<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-21840
_______________________
PITTENCRIEFF COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2609476
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
ONE VILLAGE DRIVE, SUITE 500
ABILENE, TEXAS 79606
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (915) 690-5800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___________
The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 17, 1997, was approximately $52,467,223. The number of
shares of common stock of registrant outstanding on March 17, 1997, was
26,163,225.
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TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. Business.......................................................... 1
2. Properties........................................................ 16
3. Legal Proceedings................................................. 16
4. Submission of Matters to a Vote of Security Holders............... 16
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................................. 17
6. Selected Financial Data........................................... 18
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 19
8. Financial Statements and Supplementary Data....................... 24
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 24
PART III
10. Directors and Executive Officers of the Registrant................ 25
11. Executive Compensation............................................ 27
12. Security Ownership of Certain Beneficial Owners and Management.... 31
13. Certain Relationships and Related Transactions.................... 32
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 32
Signatures............................................................. 36
Index to Consolidated Financial Statements and Schedules............... F-1
ii
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PART I
ITEM 1. BUSINESS.
GENERAL
Pittencrieff Communications, Inc. ("PCI" or the "Company") is a leading
provider of Specialized Mobile Radio ("SMR") wireless communications services in
the United States and as of December 31, 1996, serviced approximately 92,000
subscriber units on approximately 6,000 SMR channels providing coverage in
Texas, New Mexico, Oklahoma, Arizona, Colorado, North Dakota, and South Dakota.
The SMR services currently offered by the Company are a cost-effective
alternative to cellular mobile telephone service for high-volume subscribers.
The Company provides subscribers with both mobile telephone interconnect (mobile
radio to public switched telephone network) and dispatch (base to fleet)
communications, but concentrates on mobile telephone service, which produces
significantly higher average revenues per subscriber unit than dispatch service.
Historically, the Company has focused on channel positions and subscriber
bases in rural areas and small to medium-sized cities, because acquisition and
operation costs in these areas are generally lower and usage rates per capita
are generally higher. Since 1994, however, the Company has expanded its
business strategy to include major metropolitan areas. Technology has continued
to improve with the availability of enhanced analog technology and increased
commercial operation of digital mobile ("Digital Mobile") networks. In 1996,
the Company continued to expand its strategy and significantly increased channel
positions in Dallas-Fort Worth, Houston, San Antonio, and Austin, Texas. As a
result, the Company has focused its efforts on increasing its analog SMR
subscriber base in and around these Texas metropolitan areas.
In December 1995, the Federal Communications Commission ("FCC") adopted
rules and proposals designed to govern the future licensing of 800 MHz SMR
systems. The primary impact of these new proposals was the enactment of
regulations that will permit the geographic based licensing of 10 MHz of
spectrum, which is comprised of 200 channels located in the upper portion of the
800 MHz SMR band. The licensing will be effected by means of an auction process
("800 Auctions"). The channels will be licensed throughout economic areas as
designated by the U.S. Bureau of Economic Analysis ("BEAs") and will be
available in blocks of 120, 60, and 20 channels. BEA licensees will be able to
construct stations at any available site on any available channel within their
spectrum block or blocks. No FCC approval will be required for expansion or
modification of system facilities, as long as the system complies with
applicable technical and operational rules. To date, the FCC has not set a date
for commencement of the 800 Auctions.
On January 16, 1996, the Company completed the merger of the SMR businesses
of Advanced MobileComm, Inc. ("AMI"), a Fidelity Capital company, and a number
of related and unrelated companies (collectively referred to as the "AMI
Parties") into PCI (the "Transaction"). Upon consummation of the Transaction,
the Company added approximately 18,000 subscriber units and 3,000 granted SMR
channels, including increased channel positions in major metropolitan areas in
Texas.
In October 1996, the Company entered into an Agreement of Merger and Plan
of Reorganization (the "Agreement") with Nextel Communications, Inc., Nextel
Finance Company and DCI Merger, Inc. (collectively referred to as "Nextel")
whereby the Company would become a wholly owned subsidiary of Nextel in a tax-
free transaction which calls for the exchange of one registered share of Nextel
Class A (Voting) Common Stock ("Nextel Common Stock") for 3.17 shares of PCI
Common Stock, subject to certain adjustments. The Agreement was subsequently
amended and restated in December 1996 ("Restated Agreement"). Completion of the
transaction is subject to satisfaction of various conditions contained in the
Restated Agreement, including approval by the Company's stockholders and
approval by the appropriate regulatory bodies.
As a result of the FCC's delay in implementing the 800 Auctions and the
pending merger with Nextel, the Company has decided to forego plans to construct
its own Digital Mobile network.
1
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MARKET SUMMARY
The following table lists the population, growth rates, mobile intensive
population as a percentage of employee base, and number of non-government
businesses in the markets in the Company's footprint. The Company's footprint
covers an estimated 1995 population of approximately 26.8 million people or
POPs. The population estimates included in the table represent the number of
people residing in the relevant Metropolitan Statistical Areas ("MSAs") and
Rural Statistical Areas ("RSAs") and are not indicative of the number of users
or potential penetration rates for the Company. The Company believes that the
demographics, economic characteristics, and travel patterns of the expanded
footprint are favorable for selling regional wireless communication services.
<TABLE>
MOBILE
1993-1998 INTENSIVE NUMBER
1995 ESTIMATED % POPS AS A % OF
ESTIMATED POPULATION OF EMPLOYEE NON-GOVT.
MSA/RSA MARKETS (1) POPULATION GROWTH BASE (2) BUSINESSES
- ---------------------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Arizona Phoenix 2,427,000 2.27 % 22.6% 52,200
Tucson 753,000 2.05 17.8 15,100
AZ 1-6 (RSAs) 1,017,000 2.56 18.2 17,800
---------
4,197,000
Colorado CO 6-7 (RSAs) 115,000 2.12 20.8 3,400
New Mexico Albuquerque 621,000 2.01 19.7 13,500
Las Cruces 161,000 2.95 22.2 2,500
NM 1, 3-6 (RSAs) 881,000 1.57 19.0 18,500
---------
1,663,000
North Dakota Bismarck 88,000 1.16 18.6 2,500
ND 1, 4-5 (RSAs) 214,000 (0.71) 16.6 6,400
---------
302,000
Oklahoma Lawton 125,000 2.66 17.6 1,900
Oklahoma City 989,000 1.04 18.9 24,100
Tulsa 797,000 1.21 18.4 19,500
OK 1, 5-9 (RSAs) 711,000 (0.13) 17.3 15,000
---------
2,622,000
South Dakota SD 1 (RSA) 36,000 1.01 14.7 1,100
Texas Abilene 149,000 0.24 16.5 3,800
Amarillo 199,000 0.65 16.8 5,000
Austin 915,000 2.59 17.7 19,700
Beaumont 378,000 0.95 18.7 7,600
Bryan-College Station 131,000 1.13 14.9 2,400
Corpus Christi 376,000 1.38 18.9 7,900
Dallas-Fort Worth 4,479,000 1.92 22.1 100,000
El Paso 686,000 2.54 16.1 10,800
Houston 3,964,000 2.31 23.6 82,000
Killeen-Temple 261,000 0.22 14.2 3,700
Laredo 162,000 3.46 27.4 2,900
Longview-Marshall 171,000 0.79 14.3 4,500
Lubbock 231,000 0.52 18.9 6,700
Midland-Odessa 241,000 1.41 17.9 6,600
San Angelo 103,000 0.51 18.5 2,300
San Antonio 1,460,000 1.80 21.8 27,000
Sherman-Denison 98,000 0.35 15.2 2,100
Texarkana 137,000 0.38 14.9 2,700
Tyler 163,000 1.09 15.0 4,100
</TABLE>
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<TABLE>
MOBILE
1993-1998 INTENSIVE NUMBER
1995 ESTIMATED % POPS AS A % OF
ESTIMATED POPULATION OF EMPLOYEE NON-GOVT.
MSA/RSA MARKETS (1) POPULATION GROWTH BASE (2) BUSINESSES
- ------------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Texas (cont'd.) Victoria 80,000 1.41 18.1 2,000
Waco 198,000 0.72 15.2 4,300
Wichita Falls 130,000 (0.55) 15.7 3,300
TX 1-21 (RSAs) 3,107,000 0.48 17.5 60,900
----------
17,819,000
TOTAL POPS IN FOOTPRINT 26,754,000
PCI MSA WEIGHTED AVERAGE (3) 1.87 20.7
U.S. MSA WEIGHTED AVERAGE (3) 1.03 20.4
PCI RSA WEIGHTED AVERAGE (3) .91 17.8
U.S. RSA WEIGHTED AVERAGE (3) .85 15.6
</TABLE>
- -------------------
(1) All data are based on estimates from The 1995 Cellular/PCS Pop Book
(Paul Kagan Associates, Inc. April 1995). RSA market information is
a weighted average of the individual RSA market information, except
for 1995 estimated population, based on population.
(2) POPs designated as "mobile intensive" include those employed in
construction, transportation, financial, insurance, real estate,
agriculture, and law businesses where significant amounts of time are
generally spent in an automobile.
(3) Weighted average of individual MSA information or state RSA weighted
averages, respectively, based on population.
THE SMR INDUSTRY
The wireless industry provides high-quality communications services
through vehicle-mounted and hand-held portable telephones and other two-way
radio units in the various frequency bands. Today, the wireless telephone
industry is composed principally of cellular, personal communications
services ("PCS") and SMR systems. Other forms of wireless communications are
likely to be available soon. The first cellular commercial systems were not
operational until 1983, but have grown rapidly with an estimated 42 million
units in service at December 31, 1996. SMR systems first became operational
in 1974, and SMR subscriber units in service nationwide were an estimated 2.6
million at December 31, 1996, while private two-way radio units were an
estimated 17 million. The first 100% digital, PCS network was launched in
November 1995 by American Personal Communications Inc. in Washington D.C. As
of December 1996, several other PCS providers have begun commercial
operations of their digital PCS systems. Sprint Corp. is operational in
California, Oregon and Texas, PrimeCo Personal Communications, LP now
services portions of Illinois, Hawaii, Florida and Texas, Pacific Bell Mobile
Services offers service in California and Nevada, and Western Wireless Corp.
is now operational in Hawaii, Oregon and Texas.
The FCC awards only two licenses to provide cellular service in any
specific licensed areas. SMR systems, although previously regulated in a
different manner from cellular systems, occupy a block of radio spectrum
immediately adjacent to and technologically equivalent to cellular
frequencies. SMR operators have traditionally offered dispatch services to
businesses, but even with existing analog technology are capable of offering
a broad range of other mobile communications services, including mobile
telephone service, data transmission, and telemetry services. The Company
believes that the wide range of SMR services, which will be enhanced with the
implementation of channel compression technologies, have made SMR a growth
industry and an attractive communications alternative to cellular mobile
telephone systems.
The 800 MHz SMR industry in major metropolitan areas has traditionally
been characterized by a shortage of channels. Because the FCC previously
imposed loading requirements in such spectrum-short areas, metropolitan SMR
providers have offered primarily dispatch service, on which subscribers
generally communicate in shorter transmissions than mobile telephone users,
allowing them to service a greater number of subscriber units. Typical
dispatch subscribers are taxicab and construction companies. A major 800 MHz
SMR operator in many metropolitan areas has converted to digital technology
in response to the growing demand for wireless communications services,
including mobile telephone service, in those areas.
3
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In contrast, 800 MHz SMR operators in rural areas and small to
medium-sized cities, including the Company, traditionally did not face
spectrum shortages. FCC loading requirements did not apply in such
non-spectrum-short areas, and, therefore, 800 MHz SMR operators in these
markets were able to provide wireless services comparable to cellular
service. As a result, these 800 MHz SMR operators have attracted a broad
cross section of subscribers and compete more directly against cellular
service providers. Wireless services can continue to be provided for the
foreseeable future using existing analog 800 MHz SMR systems. The Company
believes that enhanced analog networking, which provides some of the
advantages of cellular systems, could improve its position against cellular
service providers in the rural and small to medium-sized cities. The
advantages of any enhanced technology can be introduced in these areas
without disrupting existing service.
With its participation in the 900 MHz spectrum auctions, which were
completed in April 1996, the Company has entered into the 900 MHz SMR market.
First allocated in 1986 and licensed by lottery in 1987, the use of 900 MHz
spectrum for the private land mobile services was initially intended to
address the spectrum shortfall in the 800 MHz bandwidth. Licensing in the
900 MHz bandwidth was proposed to occur in two "phases." During Phase I, the
FCC licensed 900 MHz spectrum in 50 designated filing areas ("DFAs"), or
urban centers, in 20, ten-channel licenses. Phase II of 900 MHz spectrum
licensing, throughout the remainder of the United States, was to occur upon
completion of Phase I licensing. However, due to a variety of reasons, the
FCC did not license 900 MHz SMR spectrum in the remainder of the country
until November 1995, when it initiated the 900 MHz spectrum auctions ("900
Auctions"). Accordingly, while service offerings in the 900 MHz SMR bands are
similar, if not identical to 800 MHz SMRs, there is significantly less
frequency congestion in the 900 MHz band. Consequently, and because less 900
MHz SMR equipment has been produced, the equipment for this band is generally
more expensive than 800 MHz equipment. Certain 900 MHz channels acquired in
the Transaction and located in San Diego, California were sold to PageNet
Corporation in September 1996.
PRODUCTS AND SERVICES
The Company currently offers a wide range of wireless communications
services to its customers. The Company derives its revenues from access and
airtime charges for SMR system usage, equipment service, sales of
communications equipment, radio leasing, paging services, microwave services,
telemetry, and miscellaneous other services. Although SMR operators can
offer SMR services to virtually any customer, the Company's subscribers are
primarily businesses and government entities.
SMR SERVICES. The Company provides analog 800 MHz SMR services for
approximately 92,000 subscriber units on approximately 6,000 SMR channels
throughout the Southwestern United States and the Dakotas. Prior to the
Transaction, the Company's markets predominantly included rural areas and
small and medium-sized cities. The Company now offers services in larger
cities, including Dallas, Houston, Phoenix, San Antonio, Oklahoma City,
Austin, and El Paso. Throughout its geographic coverage area, the Company's
existing SMR systems are largely contiguous and offer some of the extended
coverage characteristics of cellular systems. These extended coverage
characteristics include the ability to place and receive calls with a mobile
telephone over a large geographic area on a system or systems operated by the
Company and, to a limited extent, the capability of roaming into systems
operated by other providers.
A wireless communications user may initiate either telephone calls or
dispatch calls from its mobile radio equipment. The Company concentrates on
providing wireless service through the public switched telephone network
("PSTN"), which is comparable to cellular service but is generally available
at a lower effective cost for high-volume subscribers. As the owner of
significant amounts of SMR spectrum in the major metropolitan areas, Nextel's
Digital Mobile network provides enough capacity that they no longer have to
focus primarily on fleet dispatch. Because of the Company's aggressive
consolidation of 800 MHz SMR systems and the scale of its existing 800 MHz
SMR systems, the Company currently has sufficient channel capacity to offer
mobile telephone service in most of its markets, except for new markets in
major metropolitan areas where fleet dispatch is still emphasized.
4
<PAGE>
A typical analog SMR system operated by the Company consists of multiple
channels, one or more centrally located, high-power base station
transmitters, one or more antennas, and other radio equipment. The SMR
system receives transmissions from a user's mobile radio and either routes
them through the public telephone lines or retransmits the signals to other
SMR radios. In addition, the SMR system transmits communications from public
telephone lines to a user's mobile SMR radio. Substantially all of the
Company's SMR systems are trunked radio systems, which maximize the number of
users that can be supported. The efficiency of trunked systems generally
increases as additional channels are added to the system. A multi-channel
trunked system automatically searches for an open channel for each
transmission. The "search" capability allows more users to be served per
radio channel, because the probability that all channels in a large system
will be used at one time is lower than the probability that a single given
channel will be used.
The Company offers flexible SMR service packages customized to fit its
subscribers' needs and locations within its geographic footprint. For
example, a basic SMR package might allow a subscriber to choose access to ten
or more systems within the Company's footprint. The typical coverage area
for one of the Company's SMR systems is a radius of 30-50 miles from its base
station transmitter, depending on the terrain. A subscriber can choose
access to those systems in and around its location that match its business
needs. Access to additional systems beyond the basic package may be obtained
from the Company at additional cost and on a permanent or temporary basis. A
subscriber can travel from system to system by manually switching systems on
the radio telephone. Because of the Company's footprint, few roaming
agreements with other SMR operators are required unless they are needed to
meet the needs of specific subscribers. The Company views its footprint as a
competitive advantage over other SMR providers, which are not able to provide
subscribers with one point of contact for sales, service, and billing over a
large geographic area or one-price structure for a subscriber's extended area
of operations.
Generally, the Company bills a subscriber for telephone service with a
mixture of fixed monthly access charges and airtime charges. A subscriber
typically pays a fixed monthly access charge, generally $40 per month, for an
unlimited number of calls up to five minutes long on its selected SMR
systems. If a call lasts longer than five minutes airtime charges begin and
the subscriber generally is billed $.25 per minute for the remainder of the
call. The Company also offers a variety of other pricing packages, including,
for example, mobile telephone service for $.25 per minute with 300 free
minutes per month. Long distance charges are additional charges and, like
all telephone charges, are passed through to the subscriber. In some of the
Company's markets, a subscriber's bill may also include charges for
additional services available, such as call forwarding and voice mail.
The Company's SMR subscribers are diverse and include a variety of
businesses, including ranching and agricultural operations, energy companies,
transportation companies, and professionals (E.G., realtors, accountants,
doctors, and attorneys). Government agencies are also customers of the
Company. In 1996, no single customer accounted for more than one percent of
total revenues.
MARKETING, SALES, AND SERVICE. The Company's primary marketing thrust
is to present its SMR service as an alternative to cellular mobile telephone
service. The Company's SMR mobile telephone service is generally more
economical for high-volume mobile telephone users. The Company uses a
variety of media, including newspaper, television, radio, billboards, and
advertising circulars. The Company tailors its marketing effort in different
parts of its footprint to the demographics of its potential subscriber
population. The Company offers customized wireless solutions to attract
subscribers, including access to multiple SMR systems within the Company's
footprint, various pricing alternatives, and customer conveniences such as
consolidated invoices and billing for airtime charges. In addition to more
direct marketing efforts, the Company's other services, including its sales
and service operations and paging and telemetry operations, provide
opportunities to add SMR subscribers and to sell other communications.
Unlike most cellular mobile telephone operators and other SMR operators
that use third-party distributors, the Company primarily employs its own
sales and service staff. From its 23 sales and service centers, the Company
sells SMR services, sells and rents SMR equipment, and provides SMR equipment
service and miscellaneous other services. The Company's sales and service
centers also sell equipment and provide repair and maintenance service to
non-subscribers. Although these non-subscriber sales do not generate
significant revenues, they provide another opportunity for the Company to
market its services to potential new subscribers. Sales personnel are
compensated through a combination of salary and commission.
5
<PAGE>
The Company has augmented its sales and service network with direct sales
efforts designed to reach potential customers or concentrate heavily on
specific markets. The Company is also capitalizing on successful cellular
marketing techniques such as the use of independent dealers and resellers who
are managed by the Company's local sales and service operations. In this
regard, the Company sold six of its sales and service operations during 1996
to dealer/agents who will continue to add recurring customers utilizing the
Company's SMR systems. The dealer/agents are compensated on a commission
basis and the Company retains control of billing and collection for any new
customers added in this manner. The dealer/agents also provide technical
site maintenance to the Company on a contract basis.
