) under the Securities Act.
The Registration Rights Agreement provides that (i) Services and CCPR will
use their reasonable best efforts to have a Registration Statement (and, if
applicable, a Shelf Registration Statement) declared effective by the
Commission on or prior to 160 days after January 31, 1997, and (ii) unless the
Exchange Offer would not be permitted by a policy of the Commission, Services
and CCPR shall have commenced the Exchange Offer and shall use their
reasonable best efforts to issue on or prior to 30 days after the date on
which the Exchange Offer Registration Statement was declared effective by the
Commission (the "Effectiveness Date") the Exchange Notes in exchange for all
Notes properly tendered and not withdrawn prior thereto in the Exchange Offer.
If (i) the applicable Registration Statement has not been declared effective
by the Commission within 160 days after January 31, 1997, (ii) the Registered
Exchange Offer has not been consummated within 30 days after the Effectiveness
Date or (iii) the Shelf Registration Statement is filed and declared effective
but shall thereafter cease to be effective without being succeeded by any
additional Registration Statement filed and declared effective (each such
event referred to in clauses (i) through (iii), a "Registration Default"),
Services and CCPR will pay Liquidated Damages to each holder of Transfer
Restricted Securities, during the first 90-day period immediately following
the occurrence of such Registration Default in an amount equal to $0.05 per
week per $1,000 principal amount of Notes ("Liquidated Damages") constituting
Transfer Restricted Securities held by such holder. The amount of the
Liquidated Damages will increase by an additional $0.05 per week per $1,000
principal amount of Notes constituting Transfer Restricted Securities for each
subsequent 90-day period until the applicable Registration Statement is
declared effective, the Exchange Offer is consummated or the Shelf
Registration Statement again becomes effective, as the case may be, up to a
maximum amount of Liquidated Damages of $0.25 per week per $1,000 principal
amount of Notes constituting Transfer Restricted Securities. All accrued
Liquidated Damages shall be paid to Holders in the same manner as interest
payments on the Notes on semi-annual Damages Payment Dates which correspond to
interest payment dates for the Notes. Following the cure of all Registration
Defaults, the payment of Liquidated Damages will cease.
The Registration Rights Agreement also provides that Services and CCPR (i)
shall make available for a period of 90 days after the consummation of the
Exchange Offer a prospectus meeting the requirements of the Securities Act to
any broker-dealer for use in connection with any resale of any such Exchange
Notes and (ii) shall pay all expenses incident to the Exchange Offer
(including the expenses of one counsel to the Holders of the Notes) and will
indemnify certain Holders of the Notes (including any broker-dealer) against
certain liabilities, including liabilities under the Securities Act.
Holders of Notes will be required to make certain representations to
Services and CCPR (as described in the Registration Rights Agreement) in order
to participate in the Exchange Offer and will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreement in order to have their
Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth in the preceding paragraph.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms to be contained in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Administrative Headquarters Lease" means the lease and leasehold
improvement for the Company's administrative headquarters that are being
constructed in Guaynabo, Puerto Rico.
"Administrative Services Agreement" means that certain Administrative
Services Agreement by and among Services, CCPR and CoreComm as in effect on
January 28, 1997.
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"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person or (ii) any officer,
director, or controlling stockholder of such other Person. For purposes of
this definition, the term "control" means (a) the power to direct the
management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise, or (b) without limiting the foregoing, the beneficial
ownership of 10% or more of the voting power of the voting common equity of
such Person (on a fully diluted basis) or of warrants or other rights to
acquire such equity (whether or not presently exercisable).
"Annualized Operating Cash Flow" on any date, means with respect to any
Person the Operating Cash Flow for the Reference Period multiplied by four.
"Annualized Operating Cash Flow Ratio" on any date (the "Transaction Date")
means, with respect to any Person and its Subsidiaries, the ratio of (i)
consolidated Indebtedness of such Person and its Subsidiaries on the
Transaction Date (after giving pro forma effect to the incurrence of such
Indebtedness) divided by (ii) the aggregate amount of Annualized Operating
Cash Flow of such Person (determined on a pro forma basis after giving effect
to all acquisitions or dispositions of businesses made by such Person and its
Subsidiaries from the beginning of the Reference Period through the
Transaction Date as if such acquisition or disposition had occurred at the
beginning of such Reference Period); provided, that for purposes of such
computation, in calculating Annualized Operating Cash Flow and consolidated
Indebtedness, (a) the transaction giving rise to the need to calculate the
Annualized Operating Cash Flow Ratio will be assumed to have occurred (on a
pro forma basis) on the first day of the Reference Period; (b) the incurrence
of any Indebtedness during the Reference Period or subsequent thereto and on
or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to retire Indebtedness or to acquire businesses)
will be assumed to have occurred (on a pro forma basis) on the first day of
such Reference Period; (c) Consolidated Interest Expense attributable to any
Indebtedness (whether existing or being incurred) bearing a floating interest
rate shall be computed as if the rate in effect on the Transaction Date had
been the applicable rate for the entire period; and (d) all members of the
consolidated group of such Person on the Transaction Date that were acquired
during the Reference Period shall be deemed to be members of the consolidated
group of such Person for the entire Reference Period. When the foregoing
definition is used in connection with Services, CCPR and the Restricted
Subsidiaries, references to a Person in the foregoing definition shall be
deemed to refer to CCPR and references to Subsidiaries in the foregoing
definition shall be deemed to refer to Services and the Restricted
Subsidiaries.
"Business Day" means any day other than a Legal Holiday.
"Capitalized Lease Obligations" means obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations, as determined in accordance with
GAAP.
"Capital Stock" means, with respect to any Person, any capital stock of such
Person and shares, interests, participations or other ownership interests
(however designated) of any Person and any rights (other than debt securities
convertible into capital stock), warrants and options to purchase any of the
foregoing, including (without limitation) each class of common stock and
preferred stock of such Person if such Person is a corporation and each
general and limited partnership interest of such Person if such Person is a
partnership.
"Cash Equivalents" means (i) Securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) in each case maturing within
one year after the date of acquisition, (ii) time deposits and certificates of
deposit and commercial paper issued by the parent corporation of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500 million and commercial paper issued by others rated at least A-2 or the
equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's
and in each case maturing within one year after the date of acquisition and
(iii)
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investments in money market funds substantially all of whose assets comprise
securities of the types described in clauses (i) and (ii) above.
"Change of Control" means (i) any sale, transfer or other conveyance,
whether direct or indirect, of a majority of the fair market value of the
assets of Services or CCPR, on a consolidated basis, in one transaction or a
series of related transactions, if, immediately after giving effect to such
transaction, any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable),
other than an Excluded Person or Excluded Group, is or becomes the "beneficial
owner" (as such term is used in Rule 13d-3 promulgated pursuant to the
Exchange Act), directly or indirectly, of more than 50% of the equity of the
transferee, (ii) any "person" or "group" (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable),
other than an Excluded Person or Excluded Group, is or becomes the "beneficial
owner" (as such term is used in Rule 13d-3 promulgated pursuant to the
Exchange Act), directly or indirectly, of more than 50% of the equity of
Services or CCPR then outstanding normally entitled to vote in elections of
directors, or (iii) during any period of 12 consecutive months after January
28, 1997, individuals who at the beginning of any such 12-month period
constituted the Board of Directors of Services or CCPR (together with any new
directors whose election by such Board or whose nomination for election by the
shareholders of Services or CCPR was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason, other than as a result of an authorized
reduction in the number of directors that constitute the Board of Directors,
to constitute a majority of the Board of Directors of Services or CCPR then in
office at the time of such determination.
"Change of Control Triggering Event" shall mean the occurrence of both a
Change of Control and a Rating Decline.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued,
or scheduled to be paid or accrued (including, in accordance with the
following sentence, interest attributable to the Capitalized Lease
Obligations) of such Person and its consolidated Subsidiaries during such
period, including (i) original issue discount and non-cash interest payments
or accruals on any Indebtedness, (ii) the interest portion of all deferred
payment obligations, and (iii) all commissions, discounts and other fees and
charges owed with respect to bankers' acceptances and letters of credit
financings and currency and Interest Swap and Hedging Obligations, in each
case to the extent attributable to such period, and (b) the amount of
dividends accrued or payable by such Person or any of its consolidated
Subsidiaries in respect of Preferred Stock (other than by Restricted
Subsidiaries of such Person to such Person or such Person's Wholly Owned
Subsidiaries). For purposes of this definition, (x) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by Services or CCPR, as the case may be, to be the rate of interest
implicit in such Capitalized Lease Obligation in accordance with GAAP and (y)
interest expense attributable to any Indebtedness represented by the guaranty
by such Person or a Subsidiary of such Person of an obligation of another
Person shall be deemed to be the interest expense attributable to the
Indebtedness guaranteed. When the foregoing definition is used in connection
with Services, CCPR and the Restricted Subsidiaries, references to a Person in
the foregoing definition shall be deemed to refer to CCPR and references to
Subsidiaries in the foregoing definition shall be deemed to refer to Services
and the Restricted Subsidiaries.
"Consolidated Net Income" of any Person for any period means the net income
(or loss) of such Person and its consolidated Subsidiaries for such period
determined (on a consolidated basis) in accordance with GAAP, adjusted to
exclude (only to the extent included in computing such net income (or loss)
and without duplication) (i) all extraordinary gains and losses and gains and
losses that are nonrecurring (including as a result of Asset Sales outside the
ordinary course of business), (ii) the net income, if positive, of any Person,
that is not a Subsidiary in which such Person or any of its Subsidiaries has
an interest, except to the extent of the amount of dividends or distributions
actually paid to such Person or a Subsidiary of such Person that both (x) are
actually paid in cash to such Person or a Subsidiary of such Person during
such period and (y) when taken together with all other dividends and
distributions paid during such period in cash to such Person or a Subsidiary
of such
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Person, are not in excess of such Person's pro rata share of such other
Person's aggregate net income earned during such period, (iii), except as
provided in the definition of "Annualized Operating Cash Flow Ratio," the net
income (or loss) of any Subsidiary acquired in a pooling of interests
transaction for any period prior to the date of such acquisition and (iv) the
net income, if positive, of any Subsidiary of such Person to the extent that
the declaration or payment of dividends or similar distributions is not at the
time permitted by operation of the terms of its charter or any agreement or
instrument applicable to such Subsidiary. When the foregoing definition is
used in connection with Services, CCPR and the Restricted Subsidiaries,
references to a Person in the foregoing definition shall be deemed to refer to
CCPR and references to Subsidiaries in the foregoing definition shall be
deemed to refer to Services and the Restricted Subsidiaries.
"Credit Agreement" means, at any time of determination, the credit facility
or loan agreement designated by Services to be the "Credit Agreement," as
amended, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time, which at no time will exceed $75 million. There can
only be one such credit facility or loan agreement designated to be the
"Credit Agreement" at any one time.
"Cumulative Operating Cash Flow" means Operating Cash Flow of the Company
for the period beginning on February 1, 1997, through and including the end of
the last fiscal quarter preceding the date of any proposed Restricted Payment.
"Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Agreement and (ii) any other Senior Debt permitted under the Indenture
the principal amount of which is $5 million or more and that has been
designated by Services as "Designated Senior Debt."
"Disqualified Capital Stock" means, with respect to any Person, Capital
Stock of such Person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the
happening of any event or the passage of time would be, required to be
redeemed or repurchased (including at the option of the holder thereof) by
such Person or any of its Subsidiaries, in whole or in part, on or prior to
the date that is 91 days after the Stated Maturity of the Notes; provided that
Capital Stock will not be deemed to be Disqualified Capital Stock if it may
only be so redeemed or repurchased solely in consideration of Qualified
Capital Stock of Services or CCPR.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Excluded Group" means a "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) that includes one or more Excluded Persons;
provided that the voting power of the Capital Stock of Services or CCPR
"beneficially owned" (as such term is used in Rule 13d-3 promulgated under the
Exchange Act) by such Excluded Persons (without attribution to such Excluded
Persons of the ownership by other members of the "group") represents a
majority of the voting power of the Capital Stock "beneficially owned" (as
such term is used in Rule 13d-3 promulgated under the Exchange Act) by such
group.
"Excluded Person" means (i) George S. Blumenthal, (ii) J. Barclay Knapp,
(iii) a Permitted Designee of Mr. Blumenthal or Mr. Knapp, and (iv) CoreComm
and any Subsidiary or successor thereto.
"Existing Indebtedness" means Indebtedness of Services, CCPR or the
Restricted Subsidiaries in existence and outstanding on January 28, 1997.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board ("FASB") or, if FASB ceases to exist,
any
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successor thereto; provided, however, that for purposes of determining
compliance with covenants in the Indenture, "GAAP" means such generally
accepted accounting principles as in effect as of January 28, 1997.
"Holder" means a Person in whose name a Note is registered. The Holder of a
Note will be treated as the owner of such Note for all purposes.
"Indebtedness" of any Person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of such Person, (i) in respect of
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of such Person or only to a portion thereof), (ii) evidenced by
bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts payable or other obligations to trade creditors
which have remained unpaid for greater than 90 days past their original due
date or to financial institutions, which obligations are not being contested
in good faith and for which appropriate reserves have been established) those
incurred in the ordinary course of its business that would constitute
ordinarily a trade payable to trade creditors, (iv) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, (v) for the
payment of money relating to a Capitalized Lease Obligation, or (vi) evidenced
by a letter of credit or a reimbursement obligation of such Person with
respect to any letter of credit; (b) all obligations of such Person under
Interest Swap and Hedging Obligations; (c) all liabilities of others of the
kind described in the preceding clauses (a) or (b) that such Person has
guaranteed or that is otherwise its legal liability or which are secured by
any assets or property of such Person and all obligations to purchase, redeem
or acquire any Capital Stock; (d) all Disqualified Capital Stock of such
Person and all Preferred Stock of such Person's Subsidiaries; and (e) any and
all deferrals, renewals, extensions, refinancing and refundings (whether
direct or indirect) of, or amendments, modifications or supplements to, any
liability of the kind described in any of the preceding clauses (a), (b), (c),
or (d) or this clause (e), whether or not between or among the same parties;
provided that the outstanding principal amount at any date of any Indebtedness
issued with original issue discount is the face amount of such Indebtedness
less the remaining unamortized portion of the original issue discount of such
Indebtedness at such date.
"Interest Swap and Hedging Obligations" means any obligations of any Person
pursuant to any interest rate swaps, caps, collars and similar arrangements
providing protection against fluctuations in interest rates. For purposes of
the Indenture, the amount of such obligations shall be the amount determined
in respect thereof as of the end of the then most recently ended fiscal
quarter of such Person, based on the assumption that such obligation had
terminated at the end of such fiscal quarter, and in making such
determination, if any agreement relating to such obligation provides for the
netting of amounts payable by and to such Person thereunder or if any such
agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligations shall be the
net amount so determined, plus any premium due upon default by such Person.
"Investment" by any Person in any other Person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise)
by such Person (whether for cash, property, services, securities or otherwise)
of capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities of such other Person or any agreement to make
any such acquisition; (b) the making by such Person of any deposit with, or
advance, loan or other extension of credit to, such other Person (including
the purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
Person) or any commitment to make any such advance, loan or extension; (c) the
entering into by such Person of any guarantee of, or other contingent
obligation with respect to, Indebtedness or other liability of such other
Person; (d) the making of any capital contribution by such Person to such
other Person; and (e) the designation by the Board of Directors of Services or
CCPR of any Person to be an Unrestricted Subsidiary. For purposes of the
"Limitation on Restricted Payments" covenant, (i) "Investment" shall include
and be valued at the fair market value of the net assets of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the fair market value of such Investment plus the fair
market value of all additional Investments by Services, CCPR or any of the
Restricted Subsidiaries at the time
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any such Investment is made; provided that, for purposes of this sentence, the
fair market value of net assets in excess of $5,000,000 shall be as determined
by an independent appraiser of national reputation.
"Investment Grade" means BBB or higher by S&P or Baa3 or higher by Moody's
or the equivalent of such ratings by S&P or Moody's. In the event that
Services shall be permitted to select any other Rating Agency, the equivalent
of such ratings by such Rating Agency shall be used.
"Junior Indebtedness" means Indebtedness of Services that (i) requires no
payment of principal prior to or on the date on which all principal of and
interest on the Notes is paid in full and (ii) is subordinate and junior in
right of payment to the Notes in all respects.
"Legal Holiday" means a Saturday, a Sunday or a day on which commercial
banks in the City of New York, or at a place of payment are authorized or
required by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that
place on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period.
"Lien" means any mortgage, lien, pledge, charge, security interest, or other
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement and any lease deemed to constitute a security interest and any
option or other agreement to give any security interest).
"Maturity Date" means, when used with respect to any Note, the date
specified on such Note as the fixed date on which the final installment of
principal of such Note is due and payable (in the absence of any acceleration
thereof pursuant to the provisions of the Indenture regarding acceleration of
Indebtedness or any Change of Control Offer or Asset Sale Offer).
"Moody's" means Moody's Investors Service, Inc.
"Net Cash Proceeds" means the aggregate amount of cash and Cash Equivalents
received by Services, CCPR and the Restricted Subsidiaries in respect of an
Asset Sale (including upon the conversion to cash and Cash Equivalents of (A)
any note or installment receivable at any time, or (B) any other property as
and when any cash and Cash Equivalents are received in respect of any property
received in an Asset Sale but only to the extent such cash and Cash
Equivalents are received within one year after such Asset Sale), less the sum
of (i) all reasonable out-of-pocket fees, commissions and other expenses
incurred in connection with such Asset Sale, including the amount (estimated
in good faith by the Board of Directors of Services or CCPR, as the case may
be) of income, franchise, sales and other applicable taxes required to be paid
by Services, CCPR or any Restricted Subsidiary in connection with such Asset
Sale and (ii) the aggregate amount of cash so received which is used to retire
any existing Senior Debt of Services or CCPR or Indebtedness of the Restricted
Subsidiaries, as the case may be, which is required to be repaid in connection
with such Asset Sale or is secured by a Lien on the property or assets of
Services, CCPR or any of the Restricted Subsidiaries, as the case may be.
"Net Pops" of any Person with respect to any System means the Pops of the
area served by such System multiplied by the direct and/or indirect percentage
interest of such Person in the entity licensed or designated to receive an
authorization by the FCC or another appropriate governmental regulatory
authority to construct or operate a System in that area.