The Company's sales of SMR radio units are competitive with other
distributors. Equipment sales efforts are enhanced by an ability to offer
equipment repair and service on a drive-in basis or on call 24 hours a day
for repair and service at subscriber locations. The Company initially
provides equipment repair and service under manufacturers' warranties and
thereafter under extended service contracts or on a time and materials basis.
For SMR subscribers that do not wish to buy their own SMR radios, the
Company has historically, subject to the availability of working capital,
offered a radio equipment rental program. This rental program improves the
Company's ability to compete with the lower equipment purchase prices of
cellular systems. By renting equipment from the Company, a subscriber does
not have to pay the generally higher purchase price of an SMR unit when
compared to cellular mobile telephones. The Company believes renting gives
it a competitive advantage over other SMR operators that choose not to rent
equipment or have insufficient capital resources to do so. The Company rents
most of its radio units for approximately $40 per month on a month-to-month
basis enabling it to recover its investment in a relatively short time period.
OTHER SERVICES. The Company operates 32 paging systems, providing basic
paging services to over 4,500 paging subscriber units on 150 MHz and 450 MHz
channels. Paging is a one-way wireless communications service in which the
subscriber carries a small, uniquely encoded radio receiver. Someone wishing
to contact the subscriber will dial the paging telephone number. When
activated, the pager will beep (alerting the subscriber to call a prearranged
number for messages), receive a voice transmission, or display a simple
message.
The Company also provides data transmission services through its SMR
systems. One of the Company's data services is the telemetry of system
control and data acquisition ("SCADA"), which allows subscribers to transmit
data to and from remote locations, to control remote locations by turning
functions on or off, or to monitor remote locations. The Company typically
prepares a customized package of telemetry services for a customer that uses
commercially available hardware and software configured to meet the
customer's needs and pricing requirements. The customer's costs typically
include system development, maintenance, and actual airtime use. The
Company's telemetry subscribers include government agencies, utilities, and
petroleum companies with varied telemetry applications. A water authority or
utility may use telemetry to monitor and control water flow, an oil company
may monitor allowable production on its well through the Company's telemetry
service, and an agricultural business may automate its irrigation operations
via telemetry controls.
ACQUISITIONS
Historically, the Company has pursued a consolidation strategy. In order
to accomplish its acquisition goals, the Company targets SMR systems that
provide a strategic fit with the Company's current or proposed SMR
operations, and can be purchased at prices that the Company believes can
generate attractive financial returns. Candidates for acquisition will
generally have the following characteristics: (i) similar business
operations to those of the Company; (ii) location in or adjacent to the
Company's footprint; (iii) ability to increase market share in the Company's
footprint or expand its footprint; and (iv) potential to enhance average
revenues per subscriber unit. Due to significant consolidation within the
SMR industry, acquisition opportunities have become limited within the
Company's area of operation. The following table summarizes the Company's
acquisition activity since 1991:
6
<PAGE>
Acquisition Cost Number of
Number of (Including SMR Channels
Year Acquisitions (1) Liabilities Assumed) Acquired
--------------- ------------------- ------------
1991 6 6,124,000 197
1992 11 16,256,000 442
1993 14 16,927,000 325
1994 18 43,547,000 570
1995 3 2,056,000 93
1996 2 64,257,000 3,000
- --------------------
(1) Includes acquisitions of fully operational SMR businesses, discrete
SMR channels, and other SMR assets.
COMPETITION
CELLULAR SYSTEMS. The Company currently competes with cellular systems
operating in its footprint, some of which have begun implementation of
digital technology. The Company will also compete with established cellular
operators in its efforts to attract wireless communications customers,
dealers and resellers to its service in any market in which it implements
digital technology. While the FCC has licensed only two cellular carriers in
each MSA or RSA, the Company competes with, or expects to compete with, many
cellular telephone operators throughout its geographic footprint. Many of
the companies possess significantly greater financial resources than the
Company. Of the current cellular operators in the Company's footprint,
Southwestern Bell, GTE Mobilnet, and AT&T Wireless Services are believed to
be the largest operators in Texas. Large cellular operators in other states
in the footprint include, for example, Bell Atlantic in New Mexico and AT&T
Wireless Services in Oklahoma. The Company believes that its existing analog
SMR systems compete directly with cellular service on the basis of price,
customer service, and local coverage.
In addition, the cellular industry has begun implementing new digital
transmission technologies. The digital technologies chosen include time
division multiple access ("TDMA"), utilizing three-times channel compression,
and code division multiple access ("CDMA"). CDMA is predicted to provide a
significant increase in capacity over current analog technology. Where TDMA
or CDMA is deployed, a cellular operator will have greater channel capacity
than an analog or digital SMR system in any given market. AT&T Wireless
Services has deployed TDMA in Texas and GTE Mobilnet has deployed CDMA in its
Texas markets.
Cellular service in the Company's footprint generally is offered for a
one-year term and has a higher average monthly cost than the Company's SMR
services for high-volume business users. The Company has experienced
significant price competition from cellular providers in certain key markets
within the Company's footprint. Although the Company has a wide variety of
rate plans tailored to its various markets, the Company's analog SMR
interconnect subscribers now typically pay a fixed monthly access charge of
$40 per month for an unlimited number of calls up to five minutes long, plus
additional airtime charges for longer calls. Any cellular service may be
offered in many different pricing packages.
Analog cellular telephone units may be purchased at a cost generally
lower than analog SMR units offered by the Company. The Company does,
however, offer its subscribers equipment rental options. Due to the
substantial financial and other resources available to cellular operators in
the Company's markets, cellular operators may also subsidize the sale of
digital subscriber units at prices below those with which the Company can
compete.
OTHER SMR OPERATORS. The Company's existing SMR operations compete in
each market with a number of other operators of SMR systems providing service
on the 800 MHz and 900 MHz bands. The Company may also have competition from
radio operators providing service on 220 MHz or 450 MHz bands. Many of these
licensees only hold or manage five to ten channels, single site (I.E.,
limited coverage) licenses, have limited financial resources, and are serving
a small number of subscribers. There are, however, a limited number of
competitors within the Company's markets that hold significant channel
positions, provide wide-area coverage, and serve a significant number of
subscribers. These competitors may have substantially greater financial,
management, and marketing resources than the Company.
7
<PAGE>
Nextel, the nation's largest SMR operator, is pioneering the implementation
of Motorola, Inc.'s ("Motorola") Integrated Dispatch Enhanced Network ("iDEN")
using six-times TDMA digital technology in major metropolitan areas throughout
the United States, including areas where the Company currently operates. Nextel
has not yet begun implementing iDEN-based Digital Mobile networks in Texas, but
has commenced operations in Arizona, Colorado, and Oklahoma. In addition,
Nextel has substantial channel capacity in many parts of the Company's footprint
and offers analog SMR services where digital technology has not yet been
implemented. Nextel is a significant competitor in all or many of the
metropolitan areas served by the Company. Nextel is substantially larger than
the Company or any other SMR operator.
The Company currently utilizes analog transmission technology in its SMR
systems. Digital technology such as iDEN and TDMA provides significant
increases in channel capacity and the ability to offer enhanced and integrated
wireless services. The Company believes that implementation of digital
technology permits more effective competition with cellular services, although
there continue to be differences.
Nextel's business objective in constructing Digital Mobile networks, using
improved iDEN technology and modifications in system design, is to enable it to
offer high-quality, enhanced mobile communications services to customers in its
markets. Nextel's strategy is to position itself as a major provider of mobile
communications including mobile telephone service. Nextel expects to have the
capacity, functionality, and quality of service necessary to be competitive with
current cellular telephone service in the markets in which it operates Digital
Mobile networks.
Based on Nextel's initial experiences, Motorola is working to improve iDEN
in the areas of voice quality, system access, and reliability. Motorola entered
into an agreement with Nextel to develop significant improvements in audio
quality for telephone interconnect service that incorporate a higher-rate
vocoder and an attendant reduction in the number of voice paths per channel used
for interconnect services ("Reconfigured iDEN"). This technological change
results in less efficient use of channels for interconnect service.
Reconfigured iDEN has now been successfully deployed in six of Nextel's major
metropolitan markets.
In December 1996, the Company entered into the Restated Agreement with
Nextel whereby the Company would become a wholly owned subsidiary of Nextel in a
tax-free transaction which calls for the exchange of one registered share of
Nextel Common Stock for 3.17 shares of PCI Common Stock, subject to certain
adjustments. Completion of the transaction is subject to satisfaction of
various conditions contained in the Restated Agreement, including approval by
the Company's stockholders and approval by the appropriate regulatory bodies.
In 1995, Southern Communications Services, Inc. ("SCS"), a subsidiary of
The Southern Company, a publicly held utility company, ("Southern"), began
implementation of an iDEN-based Digital Mobile network in portions of the
Southeastern United States. SCS provides wireless communications to various
subsidiaries of Southern and the general public, if excess capacity is
available.
While Nextel is the dominant provider of 800 MHz service in the country,
Geotek Communications, Inc. ("Geotek") is the most significant licensee of 900
MHz spectrum that intends to offer voice communications services. Geotek is
currently building a nationwide digital network employing frequency hopping,
multiple access ("FHMA") technology which, once complete, will offer enhanced
mobile communications services with a focus upon the mobile workplace.
WIRELESS DATA NETWORKS. The Company offers subscribers wireless data
transmission capabilities, including mobile facsimile service. Subscriber
demand for mobile data services is expected to increase in the future, and the
Company intends to market these services to meet this increased demand. The
Company's ability to provide mobile data services, however, may be impeded by
its current use of analog transmission technology because analog data
transmissions are less efficient and reliable than digital transmissions. The
Company expects to compete with a number of existing or developing wireless data
networks including ARDIS and RAM Mobile Data.
Although a less direct substitute for SMR service, one-way paging service
(beep, tone-and-voice, digital, or alphanumeric display) may be adequate for
those whose needs for two-way communications are more limited. Other two-way
mobile services may also be competitive with the Company's services.
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PERSONAL COMMUNICATIONS SERVICES. The Company also may face competition
from PCS. PCS operators have begun to compete with cellular and other mobile
communications providers, including the Company, and are expected to offer a
wide variety of wireless services. The FCC has allocated spectrum and has
licensed both narrowband and broadband PCS. Narrowband PCS is designed to
permit licensees to offer advanced voice, paging, data messaging, and both one-
and two-way messaging. Broadband PCS is designed to allow licensees to provide
a variety of two-way mobile communications services. The FCC has completed the
auctions of three separate groups of 30 MHz licenses nationwide and three
separate groups of 10 MHz licenses, nationwide for the implementation of PCS
systems. The first 100% digital broadband PCS network was launched in November
1995 in Washington, D.C., by American Personal Communications, Inc. Broadband
PCS service is currently available in numerous markets nationwide. Several
entities have begun offering narrowband PCS services. The FCC has tentatively
scheduled additional narrowband PCS auctions for 1997.
DEVELOPING TECHNOLOGIES AND SPECTRUM. In addition to PCS, additional
services will be made available to consumers from spectrum formerly licensed to
the Federal Government. To date, 50 MHz of spectrum has been transferred from
Federal use to private commercial use. Ten MHz of spectrum, which had been
previously allocated to military radar testing systems, was reallocated for the
provision of unlicensed asynchronous PCS devices. The FCC continued the
availability of 15 MHz of spectrum for unlicensed communications devices,
including spread spectrum devices and wireless local area networks ("LANs").
The remaining 25 MHz of spectrum was used to create a new service - General
Wireless Communications Service ("GWCS"). Licensees in the GWCS will be
permitted to provide any fixed or mobile service except broadcast services,
radio location services and satellite services, including mobile satellite
service. Potential uses of the GWCS include voice, video, and data
transmission, private microwave, broadcast auxiliary, and ground-to-air voice
and video.
The National Telecommunications and Information Administration ("NTIA")
identified an additional 185 MHz of Federal spectrum to be reallocated by the
FCC for use by commercial services. In March 1996, the FCC released a Spectrum
Reallocation Plan for the reallocation of the remaining 185 MHz of government
spectrum to be transferred to commercial use and established a tentative
timeline for rulemakings and proceedings necessary to effectuate the
reallocation. The FCC assembled the twelve bands of remaining spectrum into
four groups and said that it would consider all spectrum use options, including
commercial, private, and unlicensed applications in the United States and
internationally. The FCC also noted that it was required to ensure that
spectrum is available for public safety purposes and said that it will be
soliciting comment on the possible use of some of the reallocated spectrum in
support of the safety of life and property.
In 1997 Congress passed appropriations legislation that requires the FCC to
auction 30 MHz of spectrum in the 2.3 GHz range, for a new, undefined service
called the "Wireless Communications Service." The auction will commence on
April 15, 1997, and is required by the legislation to be concluded no later than
September 30, 1997. The FCC has decided to auction this spectrum in 4 channel
blocks, with each license covering large geographic service areas. The FCC also
concluded that it would impose very few technical limitations or service
restrictions on the new licenses.
The FCC has also recently allocated spectrum in the 5 GHz range to be used
for unlicensed services such as low-power wireless computer networks, or
equipment known as Unlicensed National Information Infrastructure ("U-NII")
devices. The U-NII proceeding was initiated by several computer and technology
manufacturers that asked the FCC to allocate spectrum at 5 GHz for use by
unlicensed equipment to provide short-range, wireless digital communications at
rates of approximately 20 million bits per second (20 Mbps). Proponents of
U-NII anticipated that the unlicensed devices would enable the provision of a
wide range of multi-media broadband digital communications services at
substantially lower costs than those offered by wired and licensed-wireless
networks. Three 100 MHz bands of spectrum at 5.15-5.35 GHz, 5.25-5.35 GHz
and 5.725-5.825 GHz were allocated for U-NII devices.
There are also numerous terrestrial or satellite based radio services that
could eventually compete with the Company's provision of wireless services. For
example, several satellite service providers have received FCC authorization to
launch and construct satellite communications networks to provide worldwide
mobile communications services. Another example is the 28 GHz, Local Multipoint
Distribution Service ("LMDS") service, in which the FCC is expected to auction
spectrum on a geographic basis for provision of wireless data, telephony, and
wireless cable services.
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The Company may face additional competition from licensees offering
services in spectrum formerly allocated to the private land mobile radio
("PLMR") services in the bands below 800 MHz. In June 1995, the FCC (1)
established a new channelization plan, with the ultimate goal of promoting
narrowband technology; (2) announced a plan to type accept only equipment
capable of operating on channels of 12.5 KHz or less by August 1, 1996, and
then on channels of 6.25 KHz or less by August 1, 2005; and (3) specified new
technical standards designed to accommodate the new spacings and promote
spectrum efficiency. The FCC recently released two decisions in this
proceeding. The first, in January 1997, generally affirmed the FCC's June 1995,
decision to transition the PLMR bands below 800 MHz (the "lower bands") to a
more efficient channelization scheme. The FCC did make several minor
channelization adjustments, but declined to revisit its basic decision to
"refarm" the lower bands. The second decision, released in March 1997,
consolidated the number of radio services in these bands to two - Public Safety
and Industrial/Business. The second decision also clarified that trunking
technology is permitted in the lower bands, under certain circumstances. These
decisions will generally increase the competitive abilities of licensees in
these services. Other proposals in this proceeding would enable certain
licensees to obtain exclusive channel assignments.
In addition, the FCC is engaged in an ongoing proceeding intended to
implement sweeping changes to the FCC's existing rules for the licensing and
operation of 220 MHz radio service systems. Some of the previous uses of the
220 MHz spectrum have been removed, which could create additional competition
for the Company. The FCC designated the 220 MHz service as primarily a
commercial mobile radio service ("CMRS"). The 220 MHz narrowband radio service
was originally established as a private mobile radio service in 1991. Two
hundred channel pairs in the 220-222 MHz band were authorized, of which 60
pairs were designated for nationwide service, and 140 pairs designated for
non-nationwide service. Of the 60 nationwide pairs, 10 were set aside for
government use, 20 for commercial and 30 for non-commercial. Of the 140
non-nationwide channel pairs, 40 were designated for individual "non-trunked"
use, and 100 channels were allocated for trunked use. In March 1997 the FCC
revised its service rules for the 200 MHz band. The FCC adopted rules which
provide for the assignment of the 30 non-commercial (reclassified as
commercial) nationwide channels by competitive bidding. These nationwide
licenses are composed of ten 5 KHz channels each. The FCC also decided to
auction geographic area licenses for 125 non-nationwide channels using a
combination of 10 and 15-channel blocks, while removing many prior technical
and service restrictions on these channels. For example, 200 MHz licenses are
now permitted to provide paging services. The FCC's new phase of licensing
(by auction) for the 200 MHz band will likely occur in late 1997 or early
1998.
OPERATIONS
The Company has realized economies of scale by consolidating many of its
functions at its headquarters in Abilene, Texas. All billing, maintenance of
subscriber records and FCC licensing information, shipping, and receiving are
performed in Abilene. Marketing, sales, and service continue, however, to be
performed on a local basis through the Company's 23 sales and service centers.
Each of the Company's sales and service operations also offers 24-hour equipment
service. A department of the Company is responsible for the management and
record keeping of all FCC licenses and FCC loading information. The Company
also operates customer service departments from its headquarters. Subscribers
may use a toll-free telephone number for service and billing inquiries.
The Company has organized its current operations into 18 marketing areas.
Each of the marketing areas is under the direction of a marketing manager, who
reports to the Vice President-Operations. The marketing managers operate within
parameters established by an annual operating budget approved by the Company's
board of directors.
The Company employs approximately 318 full and part-time personnel, none of
which are represented by a union. The Company's emphasis on sales and service
is underscored by 43 sales and 110 service employees. The Company also employs
165 administrative and clerical employees. The Company believes that its
relationship with its employees is good.
THE MERGER
Pursuant to the Restated Agreement, upon approval by the Company's
stockholders and approval by the appropriate regulatory bodies, the Company will
become a wholly-owned subsidiary of Nextel in a tax-free exchange of one
registered share of Nextel Common Stock for 3.17 shares of PCI Common Stock,
subject to certain
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adjustments. The number of shares of Nextel Common Stock that may be issued
in connection with the merger is 8,782,403 with a maximum value of
$170,000,000. This number of shares may, however, be increased under very
limited circumstances, including an increase at Nextel's election to avert
termination of the Restated Agreement if the average closing sales price for
Nextel Common Stock for the 20 trading days preceding the date of
determination is less than $14.00. The value cap may decrease for various
reasons, including (i) PCI's failure to deliver certain SMR channels, (ii)
PCI's negative cash flow, if any, since April 1, 1996, (iii) PCI's negative
working capital, if any, prior to the merger, (iv) the amount by which the
exercise price of certain derivative securities exercised prior to the merger
exceeds cash received upon such exercise and held by PCI at the time of the
merger, and (v) the payment of severance payments in excess of the amounts
set forth in the Restated Agreement.
As a result of this pending transaction, it will not be necessary for the
Company to make its own digital technology decision or implementation. Nextel
utilizes iDEN digital technology. Nextel plans to deploy iDEN Digital Mobile
Networks throughout the Company's footprint utilizing, in addition to Nextel's
existing SMR channels, the SMR channels acquired from the Company in the merger
transaction.
The Restated Agreement also provides for the formation of a consortium
between Nextel and the Company to participate in the 800 Auctions if the 800
Auctions commence prior to the earlier of the effective time of the merger, as
defined in the Restated Agreement, or the expiration or termination of the
Restated Agreement. The consortium will be formed to bid in the fourteen BEAs
where Nextel and the Company have overlapping channel positions ("Overlap
BEAs"). Nextel will determine and control all aspects of the consortium's
bidding strategy and participation and shall be responsible for funding 100% of
the consortium's bids. Nextel will retain the right to all channels included in
block licenses awarded to the consortium. However, if the Restated Agreement is
terminated or expires, the Company will have the right to purchase an aggregate
of up to twenty channels awarded in each of the Overlap BEAs, subject to various
conditions.
REGULATION
GENERAL. The licensing, operation, and acquisition of SMR systems in the
United States are regulated by the FCC under the Communications Act of 1934, as
amended (the "Communications Act") and pursuant to the FCC's rules and policies
adopted thereunder. The FCC regulations governing SMR systems are highly
technical and subject to change. Future changes in regulation or legislation
affecting SMR service, Digital Mobile service, or the allocation by the FCC or
Congress of additional spectrum for services that will compete with SMR service
could adversely affect the Company's business. The Company believes it is in
material compliance with applicable FCC rules and regulations.
REGULATORY STATUS. Over the past several years, significant legislative
and regulatory activity has occurred that will or may affect the Company. The
FCC has designated most SMR licensees, including the Company, CMRS providers.
Under the new regulatory scheme, CMRS licensees are considered common carriers
and subject to common carrier regulation. In 1994, the FCC amended the
technical, licensing, and operational regulations governing SMR systems to make
those regulations more consistent with the regulations governing common carrier
systems. In many instances, those regulations are substantially different from
the rules that formerly governed SMR systems.
In several ongoing proceedings, the FCC is determining the nature and scope
of common carrier obligations specified in the Communications Act that it will
impose on all CMRS providers. As a CMRS licensee, the Company is already
subject to additional regulations, including the requirement that it comply with
the FCC's Equal Employment Opportunity ("EEO") rules and file annual reports
concerning EEO complaints. The Company is also required to pay annual
regulatory fees to the FCC, based on its number of subscribers. As a
newly-reclassified CMRS provider, the Company must comply with additional
regulatory requirements that were not previously imposed on SMR licensees.
Several of the FCC's new regulatory requirements for CMRS providers affect
only those SMR licenses that are "covered SMR providers." A covered SMR
provider currently includes geographic (or wide) area licensees (like the
Company) that offer real-time, two-way switched voice service that is
interconnected with the public switched network. Currently, covered SMR
providers are prohibited from unreasonably restricting the resale of their
services and must offer "manual" roaming to subscribers where feasible. The
FCC has indicated that it intends to sunset its roaming and resale requirements
after a five-year period. Covered SMR providers must also provide enhanced 911
access technology (including the caller's ANI information and general location)
to subscribers over a phased-in period. The FCC's newly-issued rules were
immediately
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challenged by sixteen parties. The challenges to the FCC's rules generally
sought to limit the types of entities affected by the new requirements, or
sought to limit the level of advanced 911 service to be provided by wireless
carriers. The FCC has issued no decision disposing of the challenges.
Finally, covered SMR providers are currently required to offer number
portability to customers by 1999. Several trade associations and SMR
licensees have petitioned the FCC to reconsider its definition of covered SMR
provider to limit the number of entities affected. The FCC has yet to act on
these petitions.
States are generally prohibited from regulating rates and entry
requirements for mobile communications providers and will be preempted from
regulating rates and entry for CMRS providers. However, several states, some of
which have jurisdiction over portions of the Company's footprint, have
petitioned the FCC to regulate CMRS entry and rates. In May 1995, the FCC
denied these petitions; however, four of the states have appealed the FCC's
decision. Those states do not include Arizona, which also requested, but was
denied authority to regulate CMRS entry and rates. No other states in the
Company's footprint sought this regulatory authority.
In early 1996, the President signed the Telecommunications Act of 1996 (the
"Act") which imposes sweeping reform of telecommunications policy. Although the
majority of the Act's measures will directly affect large common carriers, cable
and broadcast operators, and internet service providers, many of the Act's
provisions will have an effect upon the CMRS providers, including the Company.
In particular, the Act may: require CMRS providers to offer access to telephone
toll services; require the Company to contribute to a universal service fund;
require local exchange (telephone) carriers ("LECs") to establish reciprocal
compensation arrangements for CMRS providers for the origination and termination
of calls; and require the Company to ensure that its equipment is accessible to
persons with disabilities. All of these provisions of the Act which may have an
effect upon the Company will be the subject of FCC rule making proceedings. The
FCC has been granted authority to forbear some of these requirements where
appropriate. Accordingly, it is currently difficult to predict if and how the
provisions of the Act will impact the Company.
THE COMPANY'S LICENSES. The Company currently holds FCC licenses to use
SMR channels and has entered into management agreements with respect to other
SMR licenses. Each of the Company's licenses, and the licenses issued to
entities with whom it has a management agreement, are subject to renewal, and
there can be no assurance that those licenses will be renewed upon the
expiration of their current license terms. Each license may also be revoked for
cause, although both non-renewal and revocation are generally rare for reasons
other than failure to meet regulatory requirements governing construction and
continuation in operation. The Company has management agreements with some
licensees of the managed SMR channels to use the channels associated with their
licenses in the Digital Mobile network. In the past, the FCC permitted the
inclusion of managed channels in wide-area systems with the consent of the
managed licensee.
The FCC recently adopted several decisions concerning management
agreements, which will require CMRS providers to use management agreements that
meet criteria found acceptable for common carriers. The Company's existing
management agreements likely do not meet those criteria. The Company has sought
to assign these managed stations, where possible, to the Company or a
wholly-owned subsidiary. To the extent that the Company must continue to
rely on management agreements, there can be no assurance that the terms and
structure of the agreements will continue to be accepted by the FCC, or
remain in full force.
In order to construct a Digital Mobile network the Company would require
various additional licenses and approvals from the FCC. In the past, upon
appropriate demonstration, the FCC permitted similarly situated companies
extension of the normal one-year construction deadline, use of an "aggregate
loading" concept, and, ultimately, permission to locate multiple low-power
sites. The Company has requested authority to construct Digital Mobile networks
in 11 discrete areas (Dallas-Fort Worth, San Antonio/Austin, El Paso,
Midland-Odessa, Laredo, and Houston, Texas; South Texas; Albuquerque/Santa
Fe, New Mexico; Oklahoma City and Tulsa, Oklahoma; and southwest North
Dakota). In March 1995, the FCC took action on 7 of the Company's 11
requests in its processing of all backlogged applications in the 800 MHz SMR
service. The FCC granted a majority of the frequencies and locations applied
for in Dallas/Fort Worth, San Antonio/Austin, El Paso, Laredo,
Albuquerque/Santa Fe, South Texas and North Dakota. The FCC took no action
on the remaining 4 requests, determining that they were not timely filed
pursuant to a "freeze" on the acceptance of 800 MHz SMR applications.
Although the Company filed an appeal of the FCC's March 1995 action, the
appeal was rendered moot by the FCC's October 1995 reprocessing of its March
1995 action on backlogged applications. By the October 1995 reprocessing,
the FCC again took no action with respect to 4 of the Company's requests,
determining again that the
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requests had not been timely filed. With respect to 6 of the 7 remaining
requests, the FCC granted fewer frequencies at fewer sites in the October
1995 reprocessing than had been previously granted in March 1995. The FCC
substantially granted the seventh request. The Company filed a timely appeal
with respect to the 6 requests --asserting that the FCC's processing
mechanism had failed to accurately process the applications. That appeal
remains pending before the FCC.
Regardless of the ultimate outcome of the Company's 11 requests, the
Company still retains, in each of the 11 areas, the underlying authorizations
or management contracts covering the analog operation of all frequencies and
locations associated with the 11 requests. The FCC's action on these requests,
whether positive or negative, does not remove or add to the Company's existing
core channel base. Moreover, the FCC intends to conduct auctions of 800 MHz
spectrum in the future. Therefore, if the FCC rejects one or both of the
Company's appeals, the Company may be able to attain substantially the same
objectives through the auction process that is expected to be conducted when the
FCC relicenses 800 MHz SMR spectrum on a geographic basis.
AUCTIONS. To facilitate the licensing of the upper 10 MHz block of 800
MHz SMR band, the FCC has adopted competitive bidding rules for the BEA
licenses. The FCC will conduct simultaneous multiple round auctions in which
all BEA licenses will be auctioned simultaneously. A simultaneous stopping rule
will be employed which requires bidding to remain open on all licenses in an
auction until bidding stops on every license. Accordingly, the auction will
close after one round passes in which no new valid bids are submitted. The FCC
adopted the Milgrom-Wilson activity rule under which bidders are required to
declare their maximum bidding eligibility in terms of activity units. Bidders
are limited to bidding on licenses encompassing no more than the activity units
covered by their upfront payments. The FCC will employ an upfront payment
formula of $0.02 per activity unit, defined as the unencumbered population base
for the BEA. The FCC will issue a public notice that will include a population
calculation of each spectrum block in the BEA, using a formula that accounts for
incumbents within the BEA. The same bidding procedures that were used for
previous FCC auctions will be adopted which will allow bidders to submit bids
electronically or via telephone. The withdrawal and default rules will be the
same as those used in prior auctions, and the auctions will have the same
regulatory safeguards in place to prevent collusion among applicants.
The upper 10 MHz block of channels that will be licensed through the 800
Auctions are currently occupied by incumbent licensees. The FCC has adopted a
two phase post-auction process for relocating incumbents who are not the
ultimate BEA licensee. The first phase is a one-year period for voluntary
negotiations. During this period, the BEA licensee and the incumbents may
negotiate any mutually agreeable relocation agreement. Following the one-year
voluntary relocation period there will be a two-year mandatory relocation
process. As a precondition to mandatory relocation, however, BEA licensees
must, within 90 days of the release of a public notice starting the voluntary
negotiation period, notify incumbents of their intention to relocate them. An
incumbent licensee who has been notified of intended relocation will be able to
require that all BEA licensees affecting its channels negotiate with it
together. During the two-year mandatory negotiation period, BEA licensees and
incumbents must negotiate "in good faith." If no agreement is reached during
the two-year mandatory negotiation period, the BEA licensee may request
involuntary relocation. Involuntary relocation may occur if a BEA licensee can:
(1) guarantee payment of all costs of relocating the incumbent to a comparable
site and coverage area; (2) complete all activities necessary for placing the
new site and coverage area into operation; and (3) build and test the new
system. Incumbent licensees in the upper 10 MHz block that are not relocated
will not be able to expand their systems at will after wide area licensing has
occurred. Instead, incumbent licensees will be permitted to make only
modifications within their current coverage area.
BEA licensees will have five years to construct their systems and will be
required to provide coverage to one-third of the BEA population within three
years of initial license grant and to two-thirds of the population by the end of
the five-year construction period. In addition to the coverage requirement, BEA
licensees must construct 50 percent of the total channels included in their
spectrum blocks in at least one location in their BEA within three years of the
license grant. Although there is no channel use requirement at the end of five
years, BEA licensees are expected and required to maintain their compliance with
the channel use requirement from the third year after license grant through the
remainder of their construction period. Failure to meet any of the coverage or
channel use requirements will result in forfeiture of the BEA license. Such
forfeiture will not result in the loss of constructed facilities authorized to
the licensee prior to the auction.
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The FCC recently auctioned the remaining 900 MHz spectrum throughout 51
Major Trading Areas ("MTAs"). The 900 Auction included 200 channels, each
12.5 KHz wide, in each MTA, for a total of 5 MHz. The 900 Auctions were
conducted in a similar manner as that proposed for 800 MHz spectrum auctions,
E.G. simultaneous multiple round auctions with simultaneous stopping rules,
Milgrom-Wilson activity rules, anti-collusion prohibitions, and upfront
payment requirements. The 900 MHz Auctions were different from the 800 MHz
spectrum auctions, because, among other reasons, there is no post-auction
requirement that auction winners negotiate to relocate incumbent 900 MHz
licensees who may be currently operating in the MTA service area.
Accordingly, any 900 MHz MTA license won through auction is subject to
co-channel interference protection for the incumbent. MTA licensees must
meet coverage requirements by serving at least one-third of the MTA
population within three years of the initial MTA license granted, and
two-thirds of the population within five years.
PROVISION OF TELEPHONE TYPE SERVICES. The Communications Act and FCC rules
grant SMR operators the right to provide their customers with interconnected
mobile radio telephone services, thus enabling SMR subscribers to communicate
with non-SMR subscribers at positions in the PSTN. In the past, SMR operators
have not been permitted to profit from telephone interconnection, and costs
incurred for the interconnection service must be passed through to subscribers
without mark-up. Because the Company is regulated as a CMRS provider, it may
profit from the resale of telephone service.
In late 1996, the FCC adopted a decision permitting all CMRS licensees to
offer fixed communications services on a primary basis. The FCC is still
considering how to regulate those mobile service providers that ultimately use
this flexibility to offer services that replicate local exchange service. Most
CMRS service providers are also now permitted, subject to certain restrictions,
to disaggregate and partition their spectrum holdings to other entities. In
services where this flexibility is not currently permitted, the FCC is expected
to adopt such permissive rules in due course. In general, CMRS regulation, with
its permissive rules for spectrum transfer and resale of services, generally
reduces the regulatory burdens of providing wireless communications services.
As a CMRS provider, the Company is subject to requests by other carriers
for physical interconnection to its communications network. Section 332 of
the Communications Act requires the FCC to act upon any "reasonable request"
for interconnection to a CMRS provider's network. The FCC has yet to
complete its rule making proceeding in which it will adopt general policies
for interconnection requests between CMRS providers. In August 1996, the FCC
adopted rules outlining the relationship for CMRS providers that seek
interconnection with local exchange carriers ("LECs"), generally concluding
that CMRS providers seeking to provide telephone exchange service or exchange
access are entitled to request interconnection with LECs under the provisions
of section 251 of the Communications Act. The LEC must offer interconnection
terms and conditions that are reasonable and nondiscriminatory. The FCC's
newly-adopted interconnection policies have been challenged in federal court
by numerous entities. Certain CMRS providers (including the Company) are
also prohibited from unreasonably restricting resale of their services, and
are currently required to offer "manual" roaming where feasible. The FCC has
stated that it intends to sunset the resale and roaming requirements in
approximately five years.
OWNERSHIP. In the past, wireline carriers were ineligible to hold licenses
for SMR channels. The FCC lifted that restriction in 1994. Accordingly,
wireline carriers, many of which may have substantially greater resources than
the Company, could more directly compete with the Company for SMR channels and
the provision of SMR services.
The Communications Act restricts foreign investment in and ownership of FCC
licensees classified as common carriers. Among other things, foreign
corporations may not own more than 20% of a common carrier licensee directly or
more than 25% of the parent of a common carrier. The FCC has authority to waive
the 25% limit if the public interest would be served. The FCC also has the
authority, subject to certain limitations, to grandfather foreign ownership
existing on May 24, 1993, for companies such as the Company that were formerly
regulated as private carriers but are now considered CMRS providers.
Accordingly, the Company requested that the FCC grandfather its level of foreign
ownership at that time, which was 100%. In June 1995, the FCC granted the
Company's request, waiving the Company's foreign ownership and extending the
waiver to additional licenses acquired by the Company until August 10, 1996.
Several parties have filed petitions for reconsideration of the FCC's decision,
asserting that the waiver of foreign ownership should extend beyond 1996. Those
petitions remain pending before the FCC. The Company's level of foreign
ownership has substantially decreased as a result of its initial public offering
and the voluntary liquidation of its former, indirect foreign parent in June
1994. Both
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Congress and the FCC are evaluating legislative and regulatory changes,
respectively, that would eliminate or liberalize foreign ownership
restrictions.
STATE REGULATION. State and local governments may exercise their
traditional regulatory powers (E.G., health, safety and consumer protection)
over SMR systems. The Communications Act generally prohibits states from
regulating rates and entry requirements for mobile communications providers.
States are, however, allowed to continue regulating intrastate provision of
mobile communications services if they receive approval from the FCC. Several
states, including Arizona where the Company currently does business, sought
approval from the FCC. In May 1995, the FCC denied all these request; however,
four of the states have appealed the FCC's decision. Those states do not
include Arizona, which also requested, but was denied authority to regulate CMRS
entry and rates. No other states in the Company's footprint sought this
regulatory authority.
TEXAS STATE REGULATORY EFFORTS. Effective September 1, 1995, the State of
Texas created the Telecommunications Infrastructure Fund ("TIF") and directed
the Texas Comptroller of Public Accounts ("Comptroller") to assess and collect a
total annual amount of $75 million from telecommunications utilities and a total
annual amount of $75 million from commercial mobile service providers. The
stated purpose of the TIF is to finance, among other things, programs to provide
telecommunications equipment for education, libraries, and telemedicine
services, as well as related training and materials. The underlying statute
provides that a "commercial mobile service provider" means a provider of the
commercial mobile service under the Communications Act. Because of the separate
assessments, the portion of the TIF payable by each commercial mobile service
provider would be equal to the ratio that the annual taxable telecommunications
receipts reported by that provider under state sales tax laws bear to the total
annual taxable telecommunications receipts reported by all commercial mobile
service providers. In January 1996, however, a Texas state judge ruled that the
resulting higher tax rate for commercial mobile service providers violated the
state constitution and that all providers would pay the lower rate, estimated at
approximately 1.36% of Texas revenues. In addition, the Company filed a
Petition for Declaratory Ruling with the Federal Communications Commission
seeking a ruling that federal law preempts the assessment of the fee by the
state of Texas through the TIF. The FCC has not yet acted upon the petition and
may decide in a manner which is unfavorable to the Company. The definition of
commercial service provider includes, beginning in August 1996, the Company for
purposes of the TIF and accordingly, the Company began remitting the TIF in
August 1996. The TIF cannot be charged to a customer as a state tax or fee, but
can be represented as a reimbursement and, as such, collected from the customer.
REGULATION OF OTHER SERVICES. Regulation of the Company's private paging,
telemetry and microwave services is significantly less complex and less dynamic
than the regulation of its SMR operations. The Company must comply with certain
construction and operational requirements, but, in general, these requirements
do not impede the Company's continued provision of these services. Like SMR,
FCC regulations generally preempt state and local government rate or entry
regulations.
REGULATION OF RADIO TOWERS. The FCC and the FAA regulate radio towers with
respect to geographic location, height, construction standards, and tower
maintenance. Failure to maintain radio towers in compliance with these
regulations can result in penalties to the tower owner or operator. Of
particular importance is compliance with lighting and painting requirements. In
1996, the FCC adopted rules requiring tower owners to register antenna
structures with the FCC. These new rules generally shift responsibility from
the FCC licensee to the tower owner. The rules provide for a phased-in
registration process, depending on the state where the tower is located. The
Company believes each tower it owns or operates is in material compliance with
applicable regulations. The Company maintains appropriate liability insurance
to protect it from third party claims that may be made against it with respect
to tower ownership or operation.