"Net Proceeds" means the aggregate net proceeds (including the fair market
value of non-cash proceeds constituting equipment or other assets of a type
generally used in a Related Business an amount reasonably determined by the
Board of Directors of Services or CCPR for amounts under $5,000,000 and by a
financial advisor or appraiser of national reputation for equal or greater
amounts) received by a Person from the sale of Qualified Capital Stock (other
than to a Subsidiary of such Person) after payment of out-of-pocket expenses,
commissions and discounts incurred in connection therewith.
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"Obligation" means any principal, premium, interest (including interest
accruing subsequent to a bankruptcy or other similar proceeding whether or not
such interest is an allowed claim enforceable against Services in a bankruptcy
case under Federal bankruptcy law), penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable pursuant to the terms of
the documentation governing any Indebtedness.
"Operating Cash Flow" of any Person means (a), with respect to any period,
the Consolidated Net Income of such Person for such period, plus (b) the sum,
without duplication (and only to the extent such amounts are deducted from net
revenues in determining such Consolidated Net Income), of (i) the provisions
for income taxes for such period for such Person and its consolidated
Subsidiaries, (ii) depreciation, amortization and other non-cash charges of
such Person and its consolidated Subsidiaries and (iii) Consolidated Interest
Expense of such Person for such period, determined, in each case, on a
consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP, less (c) the amount of all cash payments made during
such period by such Person and its Subsidiaries to the extent such payments
relate to non-cash charges that were added back in determining Operating Cash
Flow for such period or for any prior period. When the foregoing definition is
used in connection with Services, CCPR and the Restricted Subsidiaries,
references to a Person in the foregoing definition shall be deemed to refer to
CCPR and references to Subsidiaries in the foregoing definition shall be
deemed to refer to Services and the Restricted Subsidiaries.
"Permitted Designee" means (i) a spouse or a child of a Permitted Holder,
(ii) trusts for the benefit of a Permitted Holder or a spouse or child of a
Permitted Holder, (iii) in the event of the death or incompetence of a
Permitted Holder, his estate, heirs, executor, administrator, committee or
other personal representative or (iv) any person so long as a Permitted Holder
owns at least 50% of the voting power of all classes of the Voting Stock of
such person.
"Permitted Holders" means George S. Blumenthal, J. Barclay Knapp and their
Permitted Designees.
"Permitted Investment" means (i) Investments in Cash Equivalents; (ii)
Investments in Services, CCPR or a Restricted Subsidiary (other than a Non-
Recourse Restricted Subsidiary); (iii) Investments in a Person substantially
all of whose assets are of a type generally used in a Related Business (an
"Acquired Person") if, as a result of such Investments, (A) the Acquired
Person immediately thereupon becomes a Restricted Subsidiary (other than a
Non-Recourse Restricted Subsidiary) or (B) the Acquired Person immediately
thereupon either (1) is merged or consolidated with or into Services, CCPR or
any of the Restricted Subsidiaries (other than a Non-Recourse Restricted
Subsidiary) and the surviving Person is Services, CCPR or a Restricted
Subsidiary (other than a Non-Recourse Restricted Subsidiary) or (2) transfers
or conveys all or substantially all of its assets to, or is liquidated into,
Services, CCPR or any of the Restricted Subsidiaries (other than a Non-
Recourse Restricted Subsidiary); (iv) Investments in accounts and notes
receivable acquired in the ordinary course of business; (v) any securities
received in connection with an Asset Sale (other than those of a Non-Recourse
Restricted Subsidiary) and any investment with the Net Cash Proceeds from any
Asset Sale in Capital Stock of a Person, all or substantially all of whose
assets are of a type used in a Related Business, that complies with the
"Limitation on Asset Sales and Sales of Restricted Subsidiary Stock" covenant;
(vi) any Investment pursuant to the terms of the agreements described in or
referred to under the caption "The Restructuring" or "Certain Relationships
and Related Transactions," as such agreements were in effect on January 28,
1997; (vii) any guarantee issued by a Restricted Subsidiary in respect of
Senior Debt, or in respect of Indebtedness described by clause (ix) of the
third paragraph of the "Limitation on Incurrence of Additional Indebtedness"
covenant, in each case incurred in compliance with the Indenture; (viii)
advances and prepayments for asset purchases in the ordinary course of
business in a Related Business of Services, CCPR or a Restricted Subsidiary;
(ix) Investments in Non-Recourse Restricted Subsidiaries with the proceeds of
contributions irrevocably and unconditionally received without restriction by
Services from CCPR; and (x) customary loans or advances made in the ordinary
course of business to officers, directors or employees of Services, CCPR or
any of the Restricted Subsidiaries for travel, entertainment, and moving and
other relocation expenses.
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"Permitted Junior Securities" means Equity Interests in Services or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to
a greater extent than, the Notes are subordinated to Senior Debt pursuant to
the Indenture.
"Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges
not yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of Services or CCPR in accordance with GAAP; (c)
statutory liens of carriers, warehousemen, mechanics, materialmen, landlords,
repairmen or other like Liens arising by operation of law in the ordinary
course of business provided that (i) the underlying obligations are not
overdue for a period of more than 30 days, and (ii) such Liens are being
contested in good faith and by appropriate proceedings and adequate reserves
with respect thereto are maintained on the books of Services or CCPR in
accordance with GAAP; (d) Liens securing the performance of bids, trade
contracts (other than borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business; (e) easements, rights-of-way,
zoning, similar restrictions and other similar encumbrances or title defects
which, singly or in the aggregate, do not in any case materially detract from
the value of the property, subject thereto (as such property is used by
Services, CCPR or any of the Restricted Subsidiaries) or interfere with the
ordinary conduct of the business of Services, CCPR or any of the Restricted
Subsidiaries; (f) Liens arising by operation of law in connection with
judgments, only to the extent, for an amount and for a period not resulting in
an Event of Default with respect thereto; (g) pledges or deposits made in the
ordinary course of business in connection with worker's compensation,
unemployment insurance and other types of social security legislation; (h)
Liens in favor of the Trustee arising under the Indenture; (i) Liens securing
Senior Debt that was incurred in accordance with the "Limitation on Incurrence
of Additional Indebtedness" covenant; (j) Liens securing Indebtedness of a
Person existing at the time such Person becomes a Restricted Subsidiary or is
merged with or into Services, CCPR or a Restricted Subsidiary, provided that
such Liens were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do not extend to
any other assets; (k) Liens arising from Purchase Money Indebtedness permitted
under the Indenture; (l) Liens securing Refinancing Indebtedness incurred to
refinance any Indebtedness that was previously so secured in a manner no more
adverse to the Holders of the Notes than the terms of the Liens securing such
refinanced Indebtedness; and (m) Liens in favor of Services, CCPR or a Wholly
Owned Restricted Subsidiary.
"Person" means any corporation, individual, joint stock company, joint
venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust, municipality
or other entity.
"Pops" means the estimate of the population of an area as derived from the
most recent Rand McNally Commercial Atlas or if such statistics are not
printed in the Rand McNally Commercial Atlas or the Rand McNally Commercial
Atlas is no longer published, such other recognized source of such
information.
"Purchase Money Indebtedness" means Indebtedness of Services, CCPR or the
Restricted Subsidiaries incurred in connection with the purchase of property
or assets for the business of Services, CCPR or the Restricted Subsidiaries,
provided, that the recourse of the lenders with respect to such Indebtedness
is limited solely to the property or assets so purchased without further
recourse to either Services, CCPR or any of the Restricted Subsidiaries.
"Qualified Capital Stock" means any Capital Stock of a Person that is not
Disqualified Capital Stock.
"Rating Agencies" means (i) S&P and (ii) Moody's and (iii) if S&P or Moody's
or both shall not make a rating of the Notes publicly available, a nationally
recognized securities rating agency or agencies, as the case may be, selected
by Services, which shall be substituted for S&P or Moody's or both, as the
case may be.
"Rating Category" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii)
with respect to Moody's, any of the following categories: Ba, B,
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Caa, Ca, C and D (or equivalent successor categories); and (iii) the
equivalent of any such category of S&P or Moody's used by another Rating
Agency. In determining whether the rating of the Notes has decreased by one or
more gradations, gradations within Rating Categories (+ and - for S&P; 1, 2
and 3 for Moody's; or the equivalent gradations for another Rating Agency)
shall be taken into account (e.g. with respect to S&P, a decline in a rating
from BB to BB- as well as from BB- to B+, will constitute a decrease of one
gradation).
"Rating Date" means that date which is 90 days prior to the earlier of (x) a
Change of Control and (y) public notice of the occurrence of a Change of
Control or the intention by Services or CCPR to effect a Change of Control.
"Rating Decline" shall mean the occurrence on, or within six months after,
the date of public notice of the occurrence of a Change of Control or the
intention by Services to effect a Change of Control (which period shall be
extended so long as the rating of the Notes is under publicly announced
consideration for possible downgrade by any of the Rating Agencies) of any of
the following events: (a) in the event the Notes are rated by both Moody's and
S&P on the Rating Date as Investment Grade, the rating of the Notes by either
Rating Agency shall be below Investment Grade, (b) in the event the Notes are
rated by either, but not both, of the Rating Agencies on the Rating Date as
Investment Grade, the rating of the Notes by such Rating Agency shall be below
Investment Grade, or (c) in the event the Notes are rated below Investment
Grade by both Rating Agencies on the Rating Date, the rating of the Notes by
either Rating Agency shall be decreased by one or more gradations (including
gradations within Rating Categories as well as between Rating Categories).
"Reference Period" with regard to any Person means the last full fiscal
quarter of such Person for which financial information (which Services and
CCPR, as the case may be, shall use their best efforts to compile in a timely
manner) in respect thereof is available ended on or immediately preceding any
date upon which any determination is to be made pursuant to the terms of the
Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or
(b) constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference (or if such
Indebtedness or Disqualified Capital Stock does not require cash payments
prior to maturity or is otherwise issued at a discount, the original issue
price of such Indebtedness or Disqualified Capital Stock), not to exceed the
sum of (x) the lesser of (i) the principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so refinanced and (ii) if such Indebtedness being
refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such
Refinancing, (y) the amount of any premium required to be paid in connection
with such Refinancing pursuant to the terms of such Indebtedness and (z) all
other customary fees and expenses of Services, CCPR or such Restricted
Subsidiary reasonably incurred in connection with such refinancing; provided,
that (A) Refinancing Indebtedness issued by any Restricted Subsidiary shall
only be used to refinance outstanding Indebtedness or Disqualified Capital
Stock of such Restricted Subsidiary, (B) Refinancing Indebtedness shall (x)
not have a Weighted Average Life shorter than the Indebtedness or Disqualified
Capital Stock to be so refinanced at the time of such Refinancing and (y) in
all respects, be no less subordinated or junior, if applicable, to the rights
of Holders of the Notes than was the Indebtedness or Disqualified Capital
Stock to be refinanced and (C) such Refinancing Indebtedness shall have no
installments of principal (or redemption payment) scheduled to come due
earlier than the scheduled maturity of any installment of principal (or
redemption payment) of the Indebtedness or Disqualified Capital Stock to be so
refinanced which was scheduled to come due prior to the Stated Maturity of the
Notes.
"Related Business" means any business directly related to the ownership,
development, operation or acquisition of communications or media systems or
services.
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"Related Person" means, with respect to any Person, (i) any Affiliate of
such Person or any spouse, immediate family member, or other relative who has
the same principal residence of any Affiliate of such Person and (ii) any
trust in which any Person described in clause (i) above, have a beneficial
interest.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.
"Restricted Payment" means, with respect to any Person, (i) any dividend or
other distribution on shares of Capital Stock of such Person or any Subsidiary
of such Person, (ii) any payment on account of the purchase, redemption or
other acquisition or retirement for value, or any payment in respect of any
amendment (in anticipation of or in connection with any such retirement,
acquisition or defeasance) in whole or in part, of any shares of Capital Stock
of such Person or any Subsidiary of such Person held by Persons other than
such Person or any of its Restricted Subsidiaries, (iii) any defeasance,
redemption, repurchase or other acquisition or retirement for value, or any
payment in respect of any amendment (in anticipation of or in connection with
any such retirement, acquisition or defeasance) in whole or in part, of any
Indebtedness of Services or CCPR (other than the scheduled repayment thereof
at maturity and any mandatory redemption or mandatory repurchase thereof
pursuant to the terms thereof) by such Person or a Subsidiary of such Person
that is subordinate in right of payment to the Notes (other than in exchange
for Refinancing Indebtedness permitted to be incurred under the Indenture and
except for any such defeasance, redemption, repurchase, other acquisition or
payment in respect of Indebtedness held by any Restricted Subsidiary) and (iv)
any Investment (other than a Permitted Investment); provided, however, that
the term "Restricted Payment" does not include (i) any dividend, distribution
or other payment on shares of Capital Stock of Services, CCPR or any
Restricted Subsidiary solely in shares of Qualified Capital Stock, (ii) any
dividend, distribution or other payment to Services, CCPR, or any dividend to
any of the Restricted Subsidiaries by any of the Subsidiaries, (iii) any
dividend, distribution or other payment by any Restricted Subsidiary on shares
of its Capital Stock that is paid pro rata to all holders of such Capital
Stock and (iv) the purchase, redemption or other acquisition or retirement for
value of shares of Capital Stock of any Restricted Subsidiary (other than Non-
Recourse Restricted Subsidiaries) held by Persons other than Services, CCPR or
any of the Restricted Subsidiaries.
"Restricted Subsidiary" means any Subsidiary of CCPR or any future
subsidiary of Services which at the time of determination is not an
Unrestricted Subsidiary. The Board of Directors of CCPR or Services, as the
case may be, may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if, immediately before and after giving effect to such
designation, there would exist no Default or Event of Default and CCPR or
Services, as the case may be, could incur at least $1.00 of Indebtedness
pursuant to the Annualized Operating Cash Flow Ratio test of the "Limitation
on Incurrence of Additional Indebtedness" covenant, on a pro forma basis
taking into account such designation.
"S&P" means Standard & Poor's Rating Group and its successors.
"Senior Debt" means all Indebtedness of Services or CCPR (including, with
respect to the Credit Agreement, all Obligations thereunder), including
interest thereon, whether outstanding on January 28, 1997 or thereafter
incurred, other than (a) Indebtedness that is expressly subordinated or junior
in right of payment to any Indebtedness of Services or CCPR, (b) Indebtedness
represented by Disqualified Capital Stock, (c) any liability for federal,
state, local or other taxes owed or owing by Services or CCPR, (d)
Indebtedness of Services or CCPR to any Subsidiary of Services or CCPR or any
Affiliate of Services or CCPR (other than Purchase Money Indebtedness
constituting at least 75% but not more than 100% of the cost of wireless
cellular communication system equipment and other related fixed assets,
incurred in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant), (e) trade payables and (f) Indebtedness incurred in
violation of the Indenture.
"Significant Restricted Subsidiary" means one or more Restricted
Subsidiaries having an aggregate net book value of assets in excess of 5% of
the net book value of the assets of CCPR, Services and the Restricted
Subsidiaries on a consolidated basis.
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"Stated Maturity" means the date fixed for the payment of any principal or
premium pursuant to the Indenture and the Notes, including the Maturity Date,
upon redemption, acceleration, Asset Sale Offer, Change of Control Offer or
otherwise.
"Strategic Equity Investor" means any company, or a controlled Affiliate of
any company, which is substantially engaged in a cable or telecommunications
business; provided, however, that a Strategic Equity Investor shall not
include (x) any Subsidiary of CCPR or Services or (y) any Person that is an
Affiliate of CCPR or Services.
"Subsidiary" with respect to any Person, means (i) a corporation at least
fifty percent of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly,
owned by such Person, by such Person and one or more Subsidiaries of such
Person or by one or more Subsidiaries of such Person, or (ii) a partnership in
which such Person or a Subsidiary of such Person is, at the time, a general
partner of such partnership, or (iii) any person in which such Person, one or
more Subsidiaries of such Person, or such Person and one or more Subsidiaries
of such Person, directly or indirectly, at the date of determination thereof
has (x) at least a fifty percent ownership interest or (y) the power to elect
or direct the election of the directors or other governing body of such
Person.
"Tax Sharing Agreement" means that certain Tax Sharing Agreement by and
among Services, CCPR and the Restricted Subsidiaries as in effect on January
28, 1997.
"Unrestricted Subsidiary" shall mean any Subsidiary of CCPR or any future
Subsidiary of Services that, at the time of determination, shall be an
Unrestricted Subsidiary (as designated by the Board of Directors of CCPR or
Services, as the case may be, as provided below). The Board of Directors of
CCPR or Services, as the case may be, may designate any Subsidiary of CCPR or
Services, as the case may be (including any newly acquired or newly formed
Subsidiary at or prior to the time it is so formed or acquired) to be an
Unrestricted Subsidiary if (a) no Default or Event of Default is existing or
will occur as a consequence thereof, (b) such Subsidiary does not own any
Capital Stock of, or own or hold any Lien on any property or asset of,
Services, CCPR or any Restricted Subsidiary that is not a Subsidiary of the
Subsidiary to be so designated and (c) such Subsidiary and each of its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee, or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the
lender has recourse to any property or assets of Services, CCPR or any of the
Restricted Subsidiaries (except that such Subsidiary and its Subsidiaries may
guarantee the Notes); provided that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, that such designation would be permitted under the
"Limitation on Restricted Payments" covenant. Each such designation shall be
evidenced by filing with the Trustee a certified copy of the resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions.
"Weighted Average Life" means, as of the date of determination, with respect
to any debt instrument, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such debt instrument
multiplied by the amount of each such respective principal payment by (ii) the
sum of all such principal payments.
"Wholly Owned" means, with respect to a Subsidiary of Services or CCPR, (i)
a Subsidiary that is a corporation, of which not less than 99% of the Capital
Stock (except for directors' qualifying shares or certain minority interests
owned by other Persons solely due to local law requirements that there be more
than one stockholder, but which interest is not in excess of what is required
for such purpose) is owned directly by such Person or through one or more
other Wholly Owned Subsidiaries of such Person, or (ii) any entity other than
a corporation in which such Person, directly or indirectly, owns not less than
99% of the Capital Stock of such entity.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. Services has agreed that, for a period of 90 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1997, all dealers effecting transactions in the New
Notes may be required to deliver a prospectus.
Services will not receive any proceeds from any sale of New Notes by broker-
dealers. New Notes received by broker-dealers for their own account pursuant
to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such New Notes. Any broker-
dealer that resells New Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes
and any commission or concessions received by any such persons may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, Services will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. Services has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the Holders of the
Notes) other than commissions or concessions of any brokers or dealers and
will indemnify the Holders of the Notes (including any broker-dealer) against
certain liabilities, including liabilities under the Securities Act.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain U.S. Federal income tax
consequences associated with the exchange of the Old Notes for the New Notes
pursuant to the Exchange Offer. The summary is based upon current laws,
regulations, rulings and judicial decisions all of which are subject to
change, possibly with retroactive effect. The discussion below does not
address all aspects of U.S. Federal income taxation that may be relevant to
particular Holders of Old Notes or New Notes. In addition, the discussion does
not address any aspect of state, local or foreign taxation.