Section 704 of the Telecommunications Act of 1996 now prohibits state and
local governments from unreasonably restricting the placement of antenna
structures for personal wireless service facilities. The Act establishes
factors to determine whether a state of locality has exceeded its authority in
limiting the ability of a carrier to construct an antenna structure. The Act
also details the minimum procedures that local zoning authorities must follow in
order to deny a carrier's request to site an antenna structure. To further the
objectives of the Act, the FCC recently established a task force for antenna
placement issues and has recently sent inquiries to various localities
concerning their restrictive policies on antenna siting.
15
<PAGE>
HISTORY.
On January 16, 1996, Pittencrieff Communications, Inc., a Texas corporation
("Old PCI"), merged with and into PCI, with PCI being the surviving corporation,
for the purpose of changing the state of domicile of Old PCI from Texas to
Delaware (the "Reincorporation"). Unless the context otherwise requires,
references in this Report to "PCI" or the "Company" mean (i) after the
Reincorporation, Pittencrieff Communications, a Delaware corporation, and its
subsidiaries and (ii) before the Reincorporation, Old PCI and its subsidiaries.
ITEM 2. PROPERTIES.
The Company's corporate offices occupy approximately 45,000 square feet of
a leased building in Abilene, Texas. The Company has entered into a 10-year
lease for its corporate offices which expires in 2004.
The Company's other property and equipment include FCC licenses, land, and
buildings for its 504 SMR systems; 23 sales and service operations (19 of which
are in leased buildings); communications equipment; leased space on
approximately 465 communications towers; 32 paging systems; approximately 1,794
two-way rental radio units; and 34 microwave systems.
In January 1995, the Company sold the majority of its 125 communication
towers for total consideration of $15.1 million (the "Tower Sale"). In
connection with the sale, the Company agreed to an initial eight-year lease of
space on the towers that the Company currently utilizes for its own SMR
services.
Leasing a tower is generally more economical for the Company than owning
it. A typical tower lease runs for 1-10 years, with options to renew. In most
cases, after the initial term has expired, the contract authorizes continued use
on a month-to-month basis. Most contracts have a termination period of 60-90
days by the Company or the tower owner except for the eight-year lease of space
on towers formerly owned by the Company. Although the Company leases some
towers under oral agreements as the standard means of doing business with
particular owners, the Company has not been advised of any intention to
terminate any of these oral leases.
The Company currently purchases its SMR equipment, including the radio
units it sells or leases to its subscribers, from Kenwood Services Corp., Uniden
Corporation, E.F. Johnson Company, Inc., Ericsson, and Motorola. Equipment is
also available from other suppliers. The Company's main supplier is Kenwood;
the Kenwood product line is compatible with the E.F. Johnson trunked switching
format, one of the major trunking formats available for analog SMR systems. The
Company uses other major trunking formats, Ericsson and Motorola, for
subscribers in some of its markets. Although this equipment is not compatible
with the E.F. Johnson format, the Company is generally able to provide the same
level and extent of coverage with the Ericsson/General Electric format. The
Company's use of the Motorola format is, however, more limited. In addition,
the Ericsson equipment and the Motorola equipment can be converted to the E.F.
Johnson format. The Company does not believe the inability to obtain SMR
equipment from any one of its existing suppliers, for any reason, would
seriously affect its operations since compatible products are available from
other manufacturers.
ITEM 3. LEGAL PROCEEDINGS.
From time to time the Company is a party to various legal proceedings
arising in the ordinary course of business. The Company is not currently a
party to any material legal proceedings and is not aware of any legal
proceedings threatened against it that individually or in the aggregate would
have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders ("Annual Meeting") on
October 30, 1996. At the Annual Meeting, the stockholders elected seven
existing directors and one new director to serve until the next annual meeting
of stockholders. Of the 18,607,430 shares of PCI Common Stock present at the
Annual Meeting in person or by proxy, the following table shows the votes cast
for and against each nominee for director:
16
<PAGE>
NOMINEE VOTES FOR NOMINEE VOTES AGAINST NOMINEE
- ----------------------- ----------------- ---------------------
Lance C. Cawley 18,223,982 383,448
Warren D. Harkins 17,527,622 1,079,808
Dale N. Hatfield 18,235,552 371,878
Donald S. Heaton 18,178,752 428,678
Herbert T. Hensley 18,178,252 429,178
James P. Hynes 18,179,552 427,878
William C. Kennedy, Jr. 18,235,552 371,878
C. G. Whitten 18,234,999 372,431
The stockholders also approved and ratified the Pittencrieff
Communications, Inc. 1996 Stock Option Plan ("1996 Option Plan"), which provides
for the grant of options to eligible employees and directors to purchase up to
1,000,000 shares of PCI Common Stock, and the Pittencrieff Communications, Inc.
1996 Non-Employee Director Stock Option Plan ("1996 Non-Employee Director
Plan"), which provides for the grant of options to non-employee directors
pursuant to specified formulas to purchase up to 90,000 shares of PCI Common
Stock. The following table shows the votes cast for and against, abstentions,
and broker non-votes for these two proposals:
PROPOSAL VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES
-------- ---------- ------------- ----------- ----------------
1996 Stock
Option Plan 16,512,542 2,014,748 56,139 24,001
1996 Non-Employee
Director Plan 16,682,596 1,337,364 563,469 24,001
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The PCI Common Stock trades on The Nasdaq Stock Market ("Nasdaq") under the
symbol "PITC." The following table sets forth, on a per share basis for the
periods indicated, the high and low sale prices for the PCI Common Stock as
reported by Nasdaq.
Price Range
High Low
------ ------
FISCAL YEAR 1995
First Quarter $6 1/4 $3 3/4
Second Quarter 7 4 1/8
Third Quarter 6 1/4 4 5/16
Fourth Quarter 4 5/8 3 1/8
FISCAL YEAR 1996
First Quarter 5 1/2 3 3/8
Second Quarter 8 15/16 4 3/4
Third Quarter 6 13/16 3 5/8
Fourth Quarter 5 1/2 3 3/8
FISCAL YEAR 1997
First Quarter (through March 17, 1997) 4 7/16 3 3/8
On March 17, 1997, the closing sale price of the PCI Common Stock as
reported by Nasdaq was $3 1/2 per share. As of February 28, 1997, there were
965 holders of record of the PCI Common Stock.
17
<PAGE>
The Company has never declared or paid any cash dividends on its PCI Common
Stock since its inception. The Company's board of directors does not anticipate
payment of any cash dividends in the foreseeable future and intends to continue
its present policy of retaining earnings for reinvestment in the operations of
the Company. The Company's long-term bank credit facility restricts the payment
of dividends under certain circumstances.
ITEM 6. SELECTED FINANCIAL DATA.
The selected historical financial data presented below has been derived
from the consolidated financial statements of the Company. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and related notes included elsewhere in this
Report.
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Radio services........................................ $ 8,107 $ 15,121 $ 19,722 $ 20,895 $ 22,220
Rental income......................................... 3,396 3,686 3,096 2,708 1,871
Equipment and parts sales............................. 5,061 9,272 9,811 12,454 11,939
------- -------- -------- -------- --------
Total revenues............................................ 16,564 28,079 32,629 36,057 36,030
Costs and expenses:
Cost of operations.................................... 9,492 13,272 17,022 17,706 18,235
Cost of equipment and parts sales..................... 3,070 6,357 8,330 9,923 10,341
General and administrative expenses................... 989 3,748 10,159 7,827 7,649
Depreciation and amortization......................... 1,858 3,053 6,524 7,941 9,708
------- -------- -------- -------- --------
Operating income (loss)................................... 1,155 1,649 (9,406) (7,340) (9,903)
Other income (expense).................................... 44 1,828 270 518 1,323
Reorganization expense.................................... -- 593 4,189 -- --
Interest expense to affiliate............................. 2,513 -- -- -- --
Interest expense, nonaffiliate............................ 382 417 1,497 2,578 3,293
------- -------- -------- -------- --------
Income (loss) before income taxes......................... (1,696) 2,467 (14,822) (9,400) (11,873)
Income tax expense (benefit).............................. (626) 1,077 (4,207) (3,656) (4,410)
------- -------- -------- -------- --------
Net income (loss)......................................... $(1,070) $ 1,390 $(10,615) $ (5,744) $ (7,463)
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Net income (loss) per common share and share equivalent... $ (0.17) $ 0.15 $ (0.89) $ (0.41) $ (0.29)
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Weighted average number of shares and share
equivalents outstanding.................................. 6,367 9,043 11,910 14,055 25,623
------- -------- -------- -------- --------
------- -------- -------- -------- --------
DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital (deficit)................................. 2,390 39,958 (6,798) 2,717 5,298
Property and equipment, net............................... 23,141 32,358 43,606 41,207 38,494
Total assets.............................................. 46,787 106,148 122,992 119,892 185,503
Current portion of long-term debt......................... 950 943 1,319 2,276 1,853
Long-term debt and inter-company payable to affiliate..... 34,561 -- -- -- --
Other long-term debt and finance obligation, excluding
current portion.......................................... 1,468 2,040 2,574 13,596 12,125
Stockholders' equity (deficit)(1)......................... (734) 93,586 96,612 95,790 152,384
</TABLE>
- -------------------
(1) No cash dividends have been declared or paid by the Company.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Company's
consolidated financial statements appearing elsewhere in this Report.
OVERVIEW
The Company derives its revenues primarily from access and airtime charges
for SMR system usage, equipment service, sales of communications equipment,
radio leasing, paging, and microwave services. Historically, access and airtime
charges for SMR system usage have been the most significant sources of revenues
for the Company. The Company's strategy is to improve average revenues per
subscriber unit and resulting profitability by focusing its marketing efforts on
customized wireless solutions for businesses.
Cost of operations includes the direct operating costs associated with
providing wireless communications services, including costs of operating the
Company's sales and service centers, tower rental, and telephone charges. Cost
of equipment and parts sales includes the direct cost of goods and commissions
associated with radio equipment sales. General and administrative expenses
include operating costs of the Company's Abilene, Texas, headquarters, bad debt
expense, and accounting, legal, and other professional fees.
The Company's results of operations and financial condition reflect its
rapid growth through acquisitions. As a result of the Company's acquisitions,
revenues, operating expenses, and general and administrative expenses have
increased markedly. Depreciation expense has increased consistent with the
Company's acquisition and capital expenditures activity. Amortization of FCC
licenses has also increased as the Company has expanded its portfolio of
licenses in areas where additional spectrum is no longer available other than
through acquisition.
The Company's results of operations in 1995 were adversely impacted by a
defective management information system which was implemented in mid-1994. The
Company settled the dispute with the consulting firm that recommended and
implemented the defective management information system. Effective November 1,
1995, the Company implemented a replacement management information system to
correct the defects and during 1996 experienced significant operating and
administrative efficiencies as a result of the new system.
The Company has experienced significant growth as a result of its
acquisitions and operating income and EBITDA increased as a percentage of total
revenues from 1994 to 1995 but dropped from 1995 to 1996. EBITDA will continue
to be affected by the additional cost of infrastructure required to operate
rapidly expanding operations and the impact of a competitive pricing environment
as the Company moved into larger markets where it does not command a dominant
position. Operating income and EBITDA will continue to be affected by the
Company's move toward less profitable acquisitions in exchange for channel
positions in larger markets, which the Company deems critical to its future
growth. The Company believes this trend will stabilize as it places less
emphasis on growth through acquisition and concentrates its efforts on addition
of new subscribers.
The Company is aware of several known trends and uncertainties that may
affect, favorably or unfavorably, its future financial position and operating
results, including the pending merger with Nextel. The use of digital as
opposed to analog technology is a trend in the SMR industry. Various
proceedings involving proposed changes to SMR regulation are pending before the
FCC or have recently been adopted. Due to the nature of these developments, the
Company has insufficient information to accurately estimate the favorable or
unfavorable effects, if any, of these developments on its financial position and
operating results or resulting material changes in the revenue/cost
relationships.
The Company's goals are to continue its growth by using enhanced analog
technologies, adding new subscribers by focusing on the channel positions
acquired through the Transaction, acquiring other SMR operators in order to
expand its footprint and continuing to improve its financial position. To
achieve these goals, it will be necessary to obtain funding for capital
expenditures and additional acquisitions from sources other than internally
generated funds, such as proceeds of public or private offerings and new credit
facilities.
19
<PAGE>
RESULTS OF OPERATIONS
The following table presents certain items derived from the Company's
statements of operations as a percentage of total revenues for the periods
indicated:
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -----
Revenues:
Radio services revenue................ 60.4 % 58.0 % 61.7 %
Rental income......................... 9.5 7.5 5.2
Equipment and parts sales............. 30.1 34.5 33.1
----- ----- -----
Total revenues.......................... 100.0 100.0 100.0
Costs and expenses:
Cost of operations.................... 52.2 49.1 50.6
Cost of equipment and parts sales..... 25.5 27.5 28.7
General and administrative expenses... 31.1 21.7 21.2
Depreciation and amortization......... 20.0 22.0 26.9
----- ----- -----
Operating loss.......................... (28.8) (20.3) (27.4)
Other income (expense).................. 0.8 1.4 3.7
Reorganization expense.................. 12.8 -- --
Interest expense........................ 4.6 7.2 9.1
Income tax benefit...................... (12.9) (10.1) (12.2)
----- ----- -----
Net loss................................ (32.5)% (16.0)% (20.6)%
----- ----- -----
----- ----- -----
EBITDA(1)............................... (8.8)% 1.7 % (0.5)%
----- ----- -----
----- ----- -----
- -------------------
(1) Earnings before interest, taxes, depreciation, amortization, reorganization
expense, and other income (expense) (other income (expense) includes gain on
sales of assets (net), interest income and other), or "EBITDA", is a
commonly used measure of performance in the wireless communications industry
and is a typical measure of performance in debt financing covenants. As
used in this Report, EBITDA is not intended as either a substitute or
replacement for operating income (as presented according to generally
accepted accounting principles ("GAAP")) as a measure of the financial
results of operations or for cash flows from operations (as presented
according to GAAP).
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenues for 1996 remained substantially unchanged at $36.0 million
compared to $36.1 million in 1995. Increases in radio services revenue were
offset by declines in equipment and parts sales and rental revenues. Equipment
and parts sales decreased 4% from $12.5 million in 1995 to $11.9 million in
1996. The decrease was primarily due to the consolidation and closure of
certain of the Company's sales and service centers. Rental revenues decreased
by 31% from $2.7 million to $1.9 million during the period which reflects the
continued decrease in the Company's emphasis on rental programs. Decreases in
rental revenues and equipment and parts sales were offset by a $1.3 million
increase in radio services revenue. This 6% increase for 1996 can be attributed
to the additional subscribers acquired in the Transaction.
Cost of operations during 1996, increased to $18.2 million, up 3% as
compared with $17.8 million in 1995. This increase includes the cost of
assimilating operations acquired in the Transaction but is offset by the savings
associated with the consolidation and closure of certain of the Company's sales
and service centers. Cost of equipment and parts sales increased from 80% of
equipment and parts sales in 1995 to 87% in 1996 which reflects continued
pricing competition in certain of the Company's markets, accruals for inventory
obsolescence and a new commission program which also compensates sales personnel
for additions to recurring revenues, thereby adding a component to commissions
unrelated to equipment sales.
General and administrative expenses in 1996 decreased 2% to $7.6 million
compared with $7.8 million in 1995. This decrease is primarily attributable to
improvement in bad debt experience as a result of the Company's new accounting
system.
20
<PAGE>
EBITDA for 1996 was ($195,000), a 132% decline from 1995. This decline is
principally due to the decreased profit margins on equipment and parts sales and
increased costs of operations as a result of the added costs associated with the
assimilation of operations acquired in the Transaction. ("EBITDA" is defined as
earnings before interest, taxes, depreciation, amortization and other income
(expense)).
Depreciation and amortization expenses for 1996 increased to $9.7 million
from $7.9 million during 1995. The increase is due to additions in property,
equipment, licenses and goodwill resulting from acquisitions completed in 1996
coupled with approximately $6.4 million of capital expenditures in 1995 and $3.1
million in 1996.
Other income (expense) includes interest expense, interest income and gains
on sales of assets Interest expense increased 28% in 1996 to $3.3 million
principally as the result of accelerated amortization of debt discount
associated with warrants issued in connection with the Company's revolving line
of credit. The principal factor contributing to the $805,000 increase in other
income in 1996 is $1.1 million in gain on sales of assets related to the sale of
certain 2 GHz licenses.
Income tax benefit for the years ended December 31, 1996 and 1995 reflects
the Company's income taxes at combined U.S. federal and state tax rates.
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenues in 1995 increased to $36.1 million from $32.6 million in
1994, an increase of 11%. This increase can be primarily attributed to the
three acquisitions completed in 1995 and inclusion for the entire period of the
eighteen acquisitions completed in 1994. Increases in revenue were primarily
confined to equipment and parts sales and service related revenues. Rental
revenue decreased by 13% from $3.1 million to $2.7 million during 1995, which
reflects the absence of rental programs in acquired companies and a general
decrease in the Company's emphasis on rental programs.
Cost of operations during 1995 increased to $17.7 million, up 4% as
compared with $17.0 million in 1994. This small increase reflects the
continuing efficiencies gained through consolidation of operations acquired in
the last half of 1994 and first quarter of 1995. Cost of operations as a
percentage of revenues decreased from 52% in 1994 to 49% in 1995. Cost of
equipment and parts as a percentage of equipment and parts sales also decreased
from 85% in 1994 to 80% primarily as the result of inventory controls instituted
in 1995 to offset the management information system's inability to properly
account for inventory.
General and administrative expenses in 1995 decreased to $7.8 million from
$10.2 million in 1994. This 23% decrease can be attributed to the efficiencies
in the Company's administrative processes which resulted in reduced staffing and
support requirements. The Company also took steps to avoid the significant
nonrecurring expenses experienced in 1994, such as costs associated with
cancellation of pending acquisitions. Bad debt expense decreased from $1.4
million in 1994 to $898,000 in 1995 due to more aggressive collection and
disconnect efforts.
EBITDA in 1995 increased 121% over 1994 levels. This increase is
principally due to the $3.4 million increase in revenue and reduced general and
administrative expenses. ("EBITDA" is defined as earnings before interest,
taxes, depreciation, amortization, reorganization expense and other income
(expense)).
Depreciation and amortization expense in 1995 increased to $7.9 million
from $6.5 million in 1994, due to increases in property, equipment and licenses
as a result of the acquisitions completed in 1994 and 1995, coupled with
approximately $11.7 million of capital expenditures in 1994 and $6.4 million in
1995. Depreciation expense in 1995 also includes (i) a charge of $350,000
connected with a reserve established on the Company's pool of rental radios and
pagers and (ii) $498,000 associated with the write-off of the balance of the
Company's defective management information system that was replaced in November
1995.
Other income (expense) includes interest expense, interest income, gains on
sales of assets, and reorganization expense. The principal factor contributing
to the $3.4 million decrease in other expense in 1995 compared to 1994 is the
absence in 1995 of expenses related to the demerger from the Company's former
indirect parent and the related exchange transaction incurred in 1994. The
decrease in other income (expense) is mitigated by the $1.1 million increase in
interest expense attributable to the Company's $10 million bridge loan facility
which
21
<PAGE>
was repaid in April 1995 and its $14.8 million finance obligation related to
the tower sale. The Company also experienced reductions in interest income
as surplus funds were utilized for acquisitions.