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer should not be treated as an "exchange" for U.S. Federal income tax
purposes because the New Notes should not be considered to differ materially
in kind or extent from the Old Notes. Rather, the New Notes received by a
Holder should be treated as a continuation of the Old Notes in the hands of
such Holder. As a result there should be no U.S. Federal income tax
consequences to Holders exchanging the Old Notes for the New Notes pursuant to
the Exchange Offer, and any exchanging Holder of Old Notes should have the
same tax basis and holding period in the New Notes as such Holder had in the
Old Notes immediately prior to the exchange.
PROSPECTIVE HOLDERS OF THE NEW NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH HOLDERS' OLD
NOTES FOR THE NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS.
LEGAL MATTERS
The validity of the New Notes and the Guarantee offered hereby will be
passed upon for Services and CCPR by Richard J. Lubasch, Esq., Senior Vice
President--General Counsel and Secretary of CCPR and Services. Mr. Lubasch is
also a director of Services.
EXPERTS
The audited consolidated financial statements of Cellular Communications of
Puerto Rico, Inc., the audited financial statements of CCPR Services, Inc. and
the audited financial statements of San Juan Cellular Telephone Company (a
Partnership) included in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, as stated in their reports appearing herein. Such
financial statements and schedules are included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Condensed Consolidated Balance Sheet--March 31, 1997 (unaudited)......... F-2
Condensed Consolidated Statements of Operations--Three months ended March
31, 1997 and 1996 (unaudited)........................................... F-3
Condensed Consolidated Statement of Shareholder's Equity--Three months
ended March 31, 1997 (unaudited)........................................ F-4
Condensed Consolidated Statements of Cash Flows--Three months ended March
31, 1997 and 1996 (unaudited)........................................... F-5
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-6
Report of Independent Auditors........................................... F-8
Consolidated Balance Sheets--December 31, 1996 and 1995.................. F-9
Consolidated Statements of Operations--Years ended December 31, 1996,
1995 and 1994........................................................... F-10
Consolidated Statement of Shareholders' Equity--Years ended December 31,
1996, 1995 and 1994..................................................... F-11
Consolidated Statements of Cash Flows--Years ended December 31, 1996,
1995 and 1994........................................................... F-12
Notes to Consolidated Financial Statements............................... F-14
Schedule II--Valuation and Qualifying Accounts........................... F-23
CCPR SERVICES, INC.
Condensed Balance Sheet--March 31, 1997 (unaudited)...................... F-24
Condensed Statements of Operations--Three months ended March 31, 1997 and
1996 (unaudited)........................................................ F-25
Condensed Statement of Shareholder's Equity--Three months ended March 31,
1997 (unaudited)........................................................ F-26
Condensed Statements of Cash Flows--Three months ended March 31, 1997 and
1996 (unaudited)........................................................ F-27
Notes to Condensed Financial Statements (unaudited)...................... F-28
Report of Independent Auditors........................................... F-30
Balance Sheets--December 31, 1996 and 1995............................... F-31
Statements of Operations--Years ended December 31, 1996, 1995 and 1994... F-32
Statement of Shareholder's Equity--Years ended December 31, 1996, 1995
and 1994................................................................ F-33
Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994... F-34
Notes to Financial Statements............................................ F-36
Schedule II--Valuation and Qualifying Accounts........................... F-41
SAN JUAN CELLULAR TELEPHONE COMPANY
Condensed Balance Sheet--March 31, 1997 (unaudited)...................... F-42
Condensed Statements of Operations--Three months ended March 31, 1997 and
1996 (unaudited)........................................................ F-43
Condensed Statement of Changes in Partners' Capital--Three months ended
March 31, 1997 (unaudited).............................................. F-44
Condensed Statements of Cash Flows--Three months ended March 31, 1997 and
1996 (unaudited)........................................................ F-45
Notes to Condensed Financial Statements (unaudited)...................... F-46
Report of Independent Auditors........................................... F-47
Balance Sheets--December 31, 1996 and 1995............................... F-48
Statements of Operations--Years ended December 31, 1996, 1995 and 1994... F-49
Statement of Changes in Partners' Capital--Years ended December 31, 1996,
1995 and 1994........................................................... F-50
Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994... F-51
Notes to Financial Statements............................................ F-52
</TABLE>
F-1
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 3,905,000
Marketable securities.......................................... 3,660,000
Accounts receivable--trade, less allowance for doubtful
accounts of $3,889,000........................................ 20,718,000
Due from CoreComm Incorporated................................. 307,000
Equipment inventory............................................ 4,185,000
Prepaid expenses and other current assets...................... 2,318,000
------------
Total current assets......................................... 35,093,000
Property, plant and equipment, net............................... 100,533,000
Unamortized license acquisition costs............................ 161,594,000
Deferred financing costs, less accumulated amortization of
$100,000........................................................ 5,932,000
Other assets, less accumulated amortization of $933,000.......... 1,972,000
------------
Total assets................................................. $305,124,000
============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................... $ 7,232,000
Accrued expenses............................................... 12,532,000
Due to NTL Incorporated........................................ 349,000
Interest payable............................................... 3,333,000
Deferred revenue............................................... 3,154,000
------------
Total current liabilities.................................... 26,600,000
Long-term debt................................................... 200,000,000
Commitments and contingent liabilities
Shareholder's equity:
Common stock--$.01 par value; authorized, issued and
outstanding--1,000 shares
Additional paid-in capital..................................... 137,570,000
(Deficit)...................................................... (59,046,000)
------------
78,524,000
------------
Total liabilities and shareholder's equity................... $305,124,000
============
</TABLE>
See accompanying notes.
F-2
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
<S> <C> <C>
Revenues:
Service revenue................................... $33,352,000 $28,513,000
Equipment revenue................................. 3,919,000 2,963,000
----------- -----------
37,271,000 31,476,000
Costs and expenses:
Cost of equipment sold............................ 4,779,000 4,680,000
Operating expenses................................ 3,890,000 3,885,000
Selling, general and administrative expenses...... 17,899,000 13,647,000
Depreciation of rental equipment.................. 177,000 115,000
Depreciation expense.............................. 3,806,000 2,888,000
Amortization expense.............................. 1,557,000 1,527,000
----------- -----------
32,108,000 26,742,000
----------- -----------
Operating income.................................... 5,163,000 4,734,000
Other income (expense):
Interest income and other, net.................... 65,000 60,000
Interest expense.................................. (3,984,000) (1,779,000)
----------- -----------
Income before income taxes and extraordinary item... 1,244,000 3,015,000
Income tax provision.............................. (1,176,000) (1,726,000)
----------- -----------
Income before extraordinary item.................... 68,000 1,289,000
Loss from early extinguishment of debt, net of
income tax benefit of $316,000..................... (3,751,000) --
----------- -----------
Net income (loss)................................... $(3,683,000) $ 1,289,000
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
--------------------- PAID-IN ---------------------
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT
Balance, December 31,
1996.................... 13,432,000 $134,000 $226,160,000 $(55,363,000) (343,000) $(8,323,000)
<S> <C> <C> <C> <C> <C> <C>
Exercise of stock op-
tions.................. 20,000 1,000 286,000
Common stock repur-
chased, at cost........ (35,000) (688,000)
Corporate restructur-
ing.................... (13,451,000) (135,000) (8,876,000) 378,000 9,011,000
Distribution to CoreComm
Incorporated........... (80,000,000)
Net (loss) for the three
months ended
March 31, 1997......... (3,683,000)
----------- -------- ------------ ------------ ------- ---------
Balance, March 31,
1997................... 1,000 $ -- $137,570,000 $(59,046,000) -- $ --
=========== ======== ============ ============ ======= =========
</TABLE>
See accompanying notes
F-4
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
<S> <C> <C>
1997 1996
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... $ 8,130,000 $ 9,987,000
INVESTING ACTIVITIES
Additional costs of cellular license interests... (146,000) --
Purchase of property, plant and equipment........ (7,210,000) (6,327,000)
Proceeds from maturities of marketable securi-
ties............................................ 2,257,000 --
------------- -----------
Net cash (used in) investing activities............ (5,099,000) (6,327,000)
FINANCING ACTIVITIES
Repayment of bank loan........................... (115,000,000) --
Proceeds from issuance of Notes, net of financing
costs........................................... 193,968,000 --
Distribution to CoreComm Incorporated............ (80,000,000) --
Purchase of treasury stock....................... (688,000) --
Distribution to minority interest holders........ -- (1,172,000)
Principal payments............................... -- (225,000)
Additional deferred financing costs.............. -- (8,000)
Proceeds from exercise of stock options.......... 287,000 68,000
------------- -----------
Net cash (used in) financing activities............ (1,433,000) (1,337,000)
Increase in cash and cash equivalents.............. 1,598,000 2,323,000
Cash and cash equivalents at beginning of peri-
od.............................................. 2,307,000 8,050,000
------------- -----------
Cash and cash equivalents at end of period......... $ 3,905,000 $10,373,000
============= ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
exclusive of amounts capitalized................ $ 2,329,000 $ 1,815,000
Income taxes paid................................ 550,000 481,000
Supplemental schedule of noncash investing activi-
ties:
Common stock issued to acquire cellular license
interests....................................... $ -- $21,536,000
Liabilities incurred to acquire property, plant
and equipment................................... 1,012,000 1,519,000
</TABLE>
See accompanying notes.
F-5
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three months
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
NOTE B--UNAMORTIZED LICENSE ACQUISITION COSTS
Unamortized license acquisition costs consist of:
<TABLE>
<CAPTION>
MARCH 31,
1997
------------
(Unaudited)
<S> <C>
Deferred cellular license costs............................ $ 5,935,000
Excess of purchase price paid over the fair market value of
tangible assets acquired.................................. 189,466,000
------------
195,401,000
Accumulated amortization................................... 33,807,000
------------
$161,594,000
============
NOTE C--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<CAPTION>
MARCH 31,
1997
------------
(Unaudited)
<S> <C>
Land....................................................... $ 2,004,000
Operating equipment........................................ 104,155,000
Office furniture and other equipment....................... 17,115,000
Rental equipment........................................... 1,429,000
Construction in progress................................... 17,405,000
------------
142,108,000
Accumulated depreciation................................... 41,575,000
------------
$100,533,000
============
NOTE D--ACCRUED EXPENSES
Accrued expenses consist of:
<CAPTION>
MARCH 31,
1997
------------
(Unaudited)
<S> <C>
Accrued compensation....................................... $ 1,019,000
Accrued franchise, property and income taxes............... 4,765,000
Commissions payable........................................ 973,000
Subscriber deposits........................................ 1,510,000
Other...................................................... 4,265,000
------------
$ 12,532,000
============
</TABLE>
F-6
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(UNAUDITED) (CONTINUED)
NOTE E--LONG-TERM DEBT
In January 1997, a wholly owned subsidiary of the Company, CCPR Services,
Inc. ("Services") issued $200,000,000 principal amount 10% Senior Subordinated
Notes due 2007 (the "Notes") and received proceeds of $193,968,000 after
discounts, commissions and other related costs. The Notes are unconditionally
guaranteed by the Company. The Company and Services used approximately
$116,000,000 of the proceeds to repay the $115,000,000 principal outstanding
plus accrued interest and fees under the bank loan.
In connection with the repayment of the bank loan, the Company recorded an
extraordinary loss of $4,067,000 ($3,751,000 net of income tax benefit) from
the write-off of unamortized deferred financing costs.
The Notes are due on February 1, 2007. Interest on the Notes is payable
semiannually commencing on August 1, 1997. The Notes are redeemable, in whole
or in part, at the option of Services at any time on or after February 1,
2002, at a redemption price of 105% that declines annually to 100% in 2005, in
each case together with accrued and unpaid interest to the redemption date.
The Indenture contains certain covenants with respect to Services, the Company
and certain subsidiaries that limit their ability to, among other things, (i)
incur additional indebtedness, (ii) pay dividends or make other distributions
or restricted payments, (iii) create liens, (iv) sell assets, (v) enter into
mergers or consolidations or (vi) sell or issue stock of subsidiaries.
NOTE F--COMMITMENTS AND CONTINGENT LIABILITIES
As of March 31, 1997, the Company was committed to purchase cellular network
and other equipment and construction services of approximately $13,000,000. In
addition, as of March 31, 1997, the Company had commitments to purchase
cellular telephones, pagers and accessories of approximately $3,900,000.
In 1992, the Company entered into an agreement which in effect provides for
a twenty-year license to use its service mark which is also licensed to many
of the non-wireline cellular systems in the United States. The Company is
required to pay licensing and advertising fees, and to maintain certain
service quality standards. The total fees paid for 1997 were $216,000, which
were determined by the size of the Company's markets.
F-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Cellular Communications of Puerto Rico, Inc.
We have audited the accompanying consolidated balance sheets of Cellular
Communications of Puerto Rico, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1996. Our audits also included the financial statement schedule
listed in the Index. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Cellular Communications of Puerto Rico, Inc. and subsidiaries at December
31, 1996 and 1995, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
San Juan, Puerto Rico
February 23, 1997
F-8
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 2,307,000 $ 8,050,000
Marketable securities............................ 5,917,000 --
Accounts receivable--trade, less allowance for
doubtful accounts of $3,767,000 (1996) and
$3,233,000 (1995)............................... 20,034,000 17,929,000
Equipment inventory.............................. 2,912,000 6,388,000
Prepaid expenses and other current assets........ 3,022,000 2,600,000
------------ ------------
Total current assets........................... 34,192,000 34,967,000
Property, plant and equipment, net................. 97,945,000 75,769,000
Unamortized license acquisition costs.............. 162,822,000 139,952,000
Deferred financing costs, less accumulated
amortization
of $1,065,000 (1996) and $455,000 (1995).......... 4,118,000 4,706,000
Other assets, less accumulated amortization
of $723,000 (1996) and $1,471,000 (1995).......... 1,645,000 1,603,000
------------ ------------
$300,722,000 $256,997,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 7,364,000 $ 5,874,000
Accrued expenses................................. 10,889,000 10,895,000
Due to NTL Incorporated.......................... 102,000 --
Due to Cellular Communications, Inc.............. -- 310,000
Interest payable................................. 1,678,000 615,000
Deferred revenue................................. 3,081,000 2,854,000
Current portion of long-term debt................ -- 1,975,000
------------ ------------
Total current liabilities...................... 23,114,000 22,523,000
Long-term debt..................................... 115,000,000 90,000,000
Commitments and contingent liabilities.............
Minority interests................................. -- 322,000
Shareholders' equity:
Series preferred stock--$.01 par value; authorized
2,500,000 shares;
issued and outstanding none....................... -- --
Common stock--$.01 par value; authorized 30,000,000
shares;
issued 13,432,000 (1996) and 12,803,000 (1995)
shares............................................ 134,000 128,000
Additional paid-in capital......................... 226,160,000 210,646,000
(Deficit).......................................... (55,363,000) (60,477,000)
------------ ------------
170,931,000 150,297,000
Treasury stock--at cost, 343,000 (1996) and 207,000
(1995) shares..................................... (8,323,000) (6,145,000)
------------ ------------
162,608,000 144,152,000
------------ ------------
$300,722,000 $256,997,000
============ ============
</TABLE>
See accompanying notes.
F-9
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Service revenue..................... $119,839,000 $94,409,000 $55,900,000
Equipment revenue................... 13,979,000 14,259,000 11,241,000
------------ ----------- -----------
133,818,000 108,668,000 67,141,000
------------ ----------- -----------
Costs and expenses:
Cost of equipment sold.............. 17,962,000 20,635,000 13,818,000
Operating expenses.................. 15,214,000 10,207,000 8,501,000
Selling, general and administrative
expenses........................... 63,223,000 51,148,000 30,944,000
Depreciation of rental equipment.... 521,000 225,000 312,000
Depreciation expense................ 12,710,000 9,638,000 6,400,000
Amortization expense................ 6,187,000 5,794,000 5,212,000
------------ ----------- -----------
115,817,000 97,647,000 65,187,000
------------ ----------- -----------
Operating income...................... 18,001,000 11,021,000 1,954,000
Other income (expense):
Interest income and other, net...... 646,000 358,000 867,000
Interest expense.................... (8,181,000) (8,501,000) (7,305,000)
------------ ----------- -----------
Income (loss) before income tax
provision and minority interests..... 10,466,000 2,878,000 (4,484,000)
Income tax provision.................. (5,352,000) (4,007,000) (328,000)
------------ ----------- -----------
Income (loss) before minority
interests............................ 5,114,000 (1,129,000) (4,812,000)
Minority interests.................... -- (322,000) --
------------ ----------- -----------
Net income (loss)..................... $ 5,114,000 $(1,451,000) $(4,812,000)
============ =========== ===========
Net income (loss) per common share.... $ .36 $ (.13) $ (.49)
============ =========== ===========
Weighted average number of common
shares used in computation of net
income (loss) per share including
common stock equivalents............. 14,027,000 11,070,000 9,867,000
============ =========== ===========
</TABLE>
See accompanying notes.
F-10
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK TREASURY STOCK
-------------------- PAID-IN ---------------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
---------- -------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 9,760,000 $ 98,000 $165,737,000 $(54,214,000)
Shares issued for
acquisition............ 201,000 2,000 5,582,000
Exercise of stock
options................ 39,000 391,000
Net loss for the year
ended
December 31, 1994...... (4,812,000)
---------- -------- ------------ ------------
Balance, December 31,
1994................... 10,000,000 100,000 171,710,000 (59,026,000)
Exercise of stock
options................ 25,000 385,000
Conversion of Senior
Subordinated Notes..... 2,778,000 28,000 38,551,000
Common stock
repurchased, at cost... (207,000) $(6,145,000)
Net loss for the year
ended
December 31, 1995...... (1,451,000)
---------- -------- ------------ ------------ -------- -----------
Balance, December 31,
1995................... 12,803,000 128,000 210,646,000 (60,477,000) (207,000) (6,145,000)
Shares issued for
interests in
cellular license....... 820,000 8,000 21,528,000
Exercise of stock
options................ 16,000 129,000
Common stock
repurchased, at cost... (343,000) (8,323,000)
Retirement of Treasury
Stock.................. (207,000) (2,000) (6,143,000) 207,000 6,145,000
Net income for the year
ended December 31,
1996................... 5,114,000
---------- -------- ------------ ------------ -------- -----------
Balance, December 31,
1996................... 13,432,000 $134,000 $226,160,000 $(55,363,000) (343,000) $(8,323,000)
========== ======== ============ ============ ======== ===========
</TABLE>
See accompanying notes.