Income tax benefit for 1995 reflects the Company's income taxes at combined
U.S. federal and state tax rates as if it filed a separate tax return. The 1994
income tax benefit differs from the combined U.S. federal and state tax rates
due to the non-deductibility of certain expenses incurred in connection with the
demerger and exchange.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
The Company experienced negative cash flow from operating activities of
$306,000 for the year ended December 31, 1996, compared with cash provided by
operating activities of $1.4 million for the year ended December 31, 1995, and
cash flow used in operations of $9.8 million in 1994. The decrease in operating
cash flows from 1995 to 1996 can be attributed to the significant use of working
capital in 1996 to reduce accounts payable and accrued liabilities which
amounted to a $5.8 million net change between 1995 and 1996. The Company
generated negative EBITDA of $195,000 for 1996 compared to EBITDA of $601,000
for the year ended December 31, 1995, and negative EBITDA of $2.9 million in the
year ended December 31, 1994. Due to the rapid growth of the Company in the
past, EBITDA has been insufficient to fund all of the Company's acquisitions,
capital expenditures, and working capital requirements, and the Company was
required to access alternative sources of financing as described below.
CASH FLOWS FROM INVESTING ACTIVITIES
During 1996, acquisition and capital expenditure activities were funded
through third party short-term indebtedness and proceeds from the sale of
assets. The Company invested $1.8 million in acquisitions and $3.1 million in
capital expenditures during the year ended December 31, 1996. Capital
expenditures include $1.6 million attributable to the Company's successful bids
to acquire licenses in the 900 Auctions which were completed in 1996.
Additionally, during this period, the Company sold certain of its 2 GHz licenses
in Arizona pursuant to recent FCC auctions of PCS licenses for total
consideration of $1.2 million and 70 900 MHz channels located in San Diego were
sold for cash consideration of $9 million.
In 1995, acquisition and capital expenditure activities were funded through
internally generated cash flow, third party short-term indebtedness and proceeds
from the sale of assets. During the year ended December 31, 1995, the Company
invested $240,000 in acquisitions and $6.4 million in capital expenditures,
including the cost of an improved management information system which became
operational in November 1995. Additionally, the Company sold certain of its FCC
licenses located in Las Vegas, Nevada for $2.5 million.
CASH FLOWS FROM FINANCING ACTIVITIES
During the year ended December 31, 1996, the Company utilized $7 million of
its credit facility with Wells Fargo Bank (Texas), N.A. ("Wells Fargo"),
formerly First Interstate Bank of Texas, N.A., to fund excess working capital
and provide financing for acquisitions and the Company's participation in the
900 Auctions. The Company also utilized the proceeds from the sales of assets
to pay down $5 million of the Wells Fargo credit facility.
The sale and leaseback of a majority of the Company's communication towers
in 1995 was accounted for by the financing method. Under this method the
proceeds from the sale are treated as a finance obligation and the lease
payments, exclusive of an interest portion, decrease the finance obligation.
During 1995, other long-term debt and notes payable relates principally to a
$500,000 short-term credit facility to fund excess working capital requirements
and a $1 million demand note used to fund the Company's bid deposit for the 900
Auctions.
CURRENT LIQUIDITY AND FUTURE CAPITAL NEEDS
On December 31, 1996, the Company had cash and cash equivalents of
approximately $4.6 million. The Company also had $15.6 million in long-term
debt, notes payable, and a finance obligation at December 31, 1996. Third party
indebtedness predominantly consisted of the Wells Fargo credit facility, various
capital asset financings,
22
<PAGE>
the finance obligation related to the tower sale, and amounts due to sellers
of acquired companies or assets. Although the Company provides for deferred
income taxes on its financial accounting income, it has access to net
operating loss carryforwards for tax purposes of approximately $32.8 million
as of December 31, 1996, of which $17.7 million is subject to a limitation
under Section 382 of the Internal Revenue Code of 1986. However, the
available net operating losses are expected to defer the payment of federal
income tax in 1997.
In September 1996, the Company closed the transaction involving the sale of
70 900 MHz channels located in San Diego, California. The Company received cash
proceeds of $9 million as a result of this sale. Based on available cash and
cash flow from operations, the Company should not be cash constrained during the
period leading up to the closing of the proposed merger with Nextel. In October
1996, the Company repaid $5 million on its line of credit with Wells Fargo and
it is anticipated the Company will liquidate the balance of the line of credit
prior to the closing of the proposed merger with Nextel.
In January 1995, the Company sold the majority of its communications towers
located throughout Texas, New Mexico, Oklahoma, Arizona, Colorado and Nevada to
Castle Tower Corporation. The Company sold 125 towers for a total consideration
of $15.1 million, consisting of (i) $8.1 million cash at closing, (ii) a short-
term promissory note for $6.4 million (subsequently reduced to $6.3 million),
and (iii) a long-term promissory note for $1.1 million (subsequently reduced to
$762,000) payable over five years. The short-term note was modified to provide
for payment of $5.4 million in April 1995 with the reduced balance paid in
November 1995. In connection with the sale, the Company agreed to an initial
eight year lease of space on the towers that the Company currently utilizes for
its own SMR services. Additionally, the Company entered into a management
agreement with respect to the towers pursuant to which the Company managed the
operation of the towers for a monthly fee for a period of one year, ending
December 31, 1995. Due to the non-recourse nature of the long-term promissory
note received by the Company, the transaction has been accounted for by the
financing method.
Prior to signing the Restated Agreement with Nextel, the Company recognized
that in order to upgrade and expand its services, attract new subscribers and
enhance its ability to expand its footprint in certain areas, the Company may
incur capital expenditures to construct a network utilizing a channel
compression technology. As an initial step towards this goal, the Company
participated in the 900 Auctions conducted by the FCC. The 900 Auctions
included 20 blocks of 10 channels each of 900 MHz licenses auctioned on a MTA
basis. The Company was the successful bidder on 18 blocks located in four MTAs
for a total consideration of $1.6 million. The licenses obtained in the 900
Auctions will provide additional capacity in certain areas of the Company's
footprint. In November 1995, AMI's indirect parent, FMR Corp. ("FMR"), loaned
the Company $1 million ("Auction Loan") for the bid deposit in order to
participate in the 900 Auctions. The loan was structured as a demand note,
bearing interest at the prime rate plus 2% and secured by a pledge of the
capital stock of the Company's primary operating subsidiary, A&B Electronics
Inc. ("A&B"), and substantially all of the assets of the Company, excluding
accounts receivable and inventories.
On January 16, 1996, the Company closed the Transaction with the AMI
Parties. At that time, the Company entered into negotiations with FMR relative
to a $20 million credit line. On January 31, 1996, the Company borrowed an
addtional $1.5 million from FMR under the Auction Loan and the collateral was
adjusted to include a pledge of the capital stock of the companies acquired and
a security interest in the other assets acquired by PCI in the Transaction.
In March 1996, FMR agreed to make available a letter or letters of credit
("LC") in the aggregate amount of up to $10 million for the purpose of securing
a revolving line of credit with Wells Fargo ("Revolving Loan"). The initial
line of credit is for $10 million and the proceeds, $7 million of which have
been advanced, were used for acquisitions, including the 900 Auctions, and
working capital. The Revolving Loan was closed on March 18, 1996, and the
inital draw of $5 million was used to repay the $2.5 million Auction Loan and a
$500,000 working capital line with another bank, and the balance was made
available for working capital. FMR retained the collateral it received for the
Auction Loan and, additionally, the Company has pledged its accounts receivable
and inventories. The Company, FMR, and Wells Fargo also entered into a tri-
party agreement contemporaneous with the Revolving Loan, which provides that
FMR, upon five day's notice to Wells Fargo, can purchase the Revolving Loan at
its principal balance plus accrued interest and any unpaid fees or expenses
outstanding. FMR will then succeed to any rights as secured lender held by
Wells Fargo on the date of purchase. Upon the occurrence of an event of
default, as defined in the Revoling Loan, FMR will have ten business days within
which to exercise its right to purchase the Revolving Loan or cure or remedy the
event of default before Wells Fargo will draw against the LC. The
23
<PAGE>
Revolving Loan has an initial term of one year, bears interest at LIBOR plus
1.5% (or Wells Fargo's prime rate), and is secured by the LC. As
consideration for pledging the LC, the Company issued warrants to FMR ("FMR
Warrants") for the purchase of 500,000 shares of PCI Common Stock. The FMR
Warrants have a term of ten years from issuance and were issued in two equal
tranches. Warrants to purchase 250,000 shares were issued upon closing of
the Revolving Loan at an exercise price of $4.50 per share. In September
1996, the Company issued warrants to purchase an additional 250,000 shares at
an exercise price of $4.73 per share. The Company anticipates renewing the
Revolving Loan when it matures in March 1997; however, any amount outstanding
just prior to the closing of the pending merger with Nextel will be repaid in
full.
Pursuant to the Restated Agreement entered into with Nextel, the Company
will become a wholly-owned subsidiary of a large public company. As a result of
this contemplated merger transaction, there should be no requirement for the
expenditure of funds for major capital projects or participation in any future
FCC spectrum auctions. However, there can be no assurance that the proposed
Nextel transaction will be consummated and, if not, the Company would be faced
with significant capital outlays in order to participate in the FCC's other
spectrum auctions and to implement an enhanced channel compression technology.
In such an event, the Company's financial resources would not be sufficient to
undertake projects of this magnitude. At present, other than the debt financing
arrangements that are currently in place as described herein, the Company has no
commitments with any third parties to obtain any additional debt or equity
financing that would be required. In the event new financing could not be
obtained on a timely basis, management's plans may include the sale of assets
and cost reductions. Results of operations for 1997 could be adversely impacted
if the Company was required to implement such plans.
INFLATION
The Company believes that inflation affects the Company's business to no
greater extent than the general economy.
RECENT AUTHORITATIVE PRONOUNCEMENTS
No recent authoritative pronouncements have been issued which the Company
has not adopted and which are expected to have a material effect on the
Company's consolidated financial statements and related disclosures.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Report includes "forward-looking statements" as that phrase is defined
in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended ("Exchange Act"). All statements
other than statements of historical or current facts, including, without
limitation, statements under the foregoing "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
sections regarding the Company's financial position, business strategy, and
plans and objectives of management of the Company for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, such forward-
looking statements are subject to risks and uncertainties that could cause
actual results to differ materially from the Company's expectations. Such risks
and uncertainties include, without limitation, fluctuations in demand, loss of
subscribers, the quality and price of similar or comparable wireless
communications services, regulatory delays, termination of proposed
transactions, access to sources of capital, and general economic conditions in
the Southwest and the United States.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and schedules of the Company as of
December 31, 1995 and 1996, and for each of the years in the three-year period
ended December 31, 1996, are included as part of this report beginning on Page
F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- ---------------------- --- ----------------------------------
Warren D. Harkins 44 Chairman of the Board, President,
and Chief Executive Officer
C. G. Whitten 71 Director, Senior Vice President,
General Counsel, and Secretary
Dale E. Harkins 43 Senior Vice President -- Business
Development
Thomas R. Modisett 47 Chief Financial Officer, Vice
President -- Finance, Treasurer,
and Assistant Secretary
Bradley B. Waldrip 34 Vice President -- Operations
Lance C. Cawley 38 Director
Dale N. Hatfield 59 Director
Donald S. Heaton 50 Director
Herbert T. Hensley 57 Director
James P. Hynes 49 Director
William C. Kennedy, Jr. 57 Director
Set forth below is a description of the backgrounds of each of the
directors and executive officers of the Company.
WARREN D. HARKINS was elected to the board of directors and became
President and Chief Executive Officer of the Company in April 1994 and was
elected Chairman of the Board in August 1994. He was first elected a Vice
President of PCI in January 1991, most recently as Vice President -- Corporate
Development, and served as President of the Company for approximately one year
before the management team was restructured in March 1993 in connection with the
Company's initial public offering. He has served as President of A&B since 1986
and in other executive capacities at A&B since 1982. He previously served in
the U.S. Air Force and is currently a Major in the Air Force Reserve. He
received a Master of Public Administration degree from Golden Gate University
and a Bachelor of Arts degree from the University of Oklahoma. Mr. Harkins is
the brother of Dale Harkins.
C. G. WHITTEN became Senior Vice President, General Counsel, and Secretary
in April 1994 and was elected to the board of directors in June 1994. Mr.
Whitten has been the Company's in-house general counsel since July 1992 and has
previously served in various official capacities with the Company, including
Assistant Secretary since May 1993. Prior to joining PCI, Mr. Whitten was a
partner in the Abilene law firm of Whitten, Hacker, Hagin, Anderson & Rucker,
P.C., and represented PCI, Ukatex, and PLC. Mr. Whitten is a fellow of the
Texas Bar Foundation and the American Bar Foundation and a past director of the
State Bar of Texas. He has a Bachelor of Laws degree and a Bachelor of Arts
degree in Government from the University of Texas. Mr. Whitten is also a
director of Independent Bankshares, Inc., a bank holding company traded on the
American Stock Exchange.
DALE E. HARKINS became Senior Vice President -- Business Development in
February 1996 and previously served as Chief Operating Officer and Vice
President -- Operations since February 1994 and as Technical Manager since
October 1990. He has been a Vice President of A&B for the last seven years and
has served in executive capacities at A&B since 1977. Mr. Harkins is
responsible for new technology development, FCC licensing and liaison, and
acquisitions. Mr. Harkins has 25 years of experience in the communications
industry. He received his technical training in radio while serving as a radio
technician in the U.S. Army. Mr. Harkins is the brother of Warren Harkins.
25
<PAGE>
THOMAS R. MODISETT has been the Chief Financial Officer, Vice President --
Finance, and Treasurer, and Assistant Secretary of the Company since May 1995.
Mr. Modisett was the Company's Controller from November 1991 until February 1996
and has served in other financial positions with the Company since June 1991.
Mr. Modisett is a certified public accountant with 26 years of financial and
managerial experience, including management positions with several energy and
ranching companies. His immediate past experience consists of three years as
the Finance Director of Y.O. Ranch in Kerrville, Texas. He has a Bachelor of
Business Administration degree from the University of Texas.
BRADLEY B. WALDRIP became Vice President -- Operations in May 1995 and was
designated an executive officer in February 1996. Mr. Waldrip has been
Operations Manager of the Company since May 1994 and served in various
operational management capacities at A&B since 1988. He is responsible for the
operations of the Company, including sales, construction and operation of all
site equipment. Mr. Waldrip has 16 years experience in the communications
industry and received his technical and business management training from Odessa
College.
LANCE C. CAWLEY has served as a director since October 1996. Mr. Cawley
joined Fidelity Capital's Telecommunications and Technology group as Vice
President in April 1996. Prior to joining Fidelity, Mr. Cawley served as Vice
President and Chief Financial Officer of GO Communications Corporation ("GO")
since its inception. GO was formed to develop PCS licenses being auctioned by
the FCC for small businesses. Mr. Cawley also worked as Vice President of
Schelle Cellular Group and American Personal Communications where he supported
that Company's startup wireless ventures (i.e., PCS, cellular, paging, and
radio) and merger and acquisition activities. Prior to Schelle Cellular Group,
Mr. Cawley worked in the commercial banking industry specializing in
communications lending and related activities. Mr. Cawley received a B.S. in
Business Administration from Washington & Lee University and a M.B.A. from
Loyola College.
DALE N. HATFIELD has served as a director of the Company since June 1993.
Mr. Hatfield is the Chief Executive Officer of Hatfield Associates, Inc., a
telecommunications/SMR consulting firm. He is currently an adjunct professor in
the interdisciplinary telecommunications program at the University of Colorado
at Boulder. He is a former Deputy Assistant Secretary of Commerce for
Communications and Information. Mr. Hatfield previously served as Deputy
Administrator of the NTIA and Chief of the FCC's Office of Plans and Policy. He
has a Master of Science degree in Industrial Management from Purdue University
and a Bachelor of Science in Electrical Engineering from Case Institute of
Technology. Mr. Hatfield is a director of Datamarine International, Inc., which
is publicly traded on Nasdaq.
DONALD S. HEATON has been a director of the Company since January 1996.
Since April 1991, he has been Vice President and Chief Financial Officer of
Fidelity Capital's Telecommunications & Technology Group and an officer and
director of several other Fidelity Capital companies including a Vice President
and Controller of AMI. Prior to joining Fidelity Capital in 1990 as Vice
President of Corporate Planning, Mr. Heaton was employed for 11 years by Cabot
Corporation and served as Corporate Controller and Chief Accounting Officer from
1986 through 1990. He is a certified public accountant and has a Masters in
Business Administration and Bachelor of Science degree from Boston University.
HERBERT T. HENSLEY has served as a director of the Company since June 1993
and as nonexecutive Chairman of the Board on an interim basis from June 1994
until August 1994. From December 1984 until his retirement in October 1996, Mr.
Hensley served as the Chairman of the Board of DATA RACE, Inc. (a public company
traded on Nasdaq) and previously served as its President and Chief Executive
Officer. DATA RACE, Inc., is a leading manufacturer of high speed data/fax
modems for portable computers and statistical multiplexers. He was previously
employed for 15 years by Datapoint Corporation (a public company traded on the
New York Stock Exchange), where his positions included Vice President of
International Operations.
JAMES P. HYNES has been director of the Company since January 1996. He is
a Managing Director of Fidelity Capital directing its business development and
investments in the areas of telecommunications and technology. Since 1990, he
has been Chief Executive Officer of AMI and is currently Chairman of the Board
of COLT Telecom Group plc, a public telecommunications operator in the United
Kingdom. Prior to joining Fidelity Capital in 1989, Mr. Hynes was a Vice
President and a division executive with Chase Manhattan Bank.
26
<PAGE>
WILLIAM C. KENNEDY, JR. has served as a director of the Company since June
1993. Since April 1992, Mr. Kennedy has been the Chairman of HighwayMaster
Communications, Inc. (a public company traded on Nasdaq), which provides
tracking, voice, and data communication to the long-haul trucking industry. He
served as its Chief Executive Officer from April 1992 until January 1995. He
was also the Chairman, President, and Chief Executive Officer of By-Word
Technologies, Inc., a company engaged in the engineering and manufacturing of
voice recognition products, from January 1988 until February 1995. Previously,
Mr. Kennedy founded Instacom, Inc., which provided computerized money transfer
services for trucking companies and their drivers, and served as the Chairman of
Comdata Network, Inc., after its merger with Instacom.