F-11
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................... $ 5,114,000 $ (1,451,000) $ (4,812,000)
Adjustments to reconcile net income
(loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization...... 19,418,000 15,657,000 11,924,000
Provision for losses on accounts
receivable........................ 7,520,000 6,603,000 2,579,000
Loss on sale of property, plant and
equipment......................... 371,000 416,000 34,000
Minority interests................. -- 322,000 --
Interest paid to Cellular
Communications of Ohio, Inc....... -- (12,978,000) --
Changes in operating assets and
liabilities net of effects from
business acquisitions:
Accounts receivable.............. (9,625,000) (15,000,000) (6,848,000)
Equipment inventory.............. 3,476,000 (4,163,000) (68,000)
Prepaid expenses................. (422,000) (1,484,000) (304,000)
Other assets..................... (292,000) (461,000) (172,000)
Accounts payable................. 2,497,000 (2,400,000) 1,214,000
Accrued expenses................. (227,000) 5,004,000 2,534,000
Interest payable................. 1,063,000 (760,000) --
Deferred revenue................. 227,000 1,237,000 457,000
Due to Cellular Communications of
Ohio, Inc....................... -- 1,683,000 3,956,000
Due to Cellular Communications,
Inc............................. (310,000) (4,000) 83,000
Due to NTL Incorporated.......... 102,000 -- --
------------ ------------ ------------
Net cash provided by (used in)
operating activities................ 28,912,000 (7,779,000) 10,577,000
INVESTING ACTIVITIES
Purchase of marketable securities.... (18,653,000) (2,058,000) (10,989,000)
Proceeds from maturities of
marketable securities............... 12,736,000 11,057,000 11,913,000
Purchase of property, plant and
equipment........................... (36,564,000) (30,725,000) (17,097,000)
Acquisition of subsidiary, net of
cash acquired....................... -- -- (370,000)
Purchase of cellular license
interests........................... (5,811,000) -- (8,000)
Purchase of other assets............. -- -- (251,000)
------------ ------------ ------------
Net cash (used in) investing
activities.......................... (48,292,000) (21,726,000) (16,802,000)
FINANCING ACTIVITIES
Proceeds from borrowings, net of
financing costs..................... 52,000,000 121,946,000 --
Principal payments................... (28,975,000) (37,000,000) --
Additional deferred financing costs.. (22,000) -- (107,000)
Repayment of amount due to Cellular
Communications of
Ohio, Inc........................... -- (47,942,000) --
Proceeds from exercise of stock
options............................. 129,000 385,000 391,000
Purchase of treasury stock........... (8,323,000) (6,145,000) --
Distribution to minority interests
holders............................. (1,172,000) -- --
------------ ------------ ------------
Net cash provided by financing
activities.......................... 13,637,000 31,244,000 284,000
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents......................... (5,743,000) 1,739,000 (5,941,000)
Cash and cash equivalents at
beginning of year................... 8,050,000 6,311,000 12,252,000
------------ ------------ ------------
Cash and cash equivalents at end of
year................................ $ 2,307,000 $ 8,050,000 $ 6,311,000
============ ============ ============
</TABLE>
F-12
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
<S> <C> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest
exclusive
of amounts capitalized.................... $7,118,000 $20,556,000 $3,350,000
Income taxes paid.......................... 7,239,000 620,000 --
Supplemental schedule of noncash investing
activities:
Liabilities incurred to acquire property,
plant and equipment....................... 1,595,000 2,381,000 2,135,000
Common stock issued for acquisition of
subsidiary................................ -- -- 3,675,000
Debt assumed for acquisition of
subsidiary................................ -- -- 1,750,000
Common stock issued to acquire cellular
license interests......................... 21,536,000 -- 1,909,000
Supplemental schedule of noncash financing
activities:
Conversion of Senior Subordinated Notes,
net of unamortized deferred financing
costs of $1,421,000....................... -- 38,579,000 --
</TABLE>
See accompanying notes.
F-13
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
Cellular Communications of Puerto Rico, Inc. (the "Company") was
incorporated on May 18, 1988 as a wholly-owned subsidiary of Cellular
Communications, Inc. ("CCI") to own and operate cellular telephone systems. On
July 25, 1990, CCI and AirTouch Communications, Inc. entered into a Merger and
Joint Venture Agreement, as amended, pursuant to which, on February 28, 1992,
CCI distributed to its stockholders all of the outstanding common stock of the
Company.
In January 1997, the Company completed a corporate restructuring. A new
entity named CoreComm Incorporated ("CoreComm") was formed, and a subsidiary
of CoreComm was merged with and into the Company. Upon the merger, the Company
became a wholly-owned subsidiary of CoreComm and shareholders of the Company
became shareholders of CoreComm on a one for one basis.
The Company, through its subsidiaries, owns licenses to operate cellular
telephone and paging systems in Puerto Rico and in the U.S. Virgin Islands.
Based on service revenues, the predominant line of business is cellular
telephone services. The Company's business is currently dependent on the
trends in the use of cellular telephone and paging services and is subject to
economic, social, political and governmental conditions in Puerto Rico and the
U.S. Virgin Islands. The sale of cellular and paging services in each of the
Company's markets is becoming increasingly competitive. The Company previously
had one cellular competitor in each market, but in the near future it may face
many wireless competitors due to the introduction of broadband personal
communications services ("PCS") on frequencies recently auctioned by the
Federal Communications Commission ("FCC") and specialized mobile radio ("SMR")
services on existing SMR frequencies. At least one competitor is offering PCS
services in several of the Company's markets. Increased competition could
result in pricing pressure, which could contribute to lower revenues per
customer and higher customer acquisition costs.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and those entities where the Company's interest
is greater than 50%. Significant intercompany accounts and transactions have
been eliminated in consolidation.
RECLASSIFICATIONS
Certain of the 1994 amounts have been reclassified to conform to the current
presentation.
LICENSE ACQUISITION COSTS
The FCC grants the license to operate a cellular telephone system in a
Metropolitan Service Area or a Rural Service Area. Costs incurred to obtain
FCC licenses have been deferred and are being amortized by the straight-line
method over ten years. In connection with the purchase of license interests,
the excess of purchase price paid over the fair value of tangible assets
acquired has been classified as license acquisition costs which are amortized
through charges to operations by the straight-line method over 40 years.
F-14
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based upon the weighted average
number of common shares outstanding during the periods, including common stock
equivalents in the net income per share computation. Common stock equivalents
and the shares issuable upon the conversion of the Convertible Senior
Subordinated Notes prior to conversion are excluded from the calculation of
net loss per share as their effect would be antidilutive.
REVENUE RECOGNITION
Service revenue is recognized at the time services are rendered. Charges for
services that are billed in advance are deferred and recognized when earned.
Equipment sales are recorded when the equipment is shipped to the customer.
Rental revenue is billed and recognized on a monthly basis.
CASH EQUIVALENTS
Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $288,000 and
$6,881,000 at December 31, 1996 and 1995, respectively. At December 31, 1996
and 1995, cash equivalents consisted primarily of money market instruments.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale, which are
carried at fair value. Unrealized holding gains and losses on securities, net
of tax, are carried as a separate component of shareholders' equity. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
and other income. Realized gains and losses and declines in value judged to be
other than temporary will be included in interest and other income. The cost
of securities sold or matured is based on the specific identification method.
Interest on securities is included in interest and other income.
Marketable securities at December 31, 1996 consist of U.S. Treasury
securities and obligations of U.S. government agencies. During the years ended
December 31, 1996 and 1995, there were no realized gains or losses on sales of
securities. As of December 31, 1996, there were no unrealized gains or losses
on securities. All of the marketable securities as of December 31, 1996 had a
contractual maturity of less than one year.
EQUIPMENT INVENTORY
Equipment inventory is stated at the lower of cost (first-in, first-out
method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed by
the straight-line method over the estimated useful lives of the assets.
Estimated useful lives are as follows: operating equipment--7 to 25 years,
office furniture and other equipment 1 to 5 years, and rental equipment--2
years.
CAPITALIZED INTEREST
Interest is capitalized as a component of the cost of property, plant and
equipment constructed. In 1996, 1995 and 1994, interest of $198,000, $119,000
and $80,000, respectively, was capitalized.
DEFERRED FINANCING COSTS
Deferred financing costs represent costs incurred relating to the issuance
of debt and are amortized over the term of the related debt.
F-15
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising
expense for the years ended December 31, 1996, 1995 and 1994 was $3,025,000,
$2,808,000 and $1,690,000, respectively.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The Company adopted SFAS No. 121 in 1995, which had no material effect on
the Company's financial statements. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a loss
is recognized for the difference between the fair value and carrying value of
the asset.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its plans.
3. UNAMORTIZED LICENSE ACQUISITION COSTS
Unamortized license acquisition costs consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
<S> <C> <C>
Deferred cellular license costs................... $ 5,935,000 $ 5,935,000
Excess of purchase price paid over the fair market
value of
tangible assets acquired......................... 189,320,000 161,123,000
------------ ------------
195,255,000 167,058,000
Accumulated amortization.......................... 32,433,000 27,106,000
------------ ------------
$162,822,000 $139,952,000
============ ============
</TABLE>
In July 1994, the Company acquired 100% of USVI Cellular Telephone
Corporation ("USVI"), the owner of the non-wireline cellular system serving
St. Thomas and St. John in the U.S. Virgin Islands. The acquisition was in
exchange for 150,000 shares of freely transferable Company common stock and
cash of $335,000. The shares were valued at $3,675,000, based on the fair
market value of the Company's common stock on the date of issuance. The
Company also incurred $202,000 in expenses. This acquisition has been
accounted for as a purchase and, accordingly, the net assets and results of
operations of USVI have been included in the consolidated financial statements
from the date of acquisition. The Company assumed USVI liabilities aggregating
$1,997,000 which exceeded the fair value of the tangible assets acquired by
$586,000. The $586,000 plus the aggregate purchase price of $4,212,000 have
been classified as license acquisition costs. USVI intangible assets acquired
of $1,779,000 are included in the deferred cellular license costs component of
license acquisition costs.
In October 1994, the Company acquired all of the assets of the non-wireline
cellular system serving St. Croix in the U.S. Virgin Islands. This acquisition
was in exchange for approximately 51,000 freely transferable
F-16
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. UNAMORTIZED LICENSE ACQUISITION COSTS (CONTINUED)
shares of the Company's common stock. The shares were valued at $1,909,000,
based on the fair market value of the Company's common stock on the date of
issuance. The Company also incurred $73,000 in expenses.
In February 1996, the Company acquired the remaining minority interests
aggregating approximately 6% in the San Juan Cellular Telephone Company in
exchange for approximately 820,000 shares of the Company's common stock. The
stock was valued at $21,536,000, the fair market value on the date of
acquisition. In addition, the San Juan Cellular Telephone Company made a
special cash distribution of $1,172,000 to the minority interest holders. The
aggregate purchase price of $21,536,000 plus expenses of $56,000 and the
deficiency in net assets acquired of $850,000 have been classified as license
acquisition costs.
In November 1996, the Company acquired the remaining interests, aggregating
49%, in Star Associates, Inc., the company which owns the FCC license for the
non-wireline cellular system in Adjuntas, Puerto Rico (RSA-2) for cash of
$5,755,000 including expenses.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
<S> <C> <C>
Land.............................................. $ 2,027,000 $ 1,962,000
Operating equipment............................... 97,513,000 73,152,000
Office furniture and other equipment.............. 16,521,000 12,333,000
Rental equipment.................................. 1,174,000 498,000
Construction in progress.......................... 18,674,000 13,535,000
------------ ------------
135,909,000 101,480,000
Accumulated depreciation.......................... 37,964,000 25,711,000
------------ ------------
$ 97,945,000 $ 75,769,000
============ ============
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
<S> <C> <C>
Accrued compensation................................ $ 1,005,000 $ 1,056,000
Accrued franchise, property and income taxes........ 4,246,000 5,354,000
Commissions payable................................. 1,272,000 349,000
Accrued equipment purchases......................... 502,000 280,000
Subscriber deposits................................. 1,572,000 1,952,000
Other............................................... 2,292,000 1,904,000
----------- -----------
$10,889,000 $10,895,000
=========== ===========
</TABLE>
6. LONG-TERM DEBT
In April 1995, the Company and one of its wholly-owned subsidiaries, CCPR
Services, Inc. ("Services"), entered into a $200,000,000 revolving credit
facility with various banks. A portion of the amount borrowed was
F-17
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
used to repay Cellular Communications of Ohio, Inc. ("CCI Ohio"). The line of
credit was available until March 31, 1999, on which date it would have
converted into a term loan with principal payments based on an amortization
schedule until September 30, 2003. The terms included the payment of interest
each quarter at a floating rate, which was, at the borrower's option, either
(a) the higher of the bank's base rate or the Federal Funds Rate plus 1/2%,
(b) the London Interbank Offering Rate or (c) the 936 Rate, plus, based on the
ratio of the Company's debt to cash flow and the floating rate in effect,
either .25% to 1.875% or 1.25% to 2.875%. The effective rate on the Company's
borrowings as of December 31, 1996 and 1995 was 7.01% and 7.23%, respectively.
The terms also included an unused commitment fee of 1/2% per annum which was
payable quarterly. The carrying amount of the bank loan at December 31, 1996
and 1995 approximated fair value based on discounted cash flow analysis.
The Company incurred costs of $5,183,000 in connection with the revolving
credit facility which is included in deferred financing costs.
In January 1997, Services issued $200,000,000 principal amount 10% Senior
Subordinated Notes due 2007 (the "Notes") and received proceeds of
$194,500,000 after discounts and commissions. The Notes are unconditionally
guaranteed by the Company. The Company and Services used approximately
$116,000,000 of the proceeds to repay the principal outstanding plus accrued
interest and fees under the bank loan. Deferred financing costs of
approximately $4,000,000 were written-off upon the repayment of the bank loan.
In addition, Services made a cash payment to the Company of $80,000,000 in
exchange for a 21% interest in the San Juan Cellular Telephone Company, and
the Company distributed the $80,000,000 to CoreComm.
The Notes are due on February 1, 2007. Interest on the Notes is payable
semiannually commencing on August 1, 1997. The Notes are redeemable, in whole
or in part, at the option of Services at any time on or after February 1,
2002, at a redemption price of 105% that declines annually to 100% in 2005, in
each case together with accrued and unpaid interest to the redemption date.
The Indenture contains certain covenants with respect to Services, the Company
and certain subsidiaries that limit their ability to, among other things, (i)
incur additional indebtedness, (ii) pay dividends or make other distributions
or restricted payments, (iii) create liens, (iv) sell assets, (v) enter into
mergers or consolidations or (vi) sell or issue stock of subsidiaries.
The Company had a $47,942,000 principal amount note payable to a subsidiary
of CCI, CCI Ohio, which was due and payable in full on July 31, 1996. The note
permitted the deferral of interest payments, at the Company's option,
throughout the term of the note. Interest was at a floating rate based on the
interest rate in effect under CCI Ohio's bank line of credit and term loan
agreement. Interest expense accrued for the years ended December 31, 1995 and
1994 was $1,683,000 and $3,956,000, respectively. In April 1995, the Company
repaid the principal and deferred interest due to CCI Ohio of $60,920,000.
In connection with license acquisitions, subsidiaries of the Company issued
promissory notes which were paid in full, together with accrued interest, on
their maturity dates in 1996.
7. RELATED PARTY TRANSACTIONS
CCI provided management, financial and legal services to the Company.
Amounts charged to the Company included direct costs where identifiable and
allocated corporate overhead based upon the amount of time incurred on Company
business by the common officers and employees of CCI and the Company. Amounts
charged to the Company included in general and administrative expenses during
the years ended December 31, 1996, 1995 and 1994 were $429,000, $458,000 and
$456,000, respectively. In August 1996, upon the merger of CCI with AirTouch
Communications, Inc., NTL Incorporated ("NTL") (formerly International
CableTel Incorporated)
F-18
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
commenced providing management, financial and legal services to the Company.
NTL charged the Company for direct costs where identifiable and allocated
corporate overhead based upon the amount of time incurred on Company business
by the common officers and employees of NTL and the Company. The amount
charged to the Company included in general and administrative expenses in 1996
was $207,000. It is not practicable to determine the amount of expenses that
would have been incurred had the Company operated as an unaffiliated entity.
However, in the opinion of management of the Company, the allocation method is
reasonable.
In January 1997, CoreComm and NTL agreed to a change in NTL's fee for the
provision of management, financial and legal services. NTL will charge
CoreComm for direct costs where identifiable and a fixed percentage of its
corporate overhead beginning January 1, 1997.
8. SHAREHOLDERS' EQUITY
TREASURY STOCK
In April 1996, the Company announced that its Board of Directors authorized
the repurchase of up to an additional 750,000 shares of the Company's Common
Stock through open market purchases as market conditions warrant. This
repurchase plan is in addition to a previously announced repurchase plan for
up to 250,000 shares. As of December 31, 1996, the Company had repurchased
550,000 shares for an aggregate of $14,468,000, of which 207,000 shares that
cost an aggregate of $6,145,000 were retired.
CONVERSION OF SENIOR SUBORDINATED NOTES
In August 1992, the Company issued $40,000,000 principal amount 8 1/4%
Convertible Senior Subordinated Notes due August 1, 2000 (the "Convertible
Notes"). In 1995, primarily as a result of the Company's issuance of a notice
of redemption, the Convertible Notes were converted into approximately
2,778,000 shares of Common Stock. Unamortized deferred financing costs of
$1,421,000 were charged to equity upon the conversion. The net income per
common share for 1995 assuming the conversion of the Convertible Notes at the
beginning of 1995 would have been $03.
SHAREHOLDER RIGHTS PLAN
On January 23, 1992, the Board of Directors approved the Rights Agreement,
which has become the CoreComm Rights Agreement. The Rights Agreement provides
that eight-tenths of a Right will be issued with each share of Common Stock
issued (whether originally issued or from treasury) on or after February 28,
1992 and prior to the occurrence of certain potential takeover events ("Rights
Distribution Date"). The Rights are not exercisable until the Rights
Distribution Date and will expire at the close of business on February 28,
2002 unless previously redeemed by CoreComm. When exercisable, each Right
entitles the owner to purchase from CoreComm 1/100 of a share of Series A
Junior Participating Preferred Stock ("Series A Preferred Stock") at a
purchase price of $100.