The Company's board of directors is currently composed of eight directors,
two of whom are employees of the Company and six of whom are not employees of
the Company. Messrs. Cawley, Hynes and Heaton currently serve as AMI's
designees to the Board of Directors pursuant to the Company's By-Laws. All of
the current directors serve until the next annual stockholders' meeting or until
their successors have been duly elected and qualified.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the compensation paid to the Company's chief
executive officer and its three other most highly compensated executive officers
for services rendered in all capacities to the Company during 1994, 1995, and
1996:
SUMMARY COMPENSATION TABLE
<TABLE>
Securities
Other Annual Underlying All Other
Name and Salary Bonus Compensation Options Compensation
Principal Position Year ($) ($) ($)(1) (#) ($)(2)(3)
- ------------------ ---- ------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Warren D. Harkins (4) 1994 136,154 -- -- 100,000 2,043
President and 1995 150,000 96,803 (5) -- -- --
Chief Executive Officer 1996 150,000 104,254 (6) -- 41,729 958
C. G. Whitten 1994 130,000 -- -- 90,000 --
Senior Vice President, 1995 130,000 60,580 (5) -- -- --
General Counsel and 1996 130,000 65,240 (6) -- 41,730 --
Secretary
Dale E. Harkins 1994 118,211 -- -- 80,000 1,505
Senior Vice President -- 1995 125,000 66,513 (5) -- -- 1,308
Business Development 1996 125,000 71,631 (6) -- 41,729 1,513
Thomas R. Modisett 1994 97,654 -- -- 80,000 --
Vice President -- 1995 118,769 68,997 (5) -- -- --
Finance and Chief 1996 125,000 74,307 (6) -- 41,729 --
Financial Officer,
Treasurer, and
Assistant Secretary
Bradley B. Waldrip 1994 82,303 -- -- 30,000 --
Vice President -- 1995 95,592 30,036 (5) -- -- --
Operations 1996 102,023 29,826 (6) -- 41,731 --
</TABLE>
- -------------------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses. The aggregate amount of the personal
benefits, however, does not exceed the lesser of $50,000 or 10% of the
total of the annual salary and bonus reported for the named executive
officer.
(2) These amounts were paid on behalf of the listed executive officers for term
life insurance policies.
(3) No restricted stock has been awarded to the listed executive officers.
(4) Mr. Harkins was elected President and Chief Executive Officer of the
Company in April 1994.
(5) 1995 Bonus paid in 1996. See "Certain Relationships and Related
Transactions."
(6) 1996 Bonus paid in 1997. See "Certain Relationships and Related
Transactions."
27
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table represents the options granted to the named executive
officers during 1996 and the value of such options:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF % OF EXERCISE RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS OR BASE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PRICE TERM(3)
OPTIONS EMPLOYEES IN ($/SH) EXPIRATION ------------------------
NAME GRANTED(#)(1) FISCAL YEAR (2) DATE 5%($) 10%($)
- ---------------------- ------------- ------------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Warren D. Harkins..... 41,729 17% $4.50 2/22/02 $252,000 $333,000
C. G. Whitten......... 41,730 17% $4.50 2/22/02 $252,000 $333,000
Dale E. Harkins....... 41,729 17% $4.50 2/22/02 $252,000 $333,000
Thomas R. Modisett.... 41,729 17% $4.50 2/22/02 $252,000 $333,000
Bradley B. Waldrip.... 41,731 17% $4.50 2/22/02 $252,000 $333,000
</TABLE>
- -------------------
(1) The options may be exercised in annual installments of 25% beginning one
year from the date of grant.
(2) Equal to the fair market value of the PCI Common Stock on the date of
grant.
(3) Calculated based on the fair market value of the PCI Common Stock on the
date of grant. The amounts represent only certain assumed rates of
appreciation. Actual gains, if any, on stock option exercises and PCI
Common Stock holdings cannot be predicted, and there can be no assurance
that the gains set forth in the table will be achieved.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is responsible for
determining executive compensation, including decisions related to stock option
grants to executive officers. In 1996, the Compensation Committee was composed
of the Company's independent directors, Messrs. Hatfield, Hensley, Hynes, and
Kennedy. None of Messrs. Hatfield, Hensley, Hynes, and Kennedy are officers or
employees of the Company.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENT
The Company has entered into separate employment agreements with Messrs.
Warren Harkins, Whitten, Dale Harkins, Modisett, and Waldrip, each effective
February 22, 1996, for a term of two years. The agreements provide for each
individual to serve in his current offices and in other offices as may from time
to time be agreed. The agreements include provisions prohibiting each officer
from competing with the Company during the term of his employment and for a
period of one year thereafter for Messrs. Whitten, Modisett, and Waldrip and two
years thereafter for Messrs. Warren Harkins and Dale Harkins.
Each individual is eligible for annual bonuses which will be determined by
the Compensation Committee based on the achievement of certain established goals
relating to the performance of the Company. The employment of each officer is
automatically terminated upon a change of control of the Company, entitling each
individual to receive, among other things, an amount equal to two times his base
salary, the vesting of all stock options granted to the individual, and a
special bonus in the form of repayment of the individual's indebtedness to the
Company (along with a cash payment to gross-up the special bonus for payment of
income taxes). These employment agreements supersede, in all respects, all
other employment and noncompetition agreements which the individuals shall have
entered into with the Company.
STOCK OPTION PLAN
EMPLOYEE STOCK OPTION PLANS. Pursuant to the Company's 1993 Stock Option
Plan ("1993 Stock Option Plan"), options may be granted to eligible employees
and directors for the purchase of an aggregate of up to 1,060,000 shares of PCI
Common Stock. In October 1996, the stockholders also approved the Company's
1996 Stock Option Plan (the 1993 Stock Option Plan and the 1996 Stock Option
Plan are sometimes referred to collectively as the "Employee Plans"), pursuant
to which options may be granted for the purchase of an aggregate of up to
1,000,000 additional shares. Employees eligible under the Employee Plans are
those whose performance and responsibilities are determined to be instrumental
to the Company's success. The Employee Plans are administered by the
Compensation Committee, which determines, in its discretion, the number of
shares subject to each option
28
<PAGE>
granted and the related purchase price and option period. Both nonqualified
stock options and incentive stock options, as defined by the Internal Revenue
Code, may be granted under the Employee Plans.
The Employee Plans require that the exercise price for each stock option
must be not less than 100% of the fair market value of the PCI Common Stock at
the time the option is granted. No incentive stock option, however, may be
granted to an employee who owns more than 10% of the total combined voting power
of all classes of outstanding stock of the Company unless the option price is at
least 110% of the fair market value of the PCI Common Stock at the date of
grant. The fair market value of incentive stock options that may be granted to
an employee in any calendar year is not limited, but no employee may be granted
incentive stock options that first become exercisable during a calendar year to
purchase PCI Common Stock with an aggregate fair market value (determined as of
the date of grant of each option) in excess of $100,000. An incentive stock
option counts against the annual limitation only in the year it first becomes
exercisable. Incentive stock options may not be granted to independent
directors.
The option period may not be more than six years from the date the option
is granted. Options may be exercised in annual installments of 25% as specified
by the Compensation Committee. All installments that become exercisable are
cumulative and may be exercised at any time after they become exercisable until
the option expires. Options are not assignable.
Full payment for shares purchased upon exercise of an option must be made
at the time of exercise. No shares may be issued until full payment is made.
The Employee Plans provide that an option agreement may permit an optionee to
tender previously owned shares of PCI Common Stock in partial or full payment
for shares to be purchased on exercising an option.
Unless sooner terminated by action of the board of directors, the 1993
Stock Option Plan will terminate in 2003 and the 1996 Stock Option Plan will
terminate in 2006. Subject to certain exceptions, the Employee Plans may be
amended, altered, or discontinued by the board of directors without stockholder
approval.
At March 15, 1997, options to purchase a total of 866,983 shares of PCI
Common Stock had been granted under the 1993 Stock Option Plan and were
outstanding and 77,606 additional shares are available for grant under the 1993
Stock Option Plan. No options have been granted under the 1996 Stock Option
Plan.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLANS. Pursuant to the Company's 1994
Non-Employee Director Stock Option Plan ("1994 Stock Option Plan") options will
be granted to non-employee directors pursuant to specified formulas for the
purchase of an aggregate of up to 60,000 shares of PCI Common Stock. The 1994
Stock Option Plan provided for the grant of nonqualified options to purchase
10,000 shares of PCI Common Stock to each non-employee director serving on the
board effective June 23, 1994. In addition, the 1994 Stock Option Plan provides
for the grant of an option to purchase 5,000 shares of PCI Common Stock to each
non-employee director elected to the board of directors who has not previously
served as a director of the Company.
In October 1996, stockholders approved the 1996 Non-Employee Director Plan
(the 1994 Stock Option Plan and the 1996 Non-Employee Director Plan are
sometimes collectively referred to as the "Non-Employee Director Plans"),
pursuant to which options will be granted to non-employee directors pursuant to
specified formulas for the purchase of an aggregate of up to 90,000 shares of
PCI Common Stock. The 1996 Non-Employee Director Plan provides for the grant of
nonqualified options to purchase 10,000 shares of PCI Common Stock to each non-
employee director serving on the board effective February 22, 1996, and on each
anniversary thereafter.
The Non-Employee Director Plans are administered by the Non-Employee
Director Stock Option Committee. The Non-Employee Director Plans require that
the exercise price for each stock option be equal to the closing price of PCI
Common Stock on the date the option is granted.
Unless sooner terminated by action of the board of directors, the 1994
Stock Option Plan will terminate in 2004 and the 1996 Non-Employee Director
Stock Option Plan will terminate in 2006. Subject to certain exceptions, the
Non-Employee Director Plans may be amended, altered, or discontinued by the
board of directors without Stockholder approval, but may not be amended more
than once every six months.
29
<PAGE>
At March 15, 1997, options to purchase a total of 60,000 shares of PCI
Common Stock had been granted under the Non-Employee Director Plans and were
outstanding. Those directors eligible for options under the 1996 Non-Employee
Director Plan have waived their rights to any automatic grants of options in
1997.
The Non-Employee Director Stock Option Committee of PCI has determined that
the AMI Designees, including any future AMI Designees, will not, by virtue of
AMI's right to have them designated for director nominations, be deemed to be
non-employee directors for purposes of the Non-Employee Director Plans.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named
executive officers concerning exercise of options during 1996 and unexercised
options held as of the end of 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED VALUE YEAR-END (#) YEAR-END ($)(1)
ON REALIZED ---------------------------- ----------------------------
NAME EXERCISE(#) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Warren D. Harkins.......... -- -- 87,500 104,229 -- --
C. G. Whitten.............. 5,000 11,247 40,000 126,730 -- --
Dale E. Harkins............ -- -- 66,250 90,479 -- --
Thomas R. Modisett......... 15,000 32,562 51,250 90,479 -- --
Bradley B. Waldrip......... 5,000 11,275 20,432 46,299 -- --
</TABLE>
(1) Based on the closing sale price of the PCI Common Stock on December 31,
1996, as reported by Nasdaq.
(2) Market value of underlying securities at exercise date, minus the exercise
price of "in-the-money" options.
DIRECTOR COMPENSATION
Each independent director of PCI receives a fee of $15,000 annually and is
reimbursed for out-of-pocket expenses incurred in connection with attendance at
board of directors and committee meetings. Each independent director of PCI was
granted options to purchase 5,000 shares of PCI Common Stock at the time of
PCI's initial public offering, which were originally exercisable at the initial
public offering price of $14.00 per share. In 1995, these options were repriced
at $4.00 per share, the market value per share of the PCI Common Stock on the
date of the repricing. In addition, each independent director serving on the
board on June 23, 1994, was granted options to purchase 10,000 shares of PCI
Common Stock, which are exercisable at $14.50 per share, the market value of the
PCI Common Stock at the time of the grant and each independent director serving
on the board on February 22, 1996, was granted options to purchase 10,000 shares
of PCI Common Stock, which are exercisable at $4.50 per share, the market value
of the PCI Common Stock at the time of the grant. Independent directors include
those directors, currently Messrs. Hatfield, Hensley, and Kennedy, who are not
employees of the Company or otherwise affiliated with the Company, and are not
serving at the request of a stockholder of the Company.
The AMI Designees only receive reimbursement of out-of-pocket expenses.
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers, and holders of more than 10% of the PCI Common Stock to file
with the Securities and Exchange Commission ("SEC") and Nasdaq initial reports
of ownership and reports of changes in ownership of PCI Common Stock. Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) reports they file with the SEC. Based solely on the Company's
review of the copies of such forms it has received, the Company believes that
during the year ended December 31, 1996, all of the Company's directors,
officers, and holders of more than 10% of the PCI Common Stock complied with all
Section 16(a) filing requirements, except that Lance C. Cawley, a director of
the Company, was late in filing his initial report based on his election as a
director on October 30, 1996.
30
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of the shares of PCI Common Stock of the Company, as of
March 15, 1997, by (i) each director, (ii) the Company's chief executive
officer and three most highly compensated executive officers (whose total
salary and bonus exceeded $100,000 in 1995), (iii) all officers and directors
of the Company as a group, and (iv) each person known to the Company to
beneficially own more than five percent of the outstanding shares of PCI
Common Stock. Except as otherwise indicated, each stockholder identified in
the table has sole voting and investment power with respect to its or his
shares.
SHARES OWNED
-----------------------
NAME NUMBER PERCENTAGE
- ---------------------------------------------- ---------- ----------
Lance C. Cawley............................... 0 *
Warren D. Harkins (1)......................... 127,934 *
Dale E. Harkins (2)........................... 132,207 *
Dale N. Hatfield (3).......................... 12,750 *
Donald S. Heaton (4).......................... 11,063,859 42.3%
Herbert T. Hensley (3)........................ 14,250 *
James P. Hynes (4)............................ 11,063,859 42.3%
William C. Kennedy, Jr. (3)................... 11,250 *
Thomas R. Modisett (5)........................ 67,182 *
Bradley B. Waldrip (6)........................ 20,462 *
C. G. Whitten (7)............................. 66,106 *
Elliott Associates, L.P. (8).................. 1,609,100 6.1%
South Mountain Communications Company (9)..... 1,478,787 5.7%
Advanced MobileComm, Inc. (10)................ 11,063,859 42.3%
All current directors and executive
officers as a group (11 persons) (4) (11)... 11,516,000 43.4%
- --------------------------------------
* Less than 1% of the outstanding shares of PCI Common Stock
(1) Includes options to purchase 97,932 shares of PCI Common Stock that are
currently exercisable.
(2) Includes options to purchase 76,682 shares of PCI Common Stock that are
currently exercisable.
(3) Includes options to purchase 11,250 shares of PCI Common Stock that are
currently exercisable.
(4) Deemed to beneficially own 6,373,378 shares of PCI Common Stock that are
beneficially owned by AMI and 4,690,481 shares of PCI Common Stock for
which AMI has voting rights pursuant to a voting agreement.
(5) Includes options to purchase 61,682 shares of PCI Common Stock that are
currently exercisable.
(6) Includes options to purchase 20,432 shares of PCI Common Stock that are
currently exercisable.
(7) Includes options to purchase 52,932 shares of PCI Common Stock that are
currently exercisable.
(8) Elliott Associates, L.P. ("Elliott"), filed a Schedule 13D with the SEC
dated January 31, 1997, on behalf of itself, Westgate International, L.P.
("Westgate"), and Martley International, Inc. ("Martley"). Elliott
reported sole voting and dispositive power over 933,600 shares of PCI
Common Stock. Westgate and Martley reported shared voting and
dispositive power over 675,500 shares of PCI Common Stock. Martley is
the investment manager for Westgate and expressly disclaims equitable
ownership of and pecuniary interest in any PCI Common Stock. The
business address of Elliott and Martley is 712 Fifth Avenue, 36th Floor,
New York, New York 10019; the business address of Westgate is c/o Midland
Bank Trust Corporation (Cayman) Limited, P. O. Box 1109, Mary Street,
Grand Cayman, Cayman Islands, British West Indies.
(9) The business address is 5344 North 91st Avenue, Glendale, AZ 85305.
(10) Includes 1,300,850 shares of PCI Common Stock held in escrow and 4,690,481
shares of PCI Common Stock for which AMI has voting rights pursuant to a
voting agreement. Excludes currently exercisable warrants held by AMI's
indirect parent, FMR Corp., to purchase an aggregate of 500,000 shares of
PCI Common Stock. The business address is 82 Devonshire Street, Boston,
MA 02109-3614.
(11) Includes options to purchase 343,410 shares of PCI Common Stock that are
currently exercisable.
31
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In June 1994, the Company made loans to each of its then executive
officers to facilitate their exercise, before the exchange transaction which
resulted in the liquidation of the Company's former indirect parent,
Pittencrieff plc ("PLC"), of options they held to acquire PLC shares. The
following executive officers borrowed from the Company the amounts shown
below: Warren Harkins --$115,616; C. G. Whitten -- $72,201; Dale Harkins --
$79,518; and Thomas Modisett -- $82,205. Each loan bore interest at a market
interest rate of prime plus one percent per annum and was due and payable 12
months from the date the respective loan was drawn down. At the time, Mr.
Waldrip was not an executive officer of the Company; however, the Company
also made a loan to him for the same purpose in the amount of $30,000, which
bore interest at 6% per annum and was due and payable on the same terms. The
Company extended the maturity of each of the loans, initially until June 1996
and subsequently until June 1997, under the same terms and conditions and
added all accrued and unpaid interest to the outstanding principal balance.
The Compensation Committee of the Company's board of directors awarded
special bonuses to each of the named executive officers in recognition of
their efforts and achievements in 1995 and 1996. The bonuses were effective
and payable April 1, 1996 and January 1, 1997, in the form of an aggregate
repayment of the principal balance and accrued and unpaid interest of such
executive officer's outstanding indebtedness to the Company and cash payments
as a gross-up for income taxes payable on the special bonuses. The gross
bonus payable for each executive officer for 1995 and 1996, respectively, is
as follows: Warren Harkins -- $96,803 and $104,254; C. G. Whitten -- $60,580
and $65,240; Dale Harkins -- $66,513 and $71,631; Thomas Modisett -- $68,997
and $74,307; and Bradley Waldrip -- $30,036 and $29,826.
Pursuant to the Contribution Agreement governing the Transaction, the
Company agreed to expand its board of directors from five to eight members
and AMI was authorized to appoint three directors of its choosing. The
Company's By-Laws give AMI or its designees on the board the right to
designate three of the management nominees for election to the board, subject
to reductions in the number of AMI designees upon reductions in the number of
outstanding shares of PCI Common Stock held by AMI. The Company's By-Laws
also require a vote of two-thirds of the whole board of directors to change
the size of the board or AMI's right to designate nominees.
In order to participate in the FCC's auction of 900 MHz SMR channels, FMR
Corp., the indirect parent of AMI, provided a $1 million auction loan to the
Company in November 1995. The note was due on demand and required interest
payable monthly at the prime rate plus 2%. The auction loan was replaced
with a new note on January 31, 1996, in the principal amount of $2,523,463
which was subsequently repaid from the proceeds of a revolving loan received
from Wells Fargo in March 1996. FMR Corp. has provided a letter of credit in
connection with the revolving loan and has received warrants to purchase
250,000 shares of PCI Common Stock, at an exercise price of $4.50 per share
effective March 18, 1996, and 250,000 shares of PCI Common Stock, at an
exercise price of $4.73 per share effective September 14, 1996, in
consideration thereof.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
1. Consolidated financial statements to this report are listed in
the "Index to Consolidated Financial Statements and Schedules"
at page F-1.
2. Consolidated financial statement schedules to this report are
listed in the "Index to Consolidated Financial Statements and
Schedules" at page F-1. All other schedules are omitted because
they are inapplicable or the requested information is shown in
the financial statements or noted therein.