The Series A Preferred Stock will be entitled to a minimum preferential
quarterly dividend payment of $.01 per share and will be entitled to an
aggregate dividend of 100 times the dividend, if any, declared per share of
Common Stock. In the event of liquidation, the holders of Series A Preferred
Stock will be entitled to a minimum preferential liquidation payment of $1 per
share and will be entitled to an aggregate payment of 100 times the payment
made per share of Common Stock. Each share of Series A Preferred Stock will
have 100 votes and will vote together with the Common Stock. In the event of
any merger, consolidation or other transaction in which shares of Common Stock
are changed or exchanged, each share of Series A Preferred Stock will be
entitled to
F-19
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
receive 100 times the amount received per share of Common Stock. The rights
are protected by customary antidilution provisions.
There are 80,000 shares of Series A Preferred Stock designated from the
2,500,000 authorized shares of Series Preferred Stock. No shares of Series A
Preferred Stock are issued or outstanding.
STOCK OPTIONS
There are 1,848,000 shares of Common Stock reserved for issuance under the
1992 Stock Option Plan (the "Plan"). The Plan provides that incentive stock
options be granted at the fair market value of the Common Stock on the date of
grant, and nonqualified stock options be granted at not less than 85% of the
fair market value of the Common Stock on the date of grant. Options are
exercisable as to 20% of the shares subject thereto on the date of grant and
become exercisable as to an additional 20% of the shares subject thereto on
each January 1 thereafter, while the optionee remains an employee. Options
will expire ten years after the date of the grant.
There are 295,000 shares of Common Stock reserved for issuance under the
Non-Employee Directors Stock Option Plan (the "Directors Plan"). The Directors
Plan provides that all options be granted at the fair market value of the
Common Stock on the date of grant. Options are exercisable as to 20% of the
shares subject thereto on the first anniversary of the date of grant and
become exercisable as to an additional 20% of the shares subject thereto on
each subsequent anniversary of the grant date, while the optionee remains a
director of CoreComm. Options will expire ten years after the date of the
grant. The Directors Plan provides for the automatic grant of options to
purchase 7,500 shares to each member of the Board of Directors who is not an
employee of CoreComm in 1997 and 1998.
Pro forma information regarding net income (loss) and income (loss) per
share is required by SFAS No. 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for 1996 and 1995: risk-free interest rates of
6.56% and 6.61%, respectively, dividend yield of 0%, volatility factor of the
expected market price of the Company's common stock of .258 and a weighted-
average expected life of the option of 10 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Following is
the Company's pro forma information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
<S> <C> <C>
Pro forma income (loss)........................... $ 3,467,000 $ (2,309,000)
Pro forma income (loss) per share................. $ .25 $ (0.21)
</TABLE>
F-20
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
A summary of the Company's stock option activity and related information for
the years ended December 31, follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF OPTIONS PRICE OF OPTIONS PRICE OF OPTIONS PRICE
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of year................ 2,180,000 $16.41 1,918,000 $14.13 1,269,000 $ 9.15
Granted................. 289,000 27.87 287,000 31.60 715,000 22.85
Exercised............... (16,000) 7.64 (25,000) 15.94 (39,000) 9.91
Forfeited............... 0 0.00 0 0.00 (27,000) 17.00
--------- --------- ---------
Outstanding--end of
year................... 2,453,000 $17.81 2,180,000 $16.41 1,918,000 $14.13
========= ========= =========
Exercisable at end of
year................... 1,690,000 $14.06 1,317,000 $11.65 988,000 $ 8.80
========= ========= =========
</TABLE>
Weighted-average fair value of options, calculated using the Black-Scholes
option pricing model, granted during 1996 and 1995 is $15.07 and $17.14,
respectively.
The following table summarizes the status of the stock options outstanding
and exercisable at December 31, 1996:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
-------------------------------- ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OF OPTIONS LIFE PRICE OF OPTIONS PRICE
RANGE OF EXERCISE PRICES ---------- ----------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
$0.08 to $0.64.......... 301,000 5.0 Years $ 0.345 301,000 $ 0.345
$0.88 to $1.11.......... 228,000 5.0 Years $ 0.939 228,000 $ 0.939
$11.40 to $15.20........ 447,000 5.2 Years $14.884 437,000 $ 14.887
$17.63 to $24.75........ 902,000 7.1 Years $21.766 567,000 $ 21.488
$27.25 to $32.00........ 575,000 8.8 Years $29.729 157,000 $ 30.260
--------- -------------
Total................. 2,453,000 1,690,000
========= =============
</TABLE>
In January 1997, the Company cancelled 200,000 options and 195,000 options
from the 1996 and 1995 grants, respectively, and granted 351,000 options at an
exercise price of $20.00 per share, the fair market value on the date of
grant.
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal.................................... $ -- $ -- $ --
Puerto Rico and U.S. Virgin Islands........ 4,555,000 4,007,000 328,000
---------- ---------- --------
Total current................................ 4,555,000 4,007,000 328,000
---------- ---------- --------
Deferred:
Federal.................................... -- -- --
Puerto Rico................................ 797,000 -- --
---------- ---------- --------
Total deferred............................... 797,000 -- --
---------- ---------- --------
$5,352,000 $4,007,000 $328,000
========== ========== ========
</TABLE>
F-21
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation and amortization....... $21,759,000 $17,150,000
Deferred tax assets:
Net operating loss carryforwards.................. 27,125,000 25,322,000
Valuation allowance for deferred tax assets....... (6,163,000) (8,172,000)
----------- -----------
Net deferred tax assets........................... 20,962,000 17,150,000
----------- -----------
Net deferred tax liabilities........................ $ 797,000 $ --
=========== ===========
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards of
$79,700,000 for federal income tax purposes that expire as follows: $3,800,000
in 2004, $3,900,000 in 2006, $20,400,000 in 2007, $26,400,000 in 2008,
$14,100,000 in 2009, $9,600,000 in 2010 and $1,500,000 in 2011.
10. PENSION PLAN
Two subsidiaries of the Company have defined contribution plans covering all
employees who have completed six months of employment. The Company's matching
contributions are determined annually. Participants can make salary deferral
contributions of 1% to 20% of annual compensation not to exceed the maximum
allowed by law. The Company's expense for 1996, 1995 and 1994 was $168,000,
$134,000 and $97,000, respectively.
11. LEASES
Total rent expense during the years ended December 31, 1996, 1995 and 1994
was $3,085,000, $2,293,000 and $1,710,000, respectively.
Future minimum annual lease payments under noncancellable operating leases
at December 31, 1996 are: $3,603,000 (1997); $3,513,000 (1998); $3,291,000
(1999); $2,603,000 (2000); $1,772,000 (2001) and $10,640,000 thereafter.
12. COMMITMENT AND CONTINGENT LIABILITIES
As of December 31, 1996, the Company was committed to purchase approximately
$8,778,000 for cellular network and other equipment and for construction
services.
In 1992, the Company entered into an agreement which in effect provides for
a twenty year license to use a service mark which is also licensed to many of
the non-wireline cellular systems in the United States. The Company is
required to pay licensing and advertising fees, and to maintain certain
service quality standards. The total fees paid for 1996 were $202,000 which
were determined by the size of the Company's markets.
The Company is involved in various disputes, arising in the ordinary course
of business, which may result in pending or threatened litigation. The
Company's management expects no material adverse effect on the Company's
financial condition to result from these matters.
F-22
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------
ADDITIONS
---------------------
(1) (2)
---------- ----------
CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ------------------------ ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1996:
Allowance for doubtful
accounts............. $3,233,000 $7,520,000 $-- $(6,986,000)(a) $3,767,000
Year ended December 31,
1995:
Allowance for doubtful
accounts............. $1,174,000 $6,603,000 $-- $(4,544,000)(a) $3,233,000
Year ended December 31,
1994:
Allowance for doubtful
accounts............. $ 394,000 $2,579,000 $-- $(1,799,000)(b) $1,174,000
</TABLE>
- --------
(a) Uncollectible accounts written off, net of recoveries.
(b) Uncollectible accounts written off, net of recoveries and $77,000 allowance
for doubtful accounts as of acquisition date of purchased subsidiary.
F-23
<PAGE>
CCPR SERVICES, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 3,083,000
Marketable securities........................................... 3,660,000
Accounts receivable--trade, less allowance for doubtful accounts
of $3,583,000.................................................. 19,472,000
Due from affiliates............................................. 21,063,000
Equipment inventory............................................. 3,366,000
Prepaid expenses................................................ 1,827,000
------------
Total current assets.......................................... 52,471,000
Property, plant and equipment, net................................ 92,339,000
Investment in San Juan Cellular Telephone Company................. 101,068,000
Deferred financing costs, net of accumulated amortization of
$100,000......................................................... 5,932,000
Other assets, net of accumulated amortization of $670,000......... 1,051,000
------------
Total assets.................................................. $252,861,000
============
</TABLE>
<TABLE>
<S> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................ $ 6,560,000
Accrued expenses................................................ 12,277,000
Due to affiliates............................................... 27,139,000
Commissions payable............................................. 820,000
Deferred revenue................................................ 2,445,000
------------
Total current liabilities..................................... 49,241,000
Long-term debt.................................................... 200,000,000
Commitments and contingent liabilities
Shareholder's equity:
Common stock, $1 par value:
Authorized, issued and outstanding -1,000 shares................ 1,000
Additional paid-in capital...................................... 5,258,000
Retained earnings (deficit)..................................... (1,639,000)
------------
Total shareholder's equity.................................... 3,620,000
------------
Total liabilities and shareholder's equity.................... $252,861,000
============
</TABLE>
See accompanying notes.
F-24
<PAGE>
CCPR SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
<S> <C> <C>
Revenues:
Administrative and capital usage fees charged to
affiliates........................................ $ 8,612,000 $5,896,000
Depreciation and amortization........................ 4,166,000 2,970,000
----------- ----------
Operating income..................................... 4,446,000 2,926,000
Other income (expense):
Intercompany interest income....................... 169,000 194,000
Interest and other income.......................... 36,000 57,000
Interest expense................................... (3,983,000) (1,732,000)
Equity in net income of San Juan Cellular Telephone
Company........................................... 135,000 54,000
----------- ----------
Income before income taxes and extraordinary item.... 803,000 1,499,000
Provision for income taxes........................... (182,000) (87,000)
----------- ----------
Income before extraordinary item..................... 621,000 1,412,000
Loss from early extinguishment of debt, net of income
tax benefit of $316,000............................. (3,752,000) --
----------- ----------
Net income (loss).................................... $(3,131,000) $1,412,000
=========== ==========
</TABLE>
See accompanying notes.
F-25
<PAGE>
CCPR SERVICES, INC.
CONDENSED STATEMENT OF SHAREHOLDER'S EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
<S> <C> <C> <C> <C>
Balance at December 31, 1996....... $1,000 $5,258,000 $ 1,492,000 $6,751,000
Net loss for the three months ended
March 31, 1997.................... (3,131,000) (3,131,000)
------ ---------- ----------- ----------
Balance at March 31, 1997.......... $1,000 $5,258,000 $(1,639,000) $3,620,000
====== ========== =========== ==========
</TABLE>
See accompanying notes.
F-26
<PAGE>
CCPR SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES......... $ 6,569,000 $ 6,782,000
INVESTING ACTIVITIES
Purchase of marketable securities................. -- (15,658,000)
Proceeds from maturities of marketable securi-
ties............................................. 2,257,000 9,741,000
Purchase of San Juan Cellular Telephone Company
interest......................................... (80,000,000) --
Acquisition of property, plant and equipment...... (6,720,000) (6,009,000)
Proceeds from sale of equipment................... 90,000 --
------------- ------------
Net cash used in investing activities............. (84,373,000) (11,926,000)
FINANCING ACTIVITIES
Additional deferred financing costs............... -- (8,000)
Proceeds from issuance of Notes, net of financing
costs............................................ 193,968,000
Repayment of bank loan............................ (115,000,000) --
------------- ------------
Net cash provided by (used in) financing activi-
ties............................................. 78,968,000 (8,000)
Net increase (decrease) in cash and cash equiva-
lents............................................ 1,164,000 (5,152,000)
Cash and cash equivalents at beginning of period.. 1,919,000 6,968,000
------------- ------------
Cash and cash equivalents at end of period........ $ 3,083,000 $ 1,816,000
============= ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest exclu-
sive of
amounts capitalized............................ $ 2,327,000 $ 1,760,000
Income taxes paid............................... -- --
Supplemental schedule of non cash investing activ-
ities:
Liability to parent company incurred in connec-
tion with acquisition of San Juan Cellular Tel-
ephone Company interest........................ $ -- $ 21,536,000
Liabilities incurred to acquire property, plant
and equipment.................................. 1,000,000 1,405,000
</TABLE>
See accompanying notes
F-27
<PAGE>
CCPR SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
NOTE B--INVESTMENT IN SAN JUAN CELLULAR TELEPHONE COMPANY
In January 1997, CCPR Services, Inc. ("Services") acquired a 21% interest in
the San Juan Cellular Telephone Company from its parent company, Cellular
Communications of Puerto Rico, Inc. ("CCPR"), in exchange for cash of
$80,000,000.
The excess of the cost over Services' portion of the San Juan Cellular
Telephone Company's equity is being amortized. Accumulated amortization was
$963,000 at March 31, 1997 and $495,000 at December 31, 1996.
NOTE C--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
MARCH 31,
1997
------------
<S> <C>
(Unaudited)
Land........................................................ $ 1,928,000
Operating equipment......................................... 96,931,000
Office furniture and other equipment........................ 15,938,000
Rental equipment............................................ 787,000
Construction in progress.................................... 16,036,000
------------
131,620,000
Accumulated depreciation.................................... (39,281,000)
------------
$ 92,339,000
============
</TABLE>
NOTE D--ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
<S> <C>
(Unaudited)
Accrued franchise, property and income taxes................. $ 3,040,000
Other........................................................ 9,237,000
-----------
$12,277,000
===========
</TABLE>
F-28
<PAGE>
CCPR SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE E--LONG-TERM DEBT
In January 1997, Services issued $200,000,000 principal amount 10% Senior
Subordinated Notes due 2007 (the "Notes") and received proceeds of
$193,968,000 after discounts, commissions and other related costs. The Notes
are unconditionally guaranteed by CCPR. Services and CCPR used approximately
$116,000,000 of the proceeds to repay the $115,000,000 principal outstanding
plus accrued interest and fees under the bank loan.
In connection with the repayment of the bank loan, Services recorded an
extraordinary loss of $4,068,000 ($3,752,000 net of income tax benefit) from
the write-off of unamortized deferred financing costs.
The Notes are due on February 1, 2007. Interest on the Notes is payable
semiannually commencing on August 1, 1997. The Notes are redeemable, in whole
or in part, at the option of Services at any time on or after February 1,
2002, at a redemption price of 105% that declines annually to 100% in 2005, in
each case together with accrued and unpaid interest to the redemption date.
The Indenture contains certain covenants with respect to Services, CCPR and
certain subsidiaries of CCPR that limit their ability to, among other things,
(i) incur additional indebtedness, (ii) pay dividends or make other
distributions or restricted payments, (iii) create liens, (iv) sell assets,
(v) enter into mergers or consolidations or (vi) sell or issue stock of
subsidiaries.
NOTE F--COMMITMENT AND CONTINGENT LIABILITIES
As of March 31, 1997, Services was committed to purchase cellular network
and other equipment and construction services of approximately $12,600,000. In
addition, as of March 31, 1997, Services had commitments to purchase cellular
telephones, pagers and accessories of approximately $3,900,000.
Services is involved in various disputes, arising in the ordinary course of
business, which may result in pending or threatened litigation. Services
management expects no material adverse effect on Services' financial condition
to result from these matters.
F-29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholder CCPR Services, Inc.
We have audited the accompanying balance sheets of CCPR Services, Inc. as of
December 31, 1996 and 1995, and the related statements of operations,
shareholder's equity, and cash flows for each of the three years in the period
ended December 31, 1996. Our audits also included the financial statement
schedule listed in the Index. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CCPR Services, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
San Juan, Puerto Rico
February 23, 1997
F-30
<PAGE>
CCPR SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 1,918,727 $ 6,967,680
Marketable securities.............................. 5,916,811 --
Accounts receivable--trade, less allowance for
doubtful accounts of $3,471,653 (1996) and
$2,903,430 (1995)................................. 18,553,120 16,007,251
Due from affiliates................................ 20,160,464 16,631,692
Equipment inventory................................ 2,291,985 4,717,428
Prepaid expenses................................... 2,130,203 1,369,487
------------ ------------
Total current assets............................. 50,971,310 45,693,538
Property, plant and equipment, net................... 89,911,857 69,507,101
Investment in San Juan Cellular Telephone Company.... 21,401,139 --
Deferred financing costs, net of accumulated
amortization of
$1,064,906 (1996) and $454,876 (1995)............... 4,118,504 4,705,968
Other assets, net of accumulated amortization of
$473,959 (1996) and $1,294,749 (1995)............... 865,561 764,599
------------ ------------
Total assets..................................... $167,268,371 $120,671,206
============ ============
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................. $ 6,703,466 $ 5,299,383
Accrued expenses.................................. 9,136,954 6,545,197
Due to affiliates................................. 26,121,704 16,081,370
Commissions payable............................... 1,100,718 246,429
Deferred revenue.................................. 2,453,846 2,327,352
------------ ------------
Total current liabilities....................... 45,516,688 30,499,731
Long-term debt...................................... 115,000,000 90,000,000
Commitments and contingent liabilities
Shareholder's equity:
Common stock, $1 par value: authorized, issued and
outstanding--1,000 shares........................ 1,000 1,000
Additional paid-in capital........................ 5,258,302 5,258,302
Retained earnings (deficit)....................... 1,492,381 (5,087,827)
------------ ------------
Total shareholder's equity...................... 6,751,683 171,475
------------ ------------
Total liabilities and shareholder's equity...... $167,268,371 $120,671,206
============ ============
</TABLE>
See accompanying notes.