3. Exhibits.
*2.1 -- Amended and Restated Agreement of Merger and Plan of
Reorganization dated as of December 3, 1996, by and between
Nextel Communications, Inc., Nextel Finance Company, DCI Merger,
Inc., and the Company
32
<PAGE>
3.1 -- Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Form S-4 Registration
Statement No. 33-96252)
3.2 -- By-Laws of the Company (incorporated by reference to Exhibit 3.2
of the Company's Form S-4 Registration Statement No. 33-96252)
4.1 -- Form of certificate representing shares of the Company's common
stock (incorporated by reference to Exhibit 4.1 to the Company's
Form S-4 Registration Statement No. 33-96252)
10.1 -- Executive Employment Agreement dated as of February 22, 1996,
between the Company and Warren D. Harkins (incorporated by
reference to Exhibit 10.9 to the Company's Form S-4 Registration
Statement No. 33-83810)
10.2 -- Executive Employment Agreement dated as of February 22, 1996,
between the Company and C. G. Whitten (incorporated by reference
to Exhibit 10.27 to the Company's Form S-4 Registration
Statement No. 33-83810)
10.3 -- Executive Employment Agreement dated as of February 22, 1996,
between the Company and Thomas R. Modisett (incorporated by
reference to Exhibit 10.11 to the Company's Form S-4 Registration
Statement No. 33-83810)
10.4 -- Executive Employment Agreement dated as of February 22, 1996,
between the Company and Dale E. Harkins (incorporated by
reference to Exhibit 10.10 to the Company's Form S-4 Registration
Statement No. 33-83810)
10.5 -- Executive Employment Agreement dated as of February 22, 1996,
between the Company and Bradley B. Waldrip (incorporated by
reference to Exhibit 10.56 to the Company's Form S-4 Registration
Statement No. 33-83810)
10.6 -- Pittencrieff Communications, Inc. 1993 Stock Option Plan,
including form of Incentive Stock Option Agreement and
Nonqualified Stock Option Agreement (incorporated by reference to
Exhibit 10.6 to the Company's Form S-1 Registration Statement No.
33-62128)
10.7 -- Pittencrieff Communications, Inc. 1994 Non-Employee Director
Stock Option Plan, including form of Nonqualified Stock Option
Agreement (incorporated by reference to Exhibit 4.1 to the
Company's form S-8 Registration Statement No. 33-81738)
10.8 -- Pittencrieff Communications, Inc. 1996 Stock Option Plan,
including form of Incentive Stock Option Agreement and
Nonqualified Stock Option Agreement (incorporated by reference to
Exhibit 10.62 to the Company's Form S-4 Registration Statement
No. 33-83810)
10.9 -- Pittencrieff Communications, Inc. 1996 Non-Employee Director
Stock Option Plan, including form of Nonqualified Stock Option
Agreement (incorporated by reference to Exhibit 10.63 to the
Company's Form S-4 Registration Statement No. 33-83810)
10.10 -- Form of Indemnification Agreement with independent directors
(incorporated by reference to Exhibit 10.15 to the Company's Form
S-1 Registration Statement No. 33-62128)
10.11 -- Form of Management Agreement for management of SMR licenses
(incorporated by reference to Exhibit 10.16 to the Company's Form
S-1 Registration Statement No. 33-62128)
10.12 -- Warrant Agreement dated as of September 16, 1994 by and between
the Company and The Toronto-Dominion Bank and Kansallis-Osake-
Pankki (incorporated by reference to Exhibit 10.4 to the
Company's Form S-3 Registration Statement No. 33-84642
10.13 -- First Amendment to Loan Agreement and First Amendment to Warrant
Agreement dated as of April 18, 1995, and effective as of March
31, 1995, among the Company, A&B, The Toronto-Dominion Bank,
Kansallis-Osake-Pankki, and Toronto Dominion (Texas), Inc.
(incorporated by reference to Exhibit 10.7 to the Company's
quarterly report on Form 10-Q for the quarterly period ended
March 31, 1995)
10.14 -- Indemnification Agreement dated May 12, 1994, between the Company
and Pittencrieff Resources plc and its subsidiaries (incorporated
by reference to Exhibit 10.5 to the Company's Form S-4
Registration Statement No. 33-76820)
33
<PAGE>
10.15 -- Purchase Agreement dated as of July 14, 1994, between A&B, doing
business as Pittencrieff Communications, Inc., and South Mountain
Communications, Hidden Valley Ranch, Inc., Stageline Ranches,
Inc., Veco Ranches, Inc., Richard A Boulais, and Gladys M.
Boulais (incorporated by reference to Exhibit 10.2 to the
Company's quarterly report on Form 10-Q for the quarterly period
ended June 30, 1994)
10.16 -- First Amendment to, and Modification of, Purchase Agreement dated
as of September 1, 1994, between A&B, doing business as
Pittencrieff Communications, Inc., and South Mountain
Communications, Hidden Valley Ranch, Inc., Stageline Ranches,
Inc., Veco Ranches, Inc., Richard A. Boulais, and Gladys M.
Boulais (incorporated by reference to Exhibit 2.1.1 to the
Company's Form S-4 Registration Statement No. 33-83810)
10.17 -- Second Amendment to, and Modification of, Purchase Agreement
dated as of September 15, 1994, between A&B, doing business as
Pittencrieff Communications, Inc. and South Mountain
Communications, Hidden Valley Ranch, Inc. Stageline Ranches,
Inc., Veco Ranches, Inc., Richard A. Boulais, and Gladys M.
Boulais (incorporated by reference to Exhibit 2.3 to the
Company's Current Report on Form 8-K dated September 28, 1994)
10.18 -- Purchase and Sale Agreement dated as of December 23, 1994, by and
between the Company and A&B and Castle Communications Corporation
(incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated January 10, 1995)
10.19 -- Letter Agreement dated as of January 9, 1995, by and between the
Company and A&B and Castle Tower Corporation, formerly known as
Castle Communications Corporation (incorporated by reference to
Exhibit 2.2 to the Company's Current Report on Form 8-K dated
January 10, 1995)
10.20 -- Management Agreement dated as of January 10, 1995, by and between
the Company and Castle Tower Corporation (incorporated by
reference to Exhibit 2.3 to the Company's Current Report on Form
8-K dated January 10, 1995)
10.21 -- License Agreement dated as of January 10, 1995, by and between
the Company and A&B and Castle Tower Corporation (incorporated by
reference to Exhibit 2.4 to the Company's Current Report on Form
8-K dated January 10, 1995)
10.22 -- Commercial Revolving or Draw Note of the Company, dated as of
September 11, 1995, payable to First State Bank, N.A., Abilene
(incorporated by reference to Exhibit 10.48 to the Company's Form
S-4 Registration Statement No. 33-96252)
10.23 -- Commercial Security Agreement, dated as of September 11, 1995,
between the Company and First State Bank, N.A., Abilene
(incorporated by reference to Exhibit 10.49 to the Company's Form
S-4 Registration Statement No. 33-96252)
10.24 -- Agreement and Plan of Merger dated as of September 5, 1995,
between the Company and Old PCI (incorporated by reference to
Exhibit 2.1 of the Company's Form S-4 Registration Statement No.
33-96252)
10.25 -- Contribution Agreement dated as of September 5, 1995, among the
Company, Old PCI, Advanced MobileComm of Texas, Limited
Partnership, Advanced MobileComm Southwest Limited Partnership,
FFC Communications, Inc., Viking Amusement Corporation d/b/a
Empire Mobile Communications, Bayou Communications, Inc.,
Confidential Communications Corporation, A&D Mobile Systems, D&E
Communications, Inc., Royce Witte, for himself and d/b/a Range
Unlimited and Mobitel Communications Services, Trunked Mobile
Radio Systems, AMI, Nels Kjorvestad, Mary Kjorvestad, John David
Bell, James Alan Bell, David E. Weisman, individually and as
trustee, Alan S. Tilles, Richard Meyer, Jean Meyer and J. R..
Bell (incorporated by reference to Exhibit 2.2 of the Company's
Form S-4 Registration Statement No. 33-96252)
10.26 -- Amendment No. 1 to the Contribution Agreement dated as of October
16, 1995, among the Company, Old PCI, and AMI, on its behalf and
on behalf of the other AMI Parties (incorporated by reference to
Exhibit 2.3 of the Company's Form S-4 Registration Statement No.
33-96252)
10.27 -- Agreement dated as of October 26, 1995, among the Company, A&B,
and AMI regarding the 900 Auctions (incorporated by reference to
Exhibit 10.44 to the Company's annual report on Form 10-K for the
year ended December 31, 1995)
34
<PAGE>
10.28 -- Agreement dated as of November 13, 1995, among the Company, A&B,
and FMR regarding the Auction Loans (incorporated by reference to
Exhibit 10.45 to the Company's annual report on Form 10-K for the
year ended December 31, 1995)
10.29 -- Amended and Restated Promissory Note of the Company, dated as of
January 31, 1996, among the Company, certain wholly owned
subsidiaries of the Company, and FMR (incorporated by reference
to Exhibit 10.54 to the Company's Form S-4 Registration Statement
No. 33-83810)
10.30 -- Loan Agreement, dated as of March 18, 1996, between the Company
and First Interstate Bank of Texas, N.A. (incorporated by
reference to Exhibit 10.57 to the Company's Form S-4 Registration
Statement No. 33-83810)
10.31 -- Agreement, dated as of March 18, 1996, among the Company, A&B,
First Interstate Bank of Texas, N.A., and FMR (incorporated by
reference to Exhibit 10.58 to the Company's Form S-4 Registration
Statement No. 33-83810)
10.32 -- Revolving Promissory Note of the Company, dated as of March 18,
1996, payable to First Interstate Bank of Texas, N.A.
(incorporated by reference to Exhibit 10.59 to the Company's Form
S-4 Registration Statement No. 33-83810)
10.33 -- Amended and Restated Security Agreement, dated as of March 18,
1996, among the Company, certain wholly owned subsidiaries of the
Company, and FMR (incorporated by reference to Exhibit 10.65 to
the Company's Form S-4 Registration Statement No. 33-83810)
10.34 -- Amended and Restated Pledge Agreement dated as of March 18, 1996,
among the Company, certain wholly owned subsidiaries of the
Company, and FMR (incorporated by reference to Exhibit 10.64 to
the Company's Form S-4 Registration Statement No. 33-83810)
10.35 -- Warrant to Purchase Common Stock of the Company, dated as
of March 18, 1996, to FMR (incorporated by reference to
Exhibit 10.61 to the Company's Form S-4 Registration Statement
No. 33-83810)
*10.36 -- Warrant to Purchase Common Stock of the Company, dated as of
September 14, 1996, to FMR
21.1 -- List of the Company's subsidiaries (incorporated by reference to
Exhibit 21.1 to the Company's Form S-4 Registration Statement No.
33-83810)
*23.1 -- Consent of KPMG Peat Marwick LLP
*27 -- Financial Data Schedule
- ---------------------
* Filed herewith
(b) Reports on Form 8-K.
None.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 26th day
of March, 1997.
PITTENCRIEFF COMMUNICATIONS, INC.
By: /s/ WARREN D. HARKINS
------------------------------
Warren D. Harkins
CHAIRMAN OF THE BOARD,
PRESIDENT, AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of the 26th day of March, 1997.
NAME TITLE
---- -----
/s/ WARREN D. HARKINS Chairman of the Board, President,
- ----------------------------- and Chief Executive Officer
Warren D. Harkins (principal executive officer)
/s/ THOMAS R. MODISETT Chief Financial Officer, Vice President -
- ----------------------------- Finance, Treasurer, and Assistant
Thomas R. Modisett Secretary (principal financial and
accounting officer)
/s/ LANCE C. CAWLEY Director
- -----------------------------
Lance C. Cawley
Director
- -----------------------------
Dale N. Hatfield
/s/ DONALD S. HEATON Director
- -----------------------------
Donald S. Heaton
Director
- -----------------------------
Herbert T. Hensley
Director
- -----------------------------
James P. Hynes
/s/ WILLIAM C. KENNEDY, JR. Director
- -----------------------------
William C. Kennedy, Jr.
/s/ C. G. WHITTEN Director, Senior Vice President, General
- ----------------------------- Counsel, and Secretary
C. G. Whitten
36
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE
----
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............... F-3
Consolidated Statements of Operations for the three years
ended December 31, 1996.................................................. F-4
Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1996.................................................. F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996.................................................. F-6
Notes to Consolidated Financial Statements................................. F-7
Financial Statement Schedule:
Valuation and Qualifying Accounts - Three years ended
December 31, 1996........................................................ F-17
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pittencrieff Communications, Inc.:
We have audited the consolidated financial statements of Pittencrieff
Communications, Inc. and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement 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 financial position of
Pittencrieff Communications, Inc. and subsidiaries as of December 31, 1995
and 1996, and the results of their operations and their cash flows for each
of the years in the three-year 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 consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Dallas, Texas
March 4, 1997
F-2
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
ASSETS
1995 1996
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 568 $ 4,552
Accounts receivable:
Trade, less allowance for doubtful accounts
of $564 in 1995 and $150 in 1996...................... 4,337 2,603
Employees............................................... 499 --
Inventories, net.......................................... 5,680 4,072
Deferred income taxes (note 6)............................ 248 286
Prepaid expenses and other current assets................. 1,891 553
-------- --------
Total current assets.................................. 13,223 12,066
Property and equipment, net (note 3)........................ 41,207 38,494
FCC licenses and other assets, net (note 4)................. 64,708 116,197
Goodwill, net of accumulated amortization of $766........... -- 18,746
Deferred income taxes (note 6).............................. 754 --
-------- --------
$119,892 $185,503
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable (note 5).................................... $ 1,532 $ 1,584
Current portion of long-term debt and
finance obligation (note 5)............................. 2,276 1,853
Accounts payable.......................................... 4,319 960
Accrued liabilities....................................... 2,379 2,371
-------- --------
Total current liabilities............................. 10,506 6,768
-------- --------
Long-term debt, excluding current portion (note 5).......... 1,083 581
Finance obligation, excluding current portion (note 5)...... 12,513 11,544
Deferred income taxes (note 6).............................. -- 14,226
Stockholders' equity (notes 7, 10 and 12):
Common stock, $.01 par value, authorized 30,000,000
shares; outstanding 14,204,722 shares in 1995
and 26,163,225 shares in 1996........................... 144 262
Additional paid-in capital................................ 111,413 175,352
Accumulated deficit....................................... (15,767) (23,230)
Treasury stock at cost, 6,366,666 shares in 1995
and -0- in 1996......................................... -- --
-------- --------
Total stockholders' equity............................ 95,790 152,384
Commitments and contingencies (notes 5 and 8)
-------- --------
$119,892 $185,503
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1994 1995 1996
-------- ------- --------
Revenues:
Radio services revenue...................... $ 19,722 $20,895 $ 22,220
Rental income............................... 3,096 2,708 1,871
Equipment and parts sales................... 9,811 12,454 11,939
-------- ------- --------
32,629 36,057 36,030
Costs and expenses:
Cost of operations.......................... 17,022 17,706 18,235
Cost of equipment and parts sales........... 8,330 9,923 10,341
General and administrative.................. 10,159 7,827 7,649
Depreciation and amortization............... 6,524 7,941 9,708
-------- ------- --------
42,035 43,397 45,933
-------- ------- --------
Operating loss............................ (9,406) (7,340) (9,903)
-------- ------- --------
Other income (expense):
Interest expense............................ (1,497) (2,578) (3,293)
Gain (loss) on sales of assets, net
(note 3)................................... (290) 12 1,080
Reorganization expense (note 10)............ (4,189) -- --
Interest income and other................... 560 506 243
-------- ------- --------
(5,416) (2,060) (1,970)
-------- ------- --------
Loss before income taxes...................... (14,822) (9,400) (11,873)
Income tax benefit (note 6)................... (4,207) (3,656) (4,410)
-------- ------- --------
Net loss.................................. $(10,615) $(5,744) $ (7,463)
-------- ------- --------
-------- ------- --------
Net loss per common share and share
equivalent................................... $ (0.89) $ (0.41) $ (0.29)
-------- ------- --------
-------- ------- --------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
NUMBER OF NUMBER OF
SHARES SHARES ADDITIONAL RETAINED TOTAL
COMMON TREASURY COMMON PAID-IN EARNINGS STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL (DEFICIT) EQUITY
---------- --------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993...... 11,696,666 -- $ 117 $ 92,877 $ 592 $ 93,586
Compensation related to stock
option plan..................... -- -- -- (111) -- (111)
Common stock issued pursuant
to Exchange (note 10)........... 6,365,218 -- -- -- -- --
Common stock acquired as
treasury stock (note 10)........ (6,366,666) 6,366,666 -- -- -- --
Common stock issued under
stock option plan............... 65,000 -- 1 909 -- 910
Warrants issued in connection
with bank financing (note 5).... -- -- -- 826 -- 826
Common stock issued to
acquire assets (note 2)......... 1,478,787 -- 15 12,001 -- 12,016
Net loss.......................... -- -- -- -- (10,615) (10,615)
---------- ---------- -------- --------- --------- ----------
Balance at December 31, 1994...... 13,239,005 6,366,666 133 106,502 (10,023) 96,612
Common stock issued to
acquire assets (note 2)......... 963,967 -- 11 4,902 -- 4,913
Common stock issued under
stock option plan............... 1,750 -- -- 9 -- 9
Net loss.......................... -- -- -- -- (5,744) (5,744)
---------- ---------- -------- --------- --------- ----------
Balance at December 31, 1995...... 14,204,722 6,366,666 144 111,413 (15,767) 95,790
Common stock issued to
acquire assets (note 2)......... 11,909,842 -- 118 62,048 -- 62,166
Common stock issued under
employee stock option plan...... 48,661 -- -- 255 -- 255
Retirement of treasury stock
at cost......................... -- (6,366,666) -- -- -- --
Warrants issued pursuant to
letter of credit................ -- -- -- 1,636 -- 1,636
Net loss.......................... -- -- -- -- (7,463) (7,463)
---------- ---------- -------- --------- --------- ----------
Balance at December 31, 1996...... 26,163,225 -- $ 262 $ 175,352 $ (23,230) $ 152,384
---------- ---------- -------- --------- --------- ----------
---------- ---------- -------- --------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (10,615) $ (5,744) $ (7,463)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation................................................ 5,448 6,194 5,869
Amortization of FCC licenses and other assets............... 1,076 1,747 3,073
Amortization of goodwill.................................... -- -- 766
Compensation related to stock option plans.................. (111) -- --
Provision for doubtful accounts............................. 1,408 898 356
Provision for obsolete inventory............................ 400 350 300
Accretion and amortization of debt discount................. 709 547 1,228
(Gain) loss on sales of assets, net......................... 290 (12) (1,080)
Deferred income taxes....................................... (4,207) (3,656) (4,410)
Changes in assets and liabilities, net of effects
from acquisitions:
Accounts receivable..................................... (2,141) (416) 2,146
Inventories, prepaid expenses and other current assets.. (3,345) (776) 2,440
Accounts payable and accrued liabilities................ 1,255 2,271 (3,531)
---------- ---------- ----------
Net cash provided by (used in) operating activities... (9,833) 1,403 (306)
---------- ---------- ----------
Cash flows from investing activities:
Sales of marketable investment securities...................... 16,081 -- --
Acquisitions, net of cash acquired............................. (23,258) (240) (1,750)
Capital expenditures........................................... (11,234) (4,012) (1,316)
FCC licenses and other assets.................................. (483) (2,416) (1,788)
Proceeds from sale of assets................................... 709 2,901 10,665
---------- ---------- ----------
Net cash provided by (used in) investing activities... (18,185) (3,767) 5,811
---------- ---------- ----------
Cash flows from financing activities:
Payments on notes payable...................................... (57) (11,736) (9,063)
Payments on other long-term debt............................... (1,560) (2,036) (1,464)
Payments on finance obligation................................. -- (1,274) (1,031)
Proceeds from notes payable and other long-term debt........... 10,717 2,453 9,591
Proceeds from finance obligation............................... -- 14,818 191
Net proceeds from issuance of common stock..................... 910 9 255
---------- ---------- ----------
Net cash provided by (used in) financing activities... 10,010 2,234 (1,521)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents............. (18,008) (130) 3,984
Cash and cash equivalents at beginning of year................... 18,706 698 568
---------- ---------- ----------
Cash and cash equivalents at end of year......................... $ 698 $ 568 $ 4,552
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Pittencrieff Communications, Inc. and subsidiaries ("Company") are
engaged in the acquisition and operation of Specialized Mobile Radio
("SMR") wireless communication systems, primarily in the southwestern
United States. The Company also engages in sales of radios, equipment
service, radio leasing, paging and microwave services.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Pittencrieff Communications, Inc. and its subsidiaries. Until June 14,
1994, the Company was 54.43% owned by Ukatex Resources, Inc. ("Ukatex"),
which was an indirect wholly-owned subsidiary of Pittencrieff plc ("PLC"),
a publicly held company based in the United Kingdom (see note 11). All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to be
consistent with current year presentation.