F-31
<PAGE>
CCPR SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Administrative and capital usage fees
charged to affiliates................ $26,924,079 $17,212,735 $ 3,656,492
Depreciation and amortization........... 13,005,623 9,669,381 6,843,383
----------- ----------- -----------
Operating income (loss)................. 13,918,456 7,543,354 (3,186,891)
Other income (expense):
Intercompany interest income.......... 741,010 536,775 198,507
Interest and other income (expense)... 601,533 169,398 (101,982)
Interest expense...................... (8,094,399) (2,750,576) --
Equity in net income of San Juan
Cellular Telephone Company........... 304,374 -- --
----------- ----------- -----------
(6,447,482) (2,044,403) 96,525
----------- ----------- -----------
Income (loss) before income taxes....... 7,470,974 5,498,951 (3,090,366)
Provision for income taxes.............. (890,766) (109,955) --
----------- ----------- -----------
Net income (loss)....................... $ 6,580,208 $ 5,388,996 $(3,090,366)
=========== =========== ===========
</TABLE>
See accompanying notes
F-32
<PAGE>
CCPR SERVICES, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
<S> <C> <C> <C> <C>
Balance at December 31, 1993..... $1,000 $30,405,656 $(7,386,457) $23,020,199
Net loss......................... (3,090,366) (3,090,366)
------ ----------- ----------- -----------
Balance at December 31, 1994..... 1,000 30,405,656 (10,476,823) 19,929,833
Return of capital................ (25,147,354) (25,147,354)
Net income....................... 5,388,996 5,388,996
------ ----------- ----------- -----------
Balance at December 31, 1995..... 1,000 5,258,302 (5,087,827) 171,475
Net income....................... 6,580,208 6,580,208
------ ----------- ----------- -----------
Balance at December 31, 1996..... $1,000 $ 5,258,302 $ 1,492,381 $ 6,751,683
====== =========== =========== ===========
</TABLE>
See accompanying notes
F-33
<PAGE>
CCPR SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................... $ 6,580,208 $ 5,388,996 $ (3,090,366)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and amortization...... 13,005,623 9,669,381 6,843,383
Equity in net income of San Juan
Cellular Telephone Company........ (304,374) -- --
(Gain) loss on disposal of fixed
assets............................ 66,598 (23,563) 33,749
Changes in operating assets and
liabilities:
Accounts receivable.............. (2,545,869) (6,946,139) (4,012,275)
Due from affiliates.............. (3,528,772) (7,014,237) 8,745,371
Equipment inventory.............. 2,425,443 (2,517,311) (66,720)
Prepaid expenses................. (760,716) (333,192) (299,112)
Other assets..................... (279,264) (85,350) (140,561)
Accounts payable................. 2,419,083 (2,630,391) 1,137,952
Accrued expenses................. 2,378,420 2,147,729 1,888,127
Due to affiliates................ (11,495,271) 23,934,954 763,645
Commissions payable.............. 854,289 (555,797) 164,832
Deferred revenue................. 126,494 774,108 393,794
------------ ------------ ------------
Net cash provided by operating
activities.......................... 8,941,892 21,809,188 12,361,819
INVESTING ACTIVITIES
Purchase of marketable securities.... (15,658,307) -- --
Proceeds from maturities of
marketable securities............... 9,741,496 -- --
Purchase of San Juan Cellular
Telephone Company interest.......... (55,942) -- --
Acquisition of property, plant and
equipment........................... (34,846,405) (26,817,828) (16,522,821)
Proceeds from sale of equipment...... 1,850,879 1,721,593 --
------------ ------------ ------------
Net cash used in investing
activities.......................... (38,968,279) (25,096,235) (16,522,821)
FINANCING ACTIVITIES
Advances from parent company......... -- -- 4,415,729
Additional deferred financing costs.. (22,566) -- --
Proceeds from borrowings............. 52,000,000 10,000,000 --
Principal payments................... (27,000,000) -- --
------------ ------------ ------------
Net cash provided by financing
activities.......................... 24,977,434 10,000,000 4,415,729
Net increase (decrease) in cash...... (5,048,953) 6,712,953 254,727
Cash and cash equivalents at
beginning of year................... 6,967,680 254,727 --
------------ ------------ ------------
Cash and cash equivalents at end of
year................................ $ 1,918,727 $ 6,967,680 $ 254,727
============ ============ ============
</TABLE>
F-34
<PAGE>
CCPR SERVICES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
<S> <C> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest
exclusive of amounts capitalized......... $ 7,032,031 $ 2,092,895 $ --
Income taxes paid......................... 225,743 -- --
Supplemental schedule of noncash investing
activities:
Liability to parent company incurred in
connection with acquisition of San Juan
Cellular Telephone Company interest...... $21,535,605 $ -- $ --
Liabilities incurred to acquire property,
plant and equipment...................... 1,567,593 2,369,256 1,510,363
Supplemental schedule of noncash financing
activities:
Assumption of parent company's long term
debt..................................... -- $80,000,000 --
Deferred financing costs transferred in
connection with assumption of parent
company's debt........................... -- 4,958,951 --
Reduction of amount due to parent company
in connection with assumption of parent
company's debt........................... -- 49,893,695 --
Return of capital in connection with
assumption of parent company's debt...... -- 25,147,354 --
</TABLE>
F-35
<PAGE>
CCPR SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
CCPR Services, Inc. ("Services") is a wholly-owned subsidiary of Cellular
Communications of Puerto Rico, Inc. ("CCPR"). Services manages and operates
CCPR's Puerto Rico cellular systems (the "Puerto Rico System"). Services
collects revenues on behalf of the Puerto Rico System affiliates and incurs
costs on behalf of the affiliates. These revenues and costs are recorded by
the affiliates.
In January 1997, CCPR and its subsidiaries completed a corporate
restructuring. A new entity named CoreComm Incorporated ("CoreComm") was
formed, and a subsidiary of CoreComm was merged with and into CCPR. Upon the
merger, CCPR became a wholly-owned subsidiary of CoreComm and shareholders of
CCPR became shareholders of CoreComm on a one for one basis.
CCPR, through its subsidiaries, owns licenses to operate cellular telephone
and paging systems in Puerto Rico and in the U.S. Virgin Islands. Based on
service revenues, the predominant line of business is cellular telephone
services. The business of CCPR and subsidiaries is currently dependent on the
trends in the use of cellular telephone and paging services and is subject to
economic, social, political and governmental conditions in Puerto Rico and the
U.S. Virgin Islands. The sale of cellular and paging services in each of CCPR
and subsidiaries' markets is becoming increasingly competitive. CCPR and
subsidiaries previously had one cellular competitor in each market, but in the
near future it may face many wireless competitors due to the introduction of
broadband personal communications services ("PCS") on frequencies recently
auctioned by the Federal Communications Commission and specialized mobile
radio ("SMR") services on existing SMR frequencies. At least one competitor is
offering PCS services in several of the markets. Increased competition could
result in pricing pressure, which could contribute to lower revenues per
customer and higher customer acquisition costs.
USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $288,000 and
$6,849,000 at December 31, 1996 and 1995, respectively. At December 31, 1996
and 1995, cash equivalents consisted primarily of money market instruments.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale, which are
carried at fair value. Unrealized holding gains and losses on securities, net
of tax, are carried as a separate component of shareholder's equity. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
and other income. Realized gains and losses and declines in value judged to be
other than temporary will be included in interest and other income. The cost
of securities sold or matured is based on the specific identification method.
Interest on securities is included in interest and other income.
F-36
<PAGE>
CCPR SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Marketable securities at December 31, 1996 consist of U.S. Treasury
securities and obligations of U.S. government agencies. During the year ended
December 31, 1996, there were no realized gains or losses on sales of
securities. As of December 31, 1996, there were no unrealized gains or losses
on securities. All of the marketable securities as of December 31, 1996 had a
contractual maturity of less than one year.
EQUIPMENT INVENTORY
Equipment inventory is stated at the lower of cost (first-in, first-out
method) or market.
INVESTMENT IN SAN JUAN CELLULAR TELEPHONE COMPANY
The investment in San Juan Cellular Telephone Company (the "Partnership")
consists of the cost of acquiring a 6% ownership interest in the Partnership
and Services' share of the Partnership's earnings from the date of
acquisition. The excess of the cost over the equity acquired is being
amortized through charges to operations by the straight line method over 40
years. Services accounts for its ownership of the Partnership by the equity
method of accounting.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed by
the straight-line method over the estimated useful lives of the assets.
Estimated useful lives are as follows: operating equipment--7 to 25 years,
office furniture and other equipment--1 to 5 years and rental equipment--2
years.
DEFERRED FINANCING COSTS
Deferred financing costs represent costs incurred relating to the issuance
of debt and are amortized over the term of the related debt.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Services
adopted SFAS No. 121 in 1995, which had no material effect on Services'
financial statements. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. If the sum of the expected future discounted cash flow is less
than the carrying amount of the asset, a loss is recognized for the difference
between the fair value and carrying value of the asset.
ADVERTISING
Advertising costs incurred and charged to affiliates for the years ended
December 31, 1996, 1995 and 1994 was $2,544,168, $2,378,454 and $1,653,938,
respectively.
RECLASSIFICATIONS
Certain of the 1995 and 1994 amounts have been reclassified to conform to
the current presentation.
F-37
<PAGE>
CCPR SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT IN SAN JUAN CELLULAR TELEPHONE COMPANY
In February 1996, Services acquired approximately 6% of San Juan Cellular
Telephone Company in exchange for 820,404 shares of common stock of CCPR. The
stock was valued at $21,535,605, the fair market value on the date of
acquisition. Services recorded a liability to CCPR of $21,535,605 in
connection with the acquisition. Services incurred $55,942 in expenses related
to the acquisition.
The excess of the cost over Services' portion of the Partnership's equity is
being amortized. Accumulated amortization amounted to $494,782 at December 31,
1996.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
<S> <C> <C>
Land.............................................. $ 1,928,178 $ 1,928,178
Operating equipment............................... 90,337,161 67,984,982
Office furniture and other equipment.............. 15,408,337 11,362,389
Rental equipment.................................. 710,946 547,238
Construction in progress.......................... 17,644,214 12,362,936
------------ ------------
126,028,836 94,185,723
Accumulated depreciation.......................... (36,116,979) (24,678,622)
------------ ------------
$ 89,911,857 $ 69,507,101
============ ============
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
<S> <C> <C>
Accrued franchise, property and income taxes........... $2,874,496 $1,666,506
Other.................................................. 6,262,458 4,878,691
---------- ----------
$9,136,954 $6,545,197
========== ==========
</TABLE>
5. RELATED PARTY TRANSACTIONS
In 1990, Services entered into agreements whereby Services will manage and
operate CCPR's subsidiaries' cellular telephone systems located in the
following Puerto Rico markets: San Juan/Caguas, Mayaguez, Aguadilla, Ponce,
Arecibo, Rincon, Adjuntas, Ciales and Culebra.
Pursuant to the agreements, Services allocates the Puerto Rico System
revenues to each affiliate based on the completed calls within each
affiliate's license area in the Puerto Rico System during the year, and
allocates the Puerto Rico System costs to each affiliate based on the number
of cell sites and radio channels in operation or under construction within
each affiliate's license area in the Puerto Rico System during the year.
During 1996, 1995 and 1994, the Puerto Rico System had cellular service and
equipment revenues of $116,481,131, $99,181,112 and $66,266,886, respectively,
and incurred costs of $84,330,708, $73,366,566 and $51,712,313, respectively.
In 1995, Services assumed $80,000,000 in long-term debt of CCPR, net of
deferred financing costs of $4,958,951. This transaction was recorded by
Services as a reduction of the amount due to CCPR ($49,893,695) with the
balance ($25,147,354) recorded as a return of capital.
F-38
<PAGE>
CCPR SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
In April 1995, Services and CCPR entered into a $200,000,000 revolving
credit facility with various banks. The line of credit was available until
March 31, 1999, on which date it would have converted into a term loan with
principal payments based on an amortization schedule until September 30, 2003.
The terms included the payment of interest each quarter at a floating rate,
which was, at the borrower's option, either (a) the higher of the bank's base
rate or the Federal Funds Rate plus 1/2%, (b) the London Interbank Offering
Rate or (c) the 936 Rate, plus, based on the ratio of CCPR and subsidiaries'
debt to cash flow and the floating rate in effect, either .25% to 1.875% or
1.25% to 2.875%. The effective rate on Services' borrowings as of December 31,
1996 and 1995 was 7.01% and 7.23%, respectively. The terms also included an
unused commitment fee of 1/2% per annum which was payable quarterly. The
carrying amount of the bank loan at December 31, 1996 and 1995 approximated
fair value based on the discounted cash flow analysis.
In January 1997, Services issued $200,000,000 principal amount 10% Senior
Subordinated Notes due 2007 (the "Notes") and received proceeds of
$194,500,000 after discounts and commissions. The Notes are unconditionally
guaranteed by CCPR. Services used approximately $116,000,000 of the proceeds
to repay the principal outstanding plus accrued interest and fees under the
bank loan. Deferred financing costs of approximately $4,000,000 were written-
off upon the repayment of the bank loan. In addition, Services made a cash
payment to CCPR of $80,000,000 in exchange for a 21% interest in the San Juan
Cellular Telephone Company.
The Notes are due on February 1, 2007. Interest on the Notes is payable
semiannually commencing on August 1, 1997. The Notes are redeemable, in whole
or in part, at the option of Services at any time on or after February 1,
2002, at a redemption price of 105% that declines annually to 100% in 2005, in
each case together with accrued and unpaid interest to the redemption date.
The Indenture contains certain covenants with respect to Services, CCPR and
certain subsidiaries of CCPR that limit their ability to, among other things,
(i) incur additional indebtedness, (ii) pay dividends or make other
distributions or restricted payments, (iii) create liens, (iv) sell assets,
(v) enter into mergers or consolidations or (vi) sell or issue stock of
subsidiaries.
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ -- $ --
Puerto Rico......................................... 93,766 109,955 --
-------- -------- -----
Total current......................................... 93,766 109,955 --
-------- -------- -----
Deferred:
Federal............................................. -- -- --
Puerto Rico......................................... 797,000 -- --
-------- -------- -----
Total deferred........................................ 797,000
-------- -------- -----
$890,766 $109,955 $ --
======== ======== =====
</TABLE>
Services has been included in CCPR's consolidated federal income tax return
through 1996. In January 1997, Services, CCPR and CoreComm entered into a tax
sharing agreement which provides that CCPR and Services will pay to CoreComm
(or CCPR, as appropriate) an amount which equals the amount of federal income
F-39
<PAGE>
CCPR SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
taxes for which Services and CCPR would be liable if Services and CCPR were
not part of the CoreComm consolidated group.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of Services' deferred tax liability and asset as of December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
<S> <C> <C>
Deferred tax liability:
Tax over book depreciation............................ $904,000 $ --
Deferred tax asset:
Net operating loss carryforwards...................... 107,000 1,935,570
Valuation allowance for deferred tax assets........... -- (1,935,570)
-------- -----------
Net deferred tax asset.................................. 107,000 --
-------- -----------
Net deferred taxes...................................... $797,000 $ --
======== ===========
</TABLE>
As of December 31, 1996, Services had net operating loss carryforwards of
$276,000 to offset future Puerto Rico taxable income that expire in 2001.
8. LEASES
Total Puerto Rico System rent, which was charged to affiliates, during the
years ended December 31, 1996, 1995 and 1994 was approximately $2,852,000,
$2,109,000 and $1,637,000, respectively.
Future minimum annual lease payments under noncancelable operating leases at
December 31, 1996 are: $3,449,000 (1997); $3,388,000 (1998); $3,178,000 (1999)
$2,500,000 (2000); $1,704,000 (2001) and $10,475,000 (thereafter).
9. PENSION PLAN
Services has a deferred contribution plan covering all employees who have
completed six months of employment. Services' matching contributions are
determined annually. Participants can make salary deferral contributions of 1%
to 10% of annual compensation, not to exceed the maximum allowed by law.
Services' expense for 1996, 1995 and 1994 was $144,969, $120,745 and $97,000,
respectively.
10. COMMITMENT AND CONTINGENT LIABILITIES
As of December 31, 1996, Services was committed to purchase approximately
$8,655,000 for cellular network and other equipment and for construction
services.
Services is involved in various disputes, arising in the ordinary course of
business, which may result in pending or threatened litigation. Services'
management expects no material adverse effect on Services' financial condition
to result from these matters.
F-40
<PAGE>
CCPR SERVICES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------
ADDITIONS
---------------------
(1) (2)
---------- ----------
CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1996:
Allowance for doubtful
accounts............. $2,903,000 $7,087,000 $-- $(6,518,000)(a) $3,472,000
Year ended December 31,
1995:
Allowance for doubtful
accounts............. $1,127,000 $6,164,000 $-- $(4,388,000)(a) $2,903,000
Year ended December 31,
1994:
Allowance for doubtful
accounts............. $ 394,000 $2,576,000 $-- $(1,843,000)(a) $1,127,000
</TABLE>
- --------
(a) Uncollectible accounts written off, net of recoveries.
F-41
<PAGE>
SAN JUAN CELLULAR TELEPHONE COMPANY
(A PARTNERSHIP)
CONDENSED BALANCE SHEET (UNAUDITED)
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash........................................................... $ 46,265
Due from CCPR Services, Inc.................................... 10,968,933
Prepaid expenses............................................... 87,698
-----------
Total current assets......................................... 11,102,896
Property, plant & equipment:
Operating equipment............................................ 462,590
Office furniture and equipment................................. 6,912
-----------
469,502
Accumulated depreciation......................................... (469,502)
-----------
--
Deferred costs................................................... 903,765
Accumulated amortization......................................... (695,799)
-----------
207,966
-----------
Total assets................................................. $11,310,862
===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable............................................... $ 10,000
Income tax payable............................................. 1,191,231
-----------
Total current liabilities.................................... 1,201,231
Partners' capital................................................ 10,109,631
-----------
Total liabilities and partners' capital...................... $11,310,862
===========
</TABLE>
See accompanying notes.
F-42
<PAGE>
SAN JUAN CELLULAR TELEPHONE COMPANY
(A PARTNERSHIP)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1997 1996
<S> <C> <C>
Revenues:
Puerto Rico System allocated revenues................ $27,540,153 $22,152,820
Costs and expenses:
Puerto Rico System allocated expenses................ 18,869,600 15,714,204
Administrative and capital usage fees................ 7,603,576 3,798,240
General and administrative expenses.................. 144,224 116,524
Depreciation and amortization........................ 21,514 38,034
----------- -----------
26,638,914 19,667,002
----------- -----------
Operating income....................................... 901,239 2,485,818
Interest income........................................ 298 1,358
----------- -----------
Income before income taxes............................. 901,537 2,487,176
Income taxes........................................... 405,636 1,158,225
----------- -----------
Net income............................................. $ 495,901 $ 1,328,951
=========== ===========
</TABLE>
See accompanying notes.
F-43
<PAGE>
SAN JUAN CELLULAR TELEPHONE COMPANY
(A PARTNERSHIP)
CONDENSED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
Balance at December 31, 1996....................................... $ 9,613,730
<S> <C>
Net income for the three months ended March 31, 1997............... 495,901
-----------
Balance at March 31, 1997.......................................... $10,109,631
===========
</TABLE>
See accompanying notes.
F-44
<PAGE>
SAN JUAN CELLULAR TELEPHONE COMPANY
(A PARTNERSHIP)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1997 1996
<S> <C> <C>
Net cash provided by operating activities.................. $ 299 $ 1,101,104
FINANCING ACTIVITIES
Distribution............................................... -- (1,172,007)
------- -----------
Net cash (used in) financing activities.................... -- (1,172,007)
------- -----------
Net increase (decrease) in cash............................ 299 (70,903)
Cash at beginning of period................................ 45,966 115,983
------- -----------
Cash at end of period...................................... $46,265 $ 45,080
======= ===========
Supplemental disclosure of cash flow information:
Income taxes paid........................................ $ -- $ --
</TABLE>
See accompanying notes.
F-45
<PAGE>
SAN JUAN CELLULAR TELEPHONE COMPANY
(A PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PREPARATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principals for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the Partnership's financial statements and footnotes for the year ended
December 31, 1996 included herein.
2. RELATED PARTY TRANSACTIONS
Cellular Communications of Puerto Rico, Inc. ("CCPR") directly owns 65.232%
of the partnership interests of San Juan Cellular Telephone Company and CCPR's
wholly-owned subsidiaries own the remaining 34.768%. On April 2, 1991, the
partners of the Partnership approved the terms and conditions whereby CCPR
Services, Inc. ("Services"), a wholly-owned subsidiary of CCPR, will manage
and operate CCPR's Puerto Rico cellular system (the "Puerto Rico System"). As
of February 1996, Services owned 6.146% of the partnership interests, and
Services acquired an additional 21% of the partnership interests in January
1997. Pursuant to the terms and conditions, Services collects revenues on
behalf of the Puerto Rico System affiliates, and incurs expenditures on behalf
of the affiliates. These revenues are allocated to the affiliates based on the
completed calls within each affiliate's license area in the Puerto Rico System
during the year, and expenses are allocated to the affiliates based on the
cell sites and radio channels in operation or under construction within each
affiliate's license area in the Puerto Rico system during the year. In
addition, Services' administrative and capital use costs are charged to the
affiliates.
F-46
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners San Juan Cellular Telephone Company (A Partnership)
We have audited the accompanying balance sheets of San Juan Cellular
Telephone Company (A Partnership) as of December 31, 1996 and 1995, and the
related statements of operations, changes in partners' capital and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits 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 San Juan Cellular
Telephone Company at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Juan, Puerto Rico February 23, 1997
F-47
<PAGE>
SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 45,966 $ 115,983
Due from CCPR Services, Inc.......................... 9,959,109 6,545,348
Prepaid expenses..................................... 175,397 1,165,891
----------- ----------
Total current assets............................... 10,180,472 7,827,222
Property and equipment:
Operating equipment.................................. 462,590 462,590
Office furniture and equipment....................... 6,912 6,912
----------- ----------
469,502 469,502
Accumulated depreciation............................. (469,502) (430,768)
----------- ----------
-- 38,734
Deferred costs, less accumulated amortization of
$674,285 (1996) and $588,230 (1995)................... 229,480 315,535
----------- ----------
Total assets....................................... $10,409,952 $8,181,491
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable..................................... $ 10,630 $ 4,000
Income tax payable................................... 785,592 2,794,371
----------- ----------
Total current liabilities.......................... 796,222 2,798,371
Partners' capital:
Capital contributions................................ 271,983 1,443,990
Undistributed earnings............................... 9,341,747 3,939,130
----------- ----------
Total partners' capital............................ 9,613,730 5,383,120
----------- ----------
Total liabilities and partners' capital............ $10,409,952 $8,181,491
=========== ==========
</TABLE>
See accompanying notes.
F-48
<PAGE>
SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Puerto Rico System allocated revenues.... $96,906,634 $82,990,708 $54,669,523
Costs and expenses:
Puerto Rico System allocated expenses.... 69,197,887 60,231,826 41,671,500
Administrative and capital usage fees.... 18,417,053 11,913,906 2,487,446
General and administrative expenses...... 447,936 361,770 148,977
Depreciation and amortization............ 124,789 152,140 159,884
----------- ----------- -----------
88,187,665 72,659,642 44,467,807
----------- ----------- -----------
Operating income........................... 8,718,969 10,331,066 10,201,716
Other income (expense):
Interest income.......................... 2,245 1,173 891
Intercompany interest expense............ -- -- (65,754)
----------- ----------- -----------
Income before income taxes................. 8,721,214 10,332,239 10,136,853
Income taxes............................... 3,318,597 2,978,974 244,400
----------- ----------- -----------
Net income................................. $ 5,402,617 $ 7,353,265 $ 9,892,453
=========== =========== ===========
</TABLE>
See accompanying notes.
F-49
<PAGE>
SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<S> <C>
Balance at December 31, 1993..................................... $(11,862,598)
Net income for the year ended December 31, 1994.................. 9,892,453
------------
Balance at December 31, 1994..................................... (1,970,145)
Net income for the year ended December 31, 1995.................. 7,353,265
------------
Balance at December 31, 1995..................................... 5,383,120
Distribution..................................................... (1,172,007)
Net income for the year ended December 31, 1996.................. 5,402,617
------------
Balance at December 31, 1996..................................... $ 9,613,730
============
</TABLE>
See accompanying notes.
F-50
<PAGE>
SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................ $ 5,402,617 $ 7,353,265 $ 9,892,453
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 124,789 152,140 159,884
Changes in operating assets and
liabilities:
Prepaid expenses.................. 990,494 (1,115,836) (24,070)
Due from CCPR Services, Inc....... (3,413,761) (6,545,348) --
Accounts payable.................. 6,630 4,000 --
Income tax payable................ (2,008,779) 2,549,971 244,400
Due to CCPR Services, Inc......... -- (2,324,818) (10,271,783)
----------- ----------- ------------
Net cash provided by operating
activities........................... 1,101,990 73,374 884
----------- ----------- ------------
FINANCING ACTIVITIES
Distribution.......................... (1,172,007) -- --
----------- ----------- ------------
Net increase (decrease) in cash....... (70,017) 73,374 884
Cash at beginning of year............. 115,983 42,609 41,725
----------- ----------- ------------
Cash at end of year................... $ 45,966 $ 115,983 $ 42,609
=========== =========== ============
Supplemental disclosure of cash flow
information:
Income taxes paid................... $ 5,327,376 $ 429,003 $ --
</TABLE>
See accompanying notes.
F-51
<PAGE>
SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
San Juan Cellular Telephone Company (the "Partnership") was formed on
February 21, 1986 for the purpose of constructing and operating a cellular
telephone system in the San Juan/Caguas, Puerto Rico Metropolitan Statistical
Area.
In March 1988, the Partnership was issued a permit to construct a cellular
system in San Juan/Caguas by the Federal Communications Commission ("FCC").
Profits and losses of the Partnership are allocated in accordance with the
provisions of the Partnership agreement. The allocation is generally based on
each partner's ownership interest in the Partnership.
As of February 1993, Cellular Communications of Puerto Rico, Inc. ("CCPR"),
either directly or through its wholly-owned subsidiaries, owned 93.854% of the
Partnership interests. In February 1996, a wholly-owned subsidiary of CCPR,
CCPR Services, Inc. ("Services"), acquired the remaining Partnership
interests. In addition, the Partnership made a special cash distribution of
$1,172,007.
In January 1997, CCPR and its subsidiaries completed a corporate
restructuring. A new entity named CoreComm Incorporated ("CoreComm") was
formed, and a subsidiary of CoreComm was merged with and into CCPR. Upon the
merger, CCPR became a wholly-owned subsidiary of CoreComm and shareholders of
CCPR became shareholders of CoreComm in a one for one exchange. In addition,
Services made a cash payment to CCPR of $80,000,000 in exchange for a 21%
interest in the Partnership. As of January 1997, Services owns 27.146% of the
Partnership interests and CCPR (directly and through subsidiaries other than
Services) owns the remaining interests.
CCPR, through its subsidiaries, owns licenses to operate cellular telephone
and paging systems in Puerto Rico and in the U.S. Virgin Islands. Based on
service revenues, the predominant line of business is cellular telephone
services. The business of CCPR and subsidiaries is currently dependent on the
trends in the use of cellular telephone and paging services and is subject to
economic, social, political and governmental conditions in Puerto Rico and the
U.S. Virgin Islands. The sale of cellular and paging services in each of the
CCPR and subsidiaries markets is becoming increasingly competitive. CCPR and
subsidiaries previously had one cellular competitor in each market, but in the
near future it may face many wireless competitors due to the introduction of
broadband personal communications services ("PCS") on frequencies recently
auctioned by the FCC and specialized mobile radio ("SMR") services on existing
SMR frequencies. At least one competitor is offering PCS services in several
of the markets, including San Juan/Caguas. Increased competition could result
in pricing pressure, which could contribute to lower revenues per customer and
higher customer acquisition costs.
USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-52
<PAGE>
SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives range from 5 to 15 years.
DEFERRED COSTS
Deferred costs include license acquisition costs incurred to obtain the FCC
permit. These costs are being amortized by the straight-line method over ten
years (the life of the FCC license).
2. INCOME TAXES
The Partnership is subject to Puerto Rico income taxes on its income. Income
taxes for the years ended December 31, 1996, 1995 and 1994 of $3,318,597,
$2,978,974 and $244,400, respectively, represent current provisions for Puerto
Rico income taxes in 1996 and 1995 and the Puerto Rico alternative minimum tax
in 1994.
No provision has been made in the accompanying financial statements for
federal income tax since, pursuant to provisions of the Internal Revenue Code,
each item of income, gain, loss, deduction or credit is reportable by the
partners.
3. RELATED PARTY TRANSACTIONS
On April 2, 1991, the partners of the Partnership approved the terms and
conditions whereby Services will manage and operate CCPR's Puerto Rico
cellular system (the "Puerto Rico System"). Pursuant to these terms and
conditions, Services collects revenues on behalf of the Puerto Rico System
affiliates, and incurs expenditures on behalf of the affiliates. These
revenues are allocated to the affiliates based on the completed calls within
each affiliate's license area in the Puerto Rico System during the year, and
expenses are allocated to the affiliates based on the cell sites and radio
channels in operation or under construction within each affiliate's license
area in the Puerto Rico System during the year. In addition, Services'
administrative and capital use costs are charged to the affiliates.
During the years ended December 31, 1996, 1995 and 1994, the Partnership's
revenues consisted of Puerto Rico System allocated revenues. During the years
ended December 31, 1996, 1995 and 1994, Puerto Rico System allocated expenses
amounted to $69,197,887, $60,231,826 and $41,671,500, respectively, and
administrative and capital usage fees charged by Services amounted to
$18,417,053, $11,913,906 and $2,487,446, respectively.
F-53
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SERVICES, CCPR OR THE
INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RE-
LATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY THE NOTES, IN ANY JURISDICTION WHERE, OR TO ANY PERSON WHOM, IT IS UN-
LAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 3
Certain Definitions........................................................ 3
Prospectus Summary......................................................... 4
The Restructuring.......................................................... 6
Risk Factors............................................................... 14
Use of Proceeds............................................................ 20
The Exchange Offer......................................................... 21
Capitalization............................................................. 27
Selected Consolidated Financial Information................................ 28
Pro Forma Condensed Financial Statements................................... 30
Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................................................ 34
Business................................................................... 40
Management................................................................. 54
Security Ownership of Principal Stockholders
and Management............................................................ 58
Certain Relationships and Related Transactions............................. 60
Description of the Notes................................................... 61
Plan of Distribution....................................................... 89
Certain Federal Income Tax Considerations.................................. 90
Legal Matters.............................................................. 90
Experts.................................................................... 90
Index to Financial Statements.............................................. F-1
</TABLE>
UNTIL , 1997 (90 DAYS FOLLOWING THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING
IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$200,000,000
CCPR SERVICES, INC.
10% SENIOR SUBORDINATED NOTES DUE 2007
----------------
PROSPECTUS
----------------
JUNE , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
CCPR SERVICES, INC.
Section 145 of the General Corporation Law of Delaware (the "DGCL") provides
that a corporation may indemnify directors and officers against liabilities
and expenses they may incur in such capacities provided certain standards are
met, including good faith and the belief that the particular action is in or
not opposed to the best interests of the corporation. Article EIGHTH of CCPR
Services, Inc.'s ("Services") Restated Certificate of Incorporation provides
as follows:
"EIGHTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the DGCL, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to indemnify under
said section from and against any and all of the expenses, liabilities or
other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any By-law
agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person."
Article 6 of the By-laws of Services provides as follows:
"The Corporation shall indemnify any person, to the fullest extent
authorized by the DGCL, with respect to any civil or criminal action or
proceeding, instituted or threatened, by reason of the fact that he, his
testator or intestate, is or was a director or an officer of the
Corporation."
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
Section 145 of the DGCL provides that a corporation may indemnify directors
and officers against liabilities and expenses they may incur in such
capacities provided certain standards are met, including good faith and the
belief that the particular action is in or not opposed to the best interests
of the corporation. Article NINTH of Cellular Communications of Puerto Rico,
Inc.'s ("CCPR") Restated Certificate of Incorporation provides as follows:
"NINTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such a director as a director. Notwithstanding the
foregoing sentence, a director shall be liable to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law; (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction
from which the director derived an improper personal benefit. No amendment
to or repeal of this Article NINTH shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to
such amendment or appeal."
Article VIII of CCPR's Restated By-laws provides as follows:
"The Corporation shall indemnify to the full extent authorized or
permitted by law (as now or hereafter in effect) any person made, or
threatened to be made, a defendant or witness to any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact
that he, his testator or intestate, is or was a director or officer of the
Corporation or by reason of the fact that such director or officer, at the
request of the Corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, in any capacity."
II-1
<PAGE>
In addition, the Registration Rights Agreement, the form of which is filed
as an exhibit hereto, contains provisions for indemnification by the Initial
Purchasers of CCPR and Services and their respective officers, directors, and
controlling stockholders against certain liabilities under the Securities Act
of 1933, as amended.
ITEM 21. EXHIBITS
A list of exhibits included as part of the Registration Statement is set
forth below:
EXHIBIT
NO.
DESCRIPTION
1.1 Purchase Agreement, dated January 28, 1997, by and among CCPR, Services
and Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Brothers
Inc and Wasserstein Perella Securities, Inc. with respect to the Old
Notes.*
2.1 Agreement and Plan of Merger, dated January 31, 1997, by and among CCPR,
CoreComm Incorporated and CoreCom Sub Inc. (2)
3.1 Restated Certificate of Incorporation of Services.*
3.2 By-laws of Services.*
3.3 Restated Certificate of Incorporation of CCPR. (1)
3.4 By-laws of CCPR. (1)
4.1.1 CCPR's Rights Agreement. (2)
4.1.2 CCPR's Amendment No. 1 to the Rights Agreement. (2)
4.2 Registration Rights Agreement, dated January 31, 1997, between CCPR,
Services and Donaldson, Lufkin & Jenrette Securities Corporation, Salomon
Brothers Inc and Wasserstein Perella Securities, Inc. (2)
4.3 Indenture dated as of January 31, 1997 between CCPR, Services and The
Chase Manhattan Bank, Trustee. (2)
4.4 Form of 10% Senior Subordinated Note due 2007 (included in Exhibit 4.3).
5 Opinion of Richard J. Lubasch, Senior Vice President-General Counsel and
Secretary of CCPR and Services as to the legality of the securities being
registered hereby.
10.1 CCPR's 1992 Stock Option Plan. (2)
10.2 CCPR's Employee Stock Purchase Plan. (3)
10.3 CCPR's Non-Employee Director Stock Option Plan. (2)
10.4 Tax Sharing Agreement among CoreComm Incorporated, CCPR and Services,
dated January 31, 1997. (2)
10.5 Administrative Services Agreement between CoreComm Incorporated and CCPR,
dated January 31, 1997. (1)
10.6 Partnership Agreement relating to San Juan Cellular Telephone Company.
(2)
10.7 Tax Sharing Agreement, dated as of January 24, 1992 between the Company
and Cellular Communications, Inc. (2)
10.8 Form of Administration and Management Agreement between Services, on the
one hand and, on the other hand, individually, each of Aguadilla Cellular
Telephone Company, Inc., CCI PR RSA, Inc., Cellular Communications of
Arecibo, Inc., Cellular Ponce, Inc., Gamma Communications, Mayaguez
Cellular Telephone Co., Inc., SJCTC and Star Associates, Inc. (2)
10.9 Agreement dated as of January 31, 1997, by and between CCPR and Services.
(2)
12.1 Statement re: Computation of ratio of earnings to fixed charges for
Services.
12.2 Statement re: Computation of ratio of earnings to fixed charges for CCPR
and subsidiaries.
21 Subsidiaries of CCPR and Services. (2)
II-2
<PAGE>
EXHIBIT
NO.
DESCRIPTION
23.1 Consent of Ernst & Young LLP with regard to Services.
23.2 Consent of Ernst & Young LLP with regard to CCPR and subsidiaries.
23.3 Consent of Ernst & Young LLP with regard to SJCTC.
23.4 Consent of Richard J. Lubasch (included in Exhibit 5).
24 Power of Attorney (appearing on pages II-5 and II-6 hereof).*
25 Form T-1 Statement of Eligibility of The Chase Manhattan Bank, Trustee.*
27.1 Financial Data Schedule for Services--December 31, 1996.
27.2 Financial Data Schedule for CCPR and subsidiaries--December 31, 1996.
27.3 Financial Data Schedule for Services--March 31, 1997.
27.4 Financial Data Schedule for CCPR and subsidiaries--March 31, 1997.
28.1 Form of Letter of Transmittal.*
28.2 Form of Notice of Guaranteed Delivery.*
- ---------------------
(1) Incorporated herein by reference to CoreComm Incorporated's Form 8-B as a
successor issuer to CCPR, filed with the Commission on February 12, 1997,
File No. 000-19869-99.
(2) Incorporated herein by reference to CoreComm Incorporated's Annual Report
on Form 10-K for the year ended December 31, 1996.
(3) Incorporated herein by reference to CCPR's Proxy Statement on Schedule 14A
dated April 29, 1996.
* Previously filed.
ITEM 22. UNDERTAKINGS
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, as
amended (the "Securities Act"), (ii) to reflect in the Prospectus any facts
or events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the information set
forth in the Registration Statement, and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such labilities (other than the payment
by the Registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrants hereby undertake that for the purposes of
determining any liability under the Securities Act, each filing of the
registrants' annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, (and, where applicable, each
filing of an employee benefit
II-3
<PAGE>
plan's annual report pursuant to Section 15(d) of the Securities Exchange
Act of 1934, as amended, that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned Registrants hereby undertake to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON JUNE
16, 1997.
CCPR SERVICES, INC.
/s/ George S. Blumenthal
By: _________________________________
GEORGE S. BLUMENTHAL CHIEF
EXECUTIVE OFFICER AND TREASURER
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES CAPACITY DATE
Chief Executive
* Officer, Treasurer June 16, 1997
- ------------------------------------- and Director
GEORGE S. BLUMENTHAL (Principal
Executive Officer)
President and
* Director (Principal June 16, 1997
- ------------------------------------- Operating and
J. BARCLAY KNAPP Financial Officer)
Senior Vice
President-- General June 16, 1997
- ------------------------------------- Counsel, Secretary
RICHARD J. LUBASCH and Director
Vice President--
* Controller June 16, 1997
- ------------------------------------- (Principal
GREGG GORELICK Accounting Officer)
/s/ George S. Blumenthal
*By: ___________________________
GEORGE S. BLUMENTHAL
ATTORNEY-IN-FACT
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON JUNE
16, 1997.
Cellular Communications of Puerto
Rico, Inc.
/s/ George S. Blumenthal
By: __________________________
GEORGE S. BLUMENTHAL CHIEF
EXECUTIVE OFFICER, TREASURER AND
DIRECTOR (PRINCIPAL EXECUTIVE
OFFICER)
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES CAPACITY DATE
/s/ George S. Blumenthal Chief Executive
- ------------------------------------- Officer, Treasurer June 16, 1997
GEORGE S. BLUMENTHAL and Director
(Principal
Executive Officer)
President and
* Director (Principal June 16, 1997
- ------------------------------------- Operating and
J. BARCLAY KNAPP Financial Officer)
Senior Vice
- ------------------------------------- President-- General June 16, 1997
RICHARD J. LUBASCH Counsel and
Secretary
Vice President--
* Controller June 16, 1997
- ------------------------------------- (Principal
GREGG GORELICK Accounting Officer)
II-6
<PAGE>
SIGNATURES CAPACITY DATE
Director
* June 16, 1997
- -------------------------------------
SIDNEY R. KNAFEL
Director
* June 16, 1997
- -------------------------------------
TED H. MCCOURTNEY
Director
* June 16, 1997
- -------------------------------------
DEL MINTZ
Director
* June 16, 1997
- -------------------------------------
ALAN J. PATRICOF
Director
* June 16, 1997
- -------------------------------------
WARREN POTASH
/s/ George S. Blumenthal
*By: _________________________
GEORGE S. BLUMENTHAL ATTORNEY-IN-
FACT
II-7
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
1.1 Purchase Agreement, dated January 28, 1997, by and among CCPR,
Services and Donaldson, Lufkin & Jenrette Securities Corporation,
Salomon Brothers Inc and Wasserstein Perella Securities, Inc. with
respect to the Old Notes.*
2.1 Agreement and Plan of Merger, dated January 31, 1997, by and among
CCPR, CoreComm Incorporated and CoreCom Sub Inc. (2)
3.1 Restated Certificate of Incorporation of Services.*
3.2 By-laws of Services.*
3.3 Restated Certificate of Incorporation of CCPR. (1)
3.4 By-laws of CCPR. (1)
4.1.1 CCPR's Rights Agreement. (2)
4.1.2 CCPR's Amendment No. 1 to the Rights Agreement. (2)
4.2 Registration Rights Agreement, dated January 31, 1997, between
CCPR, Services and Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc and Wasserstein Perella
Securities, Inc. (2)
4.3 Indenture dated as of January 31, 1997 between CCPR, Services and
The Chase Manhattan Bank, Trustee. (2)
4.4 Form of 10% Senior Subordinated Note due 2007 (included in Exhibit
4.3).
5 Opinion of Richard J. Lubasch, Esq., General Counsel of CCPR and
Services as to the legality of the securities being registered
hereby.
10.1 CCPR's 1992 Stock Option Plan. (2)
10.2 CCPR's Employee Stock Purchase Plan. (3)
10.3 CCPR's Non-Employee Director Stock Option Plan. (2)
10.4 Tax Sharing Agreement among CoreComm Incorporated, CCPR and
Services, dated January 31, 1997. (2)
10.5 Administrative Services Agreement between CoreComm Incorporated and
CCPR, dated January 31, 1997. (1)
10.6 Partnership Agreement relating to San Juan Cellular Telephone
Company. (2)
10.7 Tax Sharing Agreement, dated as of January 24, 1992 between the
Company and Cellular Communications, Inc. (2)
10.8 Form of Administration and Management Agreement between Services,
on the one hand and, on the other hand, individually, each of
Aguadilla Cellular Telephone Company, Inc., CCI PR RSA, Inc.,
Cellular Communications of Arecibo, Inc., Cellular Ponce, Inc.,
Gamma Communications, Mayaguez Cellular Telephone Co., Inc., SJCTC
and Star Associates, Inc. (2)
10.9 Agreement dated as of January 31, 1997, by and between CCPR and
Services. (2)
12.1 Statement re: Computation of ratio of earnings to fixed charges for
Services.
12.2 Statement re: Computation of ratio of earnings to fixed charges for
CCPR and subsidiaries.
21 Subsidiaries of CCPR and Services. (2)
23.1 Consent of Ernst & Young LLP with regard to Services.
23.2 Consent of Ernst & Young LLP with regard to CCPR and subsidiaries.
23.3 Consent of Ernst & Young LLP with regard to SJCTC.
<PAGE>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
23.4 Consent of Richard J. Lubasch, Esq. (included in Exhibit 5).
24 Power of Attorney (appearing on pages II-5 and II-6 hereof).*
25 Form T-1 Statement of Eligibility of The Chase Manhattan Bank,
Trustee.*
27.1 Financial Data Schedule for Services--December 31, 1996.
27.2 Financial Data Schedule for CCPR and subsidiaries--December 31,
1996.
27.3 Financial Data Schedule for Services--March 31, 1997.
27.4 Financial Data Schedule for CCPR and subsidiaries--March 31, 1997.
28.1 Form of Letter of Transmittal.*
28.2 Form of Notice of Guaranteed Delivery.*
- ---------------------
(1) Incorporated herein by reference to CoreComm Incorporated's Form 8-B as a
successor issuer to CCPR, filed with the Commission on February 12, 1997,
File No. 000-19869-99.
(2) Incorporated herein by reference to CoreComm Incorporated's Annual Report
on Form 10-K for the year ended December 31, 1996.
(3) Incorporated herein by reference to CCPR's Proxy Statement on Schedule 14A
dated April 29, 1996.
* Previously filed.
<PAGE>
Exhibit 5
June 16, 1997
CCPR Services, Inc.
Cellular Communications of Puerto Rico, Inc.
110 East 59th Street, 16th Floor
New York, New York 10022
Re: CCPR Services, Inc.
Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
I am Senior Vice President-General Counsel of Cellular Communications of
Puerto Rico, Inc. ("CCPR") and CCPR Services, Inc. ("Services"), which are
Delaware corporations (and which are collectively referred to in this opinion as
the "Companies"), and as such I have acted as counsel in connection with a
public offering (the "Exchange Offer") by Services of up to $200,000,000
aggregate principal amount at maturity of Services' 10% Senior Subordinated
Notes Due 2007 (the "New Notes") which are fully and unconditionally guaranteed
by CCPR (the "Guarantee") and are to be issued pursuant to the Indenture dated
as of January 31, 1997 among Services, CCPR, as Guarantor, and The Chase
Manhattan Bank, as Trustee (the "Indenture"), in exchange for a like principal
amount at maturity of Services' issued and outstanding 10% Senior Notes Due 2007
(the "Old Notes").
This opinion is delivered in accordance with the requirements of Item
601(b) (5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Act").
In connection with this opinion, I have examined originals or copies,
certified or otherwise identified to our satisfaction, of (a) the Registration
Statement on Form S-4 (File No. 333-26055) as filed with the Securities and
Exchange Commission (the "Commission") on April 29, 1997 under the Act and
Amendment No. 1 with which this opinion is being filed (such Registration
Statement, as so amended, being hereafter referred to as the "Registration
Statement"); (b) the Indenture (including the Guarantee set forth therein),
filed as an exhibit to the Registration Statement; (c) the form of the New Notes
set forth as A-1 to the Indenture; (d) certain resolutions of the Board of
Directors of CCPR and Services and the Pricing Committee of the Board of
Directors of Services, in each case relating to the issuance of the Old Notes
and the exchange of the Old Notes for the New Notes and related matters; (e) the
Restated Certificates of Incorporation of CCPR and Services, as presently in
effect; and (f) the Restated By-Laws of CCPR and Services, as presently in
effect. I have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such records of CCPR and Services and such
agreements, certificates of public officials, certificates of officers or other
representatives of CCPR and Services and others, and such other documents,
certificates and records as I have deemed necessary or appropriate as a basis
for the opinions set forth herein.
<PAGE>
In my examination, I have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making my examination
of documents executed by parties other than CCPR and Services, I have assumed
that such parties had the power, corporate and other, to enter into and perform
all obligations thereunder and have also assumed the due authorization by all
requisite action, corporate and other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof. As to any
facts material to the opinions expressed herein which I have not independently
established or verified, I have relied upon statements and representations of
officers and other representatives of the Companies and others.
I am admitted to the bar in the State of New York, and I express no
opinion as to the laws of any other jurisdiction other than the corporate law of
the State of Delaware.
Based upon and subject to the foregoing, I am of the opinion that when
(i) the Registration Statement becomes effective and the Indenture has been
qualified under the Trust Indenture Act of 1939, as amended; (ii) the New Notes,
upon consummation of the Exchange Offer as described in the Registration
Statement, have been duly executed and authenticated in accordance with the
terms of the Indenture; and (iii) the New Notes issuable upon consummation of
the Exchange Offer have been duly delivered against receipt of Old Notes
surrendered in exchange therefor as contemplated by the Registration Statement,
(a) the New Notes issuable upon consummation of the Exchange Offer will
constitute valid and binding obligations of Services entitled to the benefits of
the Indenture and enforceable against Services in accordance with their terms
and (b) the Guarantee will constitute a valid and binding obligation of CCPR
enforceable against CCPR in accordance with its terms, except to the extent that
enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (2) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
I hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement. I also consent to the reference to me
under the caption "Legal Matters" in the Registration Statement. In giving this
consent, I do not thereby admit that I am included in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
Very truly yours,
/s/ Richard J. Lubasch
----------------------
Richard J. Lubasch
Senior Vice President-
General Counsel
<PAGE>
EXHIBIT 12.1
CCPR SERVICES, INC.
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- ----------------------
1996 1995 1994 1993 1992 1997 1996
----------- ---------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges
Interest............... $ 8,094,000 $2,751,000 $ -- $ -- $ -- $3,983,000 $1,732,000
Amortization of debt
expense............... 610,000 253,000 -- -- -- 151,000 152,000
Interest portion of
rental expense........ 951,000 703,000 546,000 416,000 296,000 262,000 203,000
----------- ---------- ----------- ----------- ----------- ---------- ----------
$ 9,655,000 $3,707,000 $ 546,000 $ 416,000 $ 296,000 $4,396,000 $2,087,000
=========== ========== =========== =========== =========== ========== ==========
Earnings:
Income (loss) before
income tax............ $ 7,471,000 $5,499,000 ($3,090,000) ($3,153,000) ($2,646,000) $ 668,000 $1,445,000
Fixed charges per
above................. 9,655,000 3,707,000 546,000 416,000 296,000 4,396,000 2,087,000
Less: Capitalized
interest............ (198,000) (119,000) (80,000) (123,000) (99,000) (76,000) (25,000)
----------- ---------- ----------- ----------- ----------- ---------- ----------
$16,928,000 $9,087,000 ($2,624,000) ($2,860,000) ($2,449,000) $4,988,000 $3,507,000
=========== ========== =========== =========== =========== ========== ==========
Ratio of Earnings to
Fixed Charges.......... 1.8 2.5 -- -- -- 1.1 1.7
</TABLE>
<PAGE>
EXHIBIT 12.2
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------- ----------------------
1996 1995 1994 1993 1992 1997 1996
----------- ----------- ----------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest............... $ 8,181,000 $ 8,501,000 $ 7,305,000 $ 6,249,000 $ 3,658,000 $3,984,000 $1,779,000
Amortization of debt
expense............... 610,000 619,000 280,000 279,000 99,000 151,000 152,000
Interest portion of
rental expense........ 1,028,000 764,000 570,000 416,000 300,000 285,000 222,000
----------- ----------- ----------- ------------ ------------ ---------- ----------
$ 9,819,000 $ 9,884,000 $ 8,155,000 $ 6,944,000 $ 4,057,000 $4,420,000 $2,153,000
=========== =========== =========== ============ ============ ========== ==========
Earnings:
Income (loss) before
income tax............ $10,466,000 $ 2,556,000 $(4,484,000) $(18,575,000) $(14,850,000) $1,244,000 $3,015,000
Fixed charges per
above................. 9,819,000 9,884,000 8,155,000 6,944,000 4,057,000 4,420,000 2,153,000
Less: Capitalized
interest............ (198,000) (119,000) (80,000) (123,000) (99,000) (76,000) (25,000)
----------- ----------- ----------- ------------ ------------ ---------- ----------
$20,087,000 $12,321,000 $ 3,591,000 $(11,754,000) $(10,892,000) $5,588,000 $5,143,000
=========== =========== =========== ============ ============ ========== ==========
Ratio of Earnings to
Fixed Charges.......... 2.0 1.2 0.4 -- -- 1.3 2.4
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Information" and "Experts" and to the use of our report dated February 23, 1997,
in Amendment #1 to the Registration Statement (Form S-4) and related Prospectus
of CCPR Services, Inc.
Ernst & Young LLP
San Juan, Puerto Rico
June 13, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Information" and "Experts" and to the use of our report
dated February 23, 1997, with respect to the financial statements and schedule
of Cellular Communications of Puerto Rico, Inc. included in Amendment #1 to the
Registration Statement (Form S-4 No. 333-26055) and related Prospectus of CCPR
Services, Inc.
Ernst & Young LLP
San Juan, Puerto Rico
June 13, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 23, 1997, with respect to the financial
statements of San Juan Cellular Telephone Company (a Partnership) included in
the Registration Statement (Form S-4 No. 333-26055) and related Prospectus of
CCPR Services, Inc.
Ernst & Young LLP
San Juan, Puerto Rico
June 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001038374
<NAME> CCPR SERVICES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,918,727
<SECURITIES> 5,916,811
<RECEIVABLES> 22,024,773
<ALLOWANCES> (3,471,653)
<INVENTORY> 2,291,985
<CURRENT-ASSETS> 50,971,310
<PP&E> 126,028,836
<DEPRECIATION> (36,116,979)
<TOTAL-ASSETS> 167,268,371
<CURRENT-LIABILITIES> 45,516,688
<BONDS> 115,000,000
0
0
<COMMON> 1,000
<OTHER-SE> 6,750,683
<TOTAL-LIABILITY-AND-EQUITY> 167,268,371
<SALES> 0
<TOTAL-REVENUES> 26,924,079
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,094,399
<INCOME-PRETAX> 7,470,974
<INCOME-TAX> 890,766
<INCOME-CONTINUING> 6,580,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,580,208
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000881817
<NAME> CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,307,000
<SECURITIES> 5,917,000
<RECEIVABLES> 23,801,000
<ALLOWANCES> (3,767,000)
<INVENTORY> 2,912,000
<CURRENT-ASSETS> 3,022,000
<PP&E> 135,909,000
<DEPRECIATION> (37,964,000)
<TOTAL-ASSETS> 300,722,000
<CURRENT-LIABILITIES> 23,114,000
<BONDS> 115,000,000
0
0
<COMMON> 134,000
<OTHER-SE> 162,474,000
<TOTAL-LIABILITY-AND-EQUITY> 300,722,000
<SALES> 13,979,000
<TOTAL-REVENUES> 133,818,000
<CGS> 17,962,000
<TOTAL-COSTS> 33,176,000
<OTHER-EXPENSES> 63,223,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,181,000
<INCOME-PRETAX> 10,466,000
<INCOME-TAX> 5,352,000
<INCOME-CONTINUING> 5,114,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,114,000
<EPS-PRIMARY> .36
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001038374
<NAME> CCPR SERVICES
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,083,000
<SECURITIES> 3,660,000
<RECEIVABLES> 23,055,000
<ALLOWANCES> (3,583,000)
<INVENTORY> 3,366,000
<CURRENT-ASSETS> 52,471,000
<PP&E> 131,620,000
<DEPRECIATION> (39,281,000)
<TOTAL-ASSETS> 252,861,000
<CURRENT-LIABILITIES> 49,241,000
<BONDS> 200,000,000
0
0
<COMMON> 1,000
<OTHER-SE> 3,619,000
<TOTAL-LIABILITY-AND-EQUITY> 252,861,000
<SALES> 0
<TOTAL-REVENUES> 8,612,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,983,000
<INCOME-PRETAX> 803,000
<INCOME-TAX> 182,000
<INCOME-CONTINUING> 621,000
<DISCONTINUED> 0
<EXTRAORDINARY> (3,752,000)
<CHANGES> 0
<NET-INCOME> (3,131,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000881817
<NAME> CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,905,000
<SECURITIES> 3,660,000
<RECEIVABLES> 24,607,000
<ALLOWANCES> (3,889,000)
<INVENTORY> 4,815,000
<CURRENT-ASSETS> 2,318,000
<PP&E> 142,108,000
<DEPRECIATION> (41,575,000)
<TOTAL-ASSETS> 305,124,000
<CURRENT-LIABILITIES> 26,600,000
<BONDS> 200,000,000
0
0
<COMMON> 0
<OTHER-SE> 78,524,000
<TOTAL-LIABILITY-AND-EQUITY> 305,124,000
<SALES> 3,919,000
<TOTAL-REVENUES> 37,271,000
<CGS> 4,779,000
<TOTAL-COSTS> 8,669,000
<OTHER-EXPENSES> 17,889,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,984,000
<INCOME-PRETAX> 1,244,000
<INCOME-TAX> 1,176,000
<INCOME-CONTINUING> 68,000
<DISCONTINUED> 0
<EXTRAORDINARY> (3,751,000)
<CHANGES> 0
<NET-INCOME> (3,683,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