(c) USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(d) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF, on January 1, 1996. This Statement requires that long-lived assets and
certain intangible assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption of this
Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
(e) CASH EQUIVALENTS
Cash equivalents at December 31, 1996 were $824,000 and consisted
principally of money market funds. The Company considers all highly liquid
debt instruments with original maturities of three months or less to be
cash equivalents. There were no cash equivalents at December 31, 1995.
(f) INVENTORIES
Inventories consist primarily of radios, accessories, parts and
supplies for the communications business and are stated at the lower of
average cost or market. Provision is made for obsolete inventory.
(g) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property
and equipment is calculated using the straight-line method over the
estimated useful lives of the assets. Repairs and maintenance are expensed
as incurred and renewals and betterments are capitalized. The estimated
useful lives are as follows:
Buildings. . . . . . . . . . . . . . . . . . . . . . . . 30 years
Communication towers . . . . . . . . . . . . . . . . . . 30 years
Rental and leased equipment, principally radios. . . . . 1 - 3 years
Communications equipment . . . . . . . . . . . . . . . . 5 - 15 years
Vehicles, computers, office equipment and other. . . . . 5 - 7 years
F-7
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
(h) FCC LICENSES
FCC licenses are recorded at cost and consist of agreements with the FCC
which allow the use of certain communications frequencies. FCC license cost
relates primarily to business acquisitions in which the excess of purchase price
over the fair value of tangible assets acquired has been classified as FCC
licenses. FCC licenses have a primary term of five years and are renewable for
additional five year periods for a nominal fee. Although there can be no
assurance that the licenses will be renewed, management expects that the
licenses will be renewed as they expire. FCC license costs are amortized using
the straight-line method over 40 years.
(i) GOODWILL
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized using the straight-line method over 25 years.
The Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation.
(j) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(k) NET LOSS PER COMMON SHARE AND SHARE EQUIVALENT
Net loss per common share is based on the net loss applicable to the
weighted average number of common and common equivalent shares outstanding of
11,910,211 in 1994, 14,054,528 in 1995, and 25,622,860 in 1996. Common share
equivalents relating to stock options and warrants were not considered in 1994,
1995 or 1996 because their effect would be anti-dilutive.
(l) STOCK OPTION PLANS
Prior to January 1, 1996, the Company accounted for its stock option plans
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(m) REVENUE RECOGNITION
The Company recognizes revenue from air time sales based upon monthly
access charges per unit plus air time charges as used. Revenue for equipment
service is recognized on completion and acceptance of the work. Revenue from
rental of radios on month-to-month leases is recognized as payments are earned.
Revenue is recognized from the sale of equipment when delivered.
F-8
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
(n) STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information follow (in
thousands):
1994 1995 1996
---- ------ -------
Cash paid during the year for interest........ $788 $1,956 $ 2,068
Noncash investing and financing activities:
Liabilities, including deferred income
taxes, resulting from acquisitions....... $ -- $ 81 $19,858
Assets, including notes receivable,
resulting from dispositions.............. $ -- $ -- $ 357
(o) CREDIT CONCENTRATIONS AND FINANCIAL INSTRUMENTS
The Company's customers are primarily located in rural areas, small to
medium-sized cities, and large metropolitan areas in the southwestern
United States.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
trade receivables. The Company places its cash equivalents with high
credit quality financial institutions. Concentrations of credit risk with
respect to trade receivables are limited because of the large number of
customers comprising the Company's customer base. Accounts receivable are
generally unsecured; however, management believes its allowance for
doubtful accounts is adequate to cover any significant exposure to loss.
The carrying amount of the Company's financial instruments,
principally cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities, approximate fair value due to the short
maturity of these instruments. As amounts outstanding under the Company's
credit agreement and other long-term debt bear interest approximating
current market rates, their carrying amounts approximate fair value.
(2) ACQUISITIONS AND DISPOSITIONS
During 1995 and 1996, the Company acquired several communications
businesses located principally in Texas, New Mexico, Arizona, Oklahoma,
California, and North and South Dakota. The Company used the purchase method to
account for these acquisitions. The results of the acquired operations have
been included in the Company's consolidated statements of operations from the
acquisition dates.
On January 16, 1996, the Company completed its Agreement and Plan of Merger
with Pittencrieff Communications, Inc., a Delaware corporation ("New PCI"),
pursuant to which the Company merged into New PCI, with New PCI as the surviving
corporation. Also on January 16, 1996, the Company finalized the Transaction
among New PCI and the AMI Parties, pursuant to which the AMI Parties contributed
to New PCI certain SMR assets and all the capital stock of certain of the AMI
Parties in exchange for 11,909,842 unregistered shares of the common stock $0.01
par value of New PCI.
In May 1996, the Company completed the acquisition of 26 800 MHz SMR
channels in Phoenix for additional cash consideration of $1.5 million. The
acquisition, as originally structured, had an initial closing in 1994 pending
FCC approval, but the Company was relieved of its obligation to complete the
transaction because of the lack of timely FCC action. The FCC subsequently
approved the transfer of certain licenses, and the acquisition was restructured
on that basis.
F-9
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
In September 1996, the Company completed the sale of 70 900 MHz channels
located in San Diego, California for cash consideration of $9 million. Under
the terms of the sale, the purchaser has the right to utilize the SMR equipment
associated with the channels for a period of three years, at which time the
equipment will be returned to the Company or the purchaser will reimburse the
Company for the fair market value of the equipment.
In January and February 1995, the Company sold the majority of its
communications towers and certain FCC licenses and SMR equipment located in Las
Vegas, Nevada. The sales price for these two transactions was paid with cash
and a note receivable. In March 1995, the Company issued common stock, valued
at $3,463,000, in payment of a note and accrued interest issued pursuant to one
of the Company's acquisitions which was closed in 1994.
The fair values assigned to assets acquired and liabilities assumed, net of
cash acquired in these acquisitions, are as follows (in thousands):
1995 1996
------ --------
Net working capital.................. $ 36 $ 199
Property and equipment............... 544 2,317
FCC Licenses and other assets........ 1,110 61,582
Goodwill............................. -- 19,512
Deferred income tax liability........ -- (19,353)
------ --------
Net purchase price................... $1,690 $ 64,257
------ --------
------ --------
The acquisitions were paid for as follows (in thousands):
1995 1996
------ -------
Cash................................. $ 240 $ 1,750
Notes payable and long-term debt..... -- 341
Common stock......................... 1,450 62,166
------ -------
$1,690 $64,257
------ -------
------ -------
Unaudited pro forma financial information for the years ended December 31,
1995 and 1996 as though the 1995 and 1996 acquisitions and dispositions had
occurred as of January 1, 1995 follows (in thousands, except per share amounts):
1995 1996
------- --------
Revenues............................. $41,228 $ 36,476
Operating loss....................... (7,268) (9,881)
Loss before income taxes............. (5,917) (11,569)
Net loss............................. (3,728) (7,288)
Net loss per common share and
share equivalent.................... (0.14) (0.28)
The pro forma financial information does not purport to present the results
of operations that would have occurred had the transactions been consummated on
the date indicated or the Company's results for any future period.
F-10
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996 (in thousands):
1995 1996
-------- --------
Land............................................. $ 521 $ 521
Buildings........................................ 2,123 1,852
Rental equipment................................. 2,453 1,272
Communications equipment......................... 39,578 41,962
Vehicles, computers, office equipment and other.. 8,718 8,990
-------- --------
53,393 54,597
Less accumulated depreciation.................... (12,186) (16,103)
-------- --------
$ 41,207 $ 38,494
-------- --------
-------- --------
Accumulated depreciation includes $992,000 in 1995 and $586,000 in 1996
related to rental equipment.
In January 1995, the Company sold the majority of its communications towers
located throughout Texas, New Mexico, Oklahoma, Arizona, Colorado and Nevada to
Castle Tower Corporation. The Company sold 125 towers for a total consideration
of $15.1 million, consisting of (i) $8.1 million cash at closing, (ii) a short-
term promissory note for $6.4 million (subsequently reduced to $6.3 million),
and (iii) a long-term promissory note for $1.1 million (subsequently reduced to
$762,000) payable over five years. The short-term note was modified to provide
for payment of $5.4 million in April 1995 with the reduced balance paid in
November 1995. In connection with the sale, the Company agreed to an initial
eight year lease of space on the towers that the Company currently utilizes for
its own SMR services. Additionally, the Company entered into a management
agreement with respect to the towers pursuant to which the Company managed the
operation of the towers for a monthly fee for a period of one year, ending
December 31, 1995. Due to the non-recourse nature of the long-term promissory
note received by the Company, the transaction has been accounted for by the
financing method.
(4) FCC LICENSES AND OTHER ASSETS
FCC licenses and other assets consist of the following at December 31, 1995
and 1996 (in thousands):
1995 1996
------- --------
FCC licenses.............................. $64,751 $119,044
Other assets.............................. 3,678 3,947
------- --------
68,429 122,991
Less accumulated amortization............. (3,721) (6,794)
------- --------
$64,708 $116,197
------- --------
------- --------
F-11
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) INDEBTEDNESS
Notes payable includes $2,000,000 payable under a $10,000,000 revolving
line of credit ("Revolving Loan") to Wells Fargo Bank (Texas), N.A. ("Wells
Fargo"). The Revolving Loan is secured by letters of credit issued by FMR
Corp. The letters of credit are secured by a pledge of the capital stock of the
Company's primary operating subsidiary, A&B Electronics, Inc. and substantially
all of the assets of the Company. The initial term of the revolving loan is
one year, due March 18, 1997, and it bears interest at LIBOR (5 7/16%) plus 1.5%
(or Wells Fargo's prime rate). As consideration for pledging the letters of
credit, the Company issued warrants to FMR ("FMR Warrants") for the purchase of
500,000 shares of PCI Common Stock. The FMR Warrants have a term of ten years
from issuance and were issued in two equal tranches. Warrants to purchase
250,000 shares were issued upon closing of the Revolving Loan at an exercise
price of $4.50 per share. In September 1996, the Company issued warrants to
purchase an additional 250,000 shares at an exercise price of $4.73 per share.
The FMR Warrants were valued at $3.56 and $2.98 per warrant, respectively. The
warrants were recorded as a discount to the Revolving Loan and are being
amortized over the one-year initial term.
Notes payable in 1995 included $1,000,000 payable to FMR Corp., the
indirect parent of AMI, which was repaid in March 1996 from the proceeds of the
Revolving Loan.
The Company's Tower Sale is accounted for by the financing method (see note
3). The term of the finance obligation is dependent upon the five year term of
the non-recourse note received by the Company in connection with the Tower Sale.
As long as the non-recourse note receivable remains outstanding, the finance
obligation will be amortized by the monthly lease payments, exclusive of an
interest portion calculated at 12% per annum. Once the non-recourse note is
paid in full, the Tower Sale will be recalculated and recorded as a sale of
assets, the finance obligation will be eliminated, the lease payments (less any
allocated gain on the sale) will be treated as an operating expense, and the
towers will no longer be reported as an asset.
Other long-term debt and short-term notes payable consist principally of
notes payable to various third parties arising as a result of the Company's
acquisitions (see note 2). Certain notes payable and other long-term debt are
noninterest bearing for which the unamortized discount is $75,000 at December
31, 1995 and $39,000 at December 31, 1996. Other long-term debt accrues
interest at rates ranging from 6% to 16% and has varying due dates from 1997 to
2010.
The aggregate maturities of long-term debt and the finance obligation for
the five years ending December 31, 2001 are as follows (in thousands):
1997 -- $1,853, 1998 -- $1,823, 1999 -- $1,786, 2000 -- $8,445, 2001 and
thereafter -- $71.
F-12
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES
Deferred income tax benefit consists of the following (in thousands):
Year ended December 31, 1994:
U.S. Federal................... $(3,866)
State.......................... (341)
-------
$(4,207)
-------
-------
Year ended December 31, 1995:
U.S. Federal................... $(3,360)
State.......................... (296)
-------
$(3,656)
-------
-------
Year ended December 31, 1996:
U.S. Federal................... $(4,053)
State.......................... (357)
-------
$(4,410)
-------
-------
A reconciliation of the expected income tax benefit (using the statutory
federal tax rate of 34% for all years) and actual income tax benefit is as
follows (in thousands):
1994 1995 1996
------- ------- -------
Computed "expected" tax benefit......... $(5,039) $(3,196) $(4,037)
State income tax benefit, net of
federal tax benefit.................... (342) (296) (357)
Non-deductible reorganization expense... 1,160 -- 12
Other non-deductible expenses........... 14 (164) (28)
------- ------- -------
$(4,207) $(3,656) $(4,410)
------- ------- -------
------- ------- -------
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at December 31, 1995 and 1996 are presented
below (in thousands):
1995 1996
------- --------
Deferred tax assets:
Current deferred tax assets:
Other......................................... $ 248 $ 286
Non-current deferred tax assets:
Net operating loss carryforwards.............. 9,738 12,152
Finance obligations principally due to sale
and leaseback accounting adjustments......... 5,294 4,912
------- --------
Total non-current deferred tax assets........... 15,032 17,064
------- --------
Total deferred tax assets....................... 15,280 17,350
------- --------
Deferred tax liabilities:
Non-current deferred tax liabilities:
Property and equipment, principally due
to differences in purchase accounting
adjustments and depreciation................. 9,042 9,635
Licenses, principally due to differences
in purchase accounting adjustments and
amortization................................. 5,236 21,655
------- --------
Total non-current deferred tax liabilities...... 14,278 31,290
------- --------
Net deferred tax asset (liability).............. $ 1,002 $(13,940)
------- --------
------- --------
F-13
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon an analysis
of these matters, management believes it is more likely than not the Company
will realize the benefits of these temporary differences and no valuation
allowance has been provided.
As of December 31, 1996, the Company and its subsidiaries have
approximately $32,844,000 of federal income tax loss carryforwards, of which
$17,700,000 is subject to an annual limitation on usage under Section 382 of the
Internal Revenue Code of 1986, and all of which expire in years 2002 through
2011.
(7) STOCKHOLDERS' EQUITY
STOCK OPTION PLANS
At December 31, 1996, the Company has four stock-based compensation
plans, which are described below. The Company applies APB Opinion 25 and
related interpretations in accounting for each of its plans. Accordingly, no
compensation cost has been recognized for its stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, the Company's net loss and
loss per share would have increased to the pro forma amounts indicated below:
1995 1996
-------- -------
Net Loss.................. As reported............ $(5,744) $(7,463)
Pro Forma.............. (5,778) (7,621)
Primary loss per share.... As reported............ $ (0.41) $ (0.29)
Pro Forma.............. (0.41) (0.30)
Pro forma net loss reflects only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period of
four years and compensation cost for options granted prior to January 1, 1995 is
not considered. Fully diluted loss per share is not considered since its effect
would be anti-dilutive.
Under the 1993 and 1996 Stock Option Plans, the Company may grant
options to its employees and directors for up to 1,060,000 and 1,000,000 shares
of common stock respectively. Under the 1994 and 1996 Non-Employee Director
Stock Option Plans, the Company may grant options to its non-employee directors
for up to 60,000 and 90,000 shares of common stock respectively. Under each of
the Company's plans, the exercise price of each option equals the market price
of the Company's stock on the date of grant. Options generally become
exercisable in 25% cumulative annual increments beginning one year from the date
of grant and expire at the end of option periods of not more than six years. As
of December 31, 1996, no options were granted under the 1996 Stock Option Plan.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used: risk-free interest rates of 7.31 and 5.29 percent in 1995
and 1996, respectively, expected lives of 3.5 years, volatility of 50, and a
zero dividend rate.
On January 3, 1995 and January 24, 1995, the Company repriced 835,994
option shares to $5.25 per share and 15,000 option shares to $4.00 per share,
respectively. The new price represented market value on the date of the
repricing.
F-14
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of the Company's stock option plans as of
December 31, 1994, 1995 and 1996, and changes during the years ending on
those dates is presented below:
<TABLE>
1994 1995 1996
------------------- ------------------ -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Stock Options: Shares Price Shares Price Shares Price
--------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year............ 395,000 $14.00 850,994 $14.98 779,602 $ 5.23
Granted........................ 715,994 15.17 75,000 5.25 273,648 4.50
Exercised...................... (65,000) 14.00 (1,750) 5.25 (48,661) 5.25
Forfeited...................... (195,000) 14.00 (144,642) 5.25 (57,731) 5.25
-------- -------- -------
Outstanding at end of year..... 850,994 14.98 779,602 5.23 946,858 5.01
-------- -------- -------
-------- -------- -------
Options exercisable at end
of year...................... 33,750 14.00 211,776 5.21 337,105 5.21
Weighted average fair value
of options granted during
the year..................... $ 6.58 $ 2.32 $ $1.89
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------- -----------------------------------
Weighted-Average
Range of Number Remaining Number
Exercise Outstanding Contractual Life Weighted-Average Exercisable Weighted-Average
Prices at /12/31/96 (years) Exercise Price at /12/31/96 Exercise Price
- ----------- ------------ ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$4.00 15,000 2.5 $4.00 11,250 $4.00
$5.25 658,210 3.4 $5.25 325,855 $5.25
$4.50 273,648 5.2 $4.50 -- --
------- -------
$4.00-$5.25 946,858 3.9 $5.01 337,105 $5.21
------- -------
------- -------
</TABLE>
WARRANTS
On May 30, 1995, the Company issued warrants to purchase 50,000 shares of
common stock to Susquehanna Financial Group. The warrants have an exercise
price of $8.75 per share and are exercisable commencing one year from issuance
and have a term of five years from issuance.
In 1995, the Company issued warrants to purchase 31,846 and 31,847 shares
of common stock each, with exercise prices of $5.96 and $12.74 per share,
respectively, to Toronto Dominion Investment, Inc. and Merita Bank Ltd. The
warrants are exercisable commencing one year from issuance and have terms of
five years.
F-15
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) LEASES
The Company has operating leases for buildings, communication towers and
land for varying periods. Generally, the leases have renewal options which
are expected to be exercised upon expiration. Rent expense on operating
leases was $3,063,000 in 1994, $3,510,000 in 1995, and $4,504,000 in 1996.
The aggregate future non-cancelable minimum rentals on operating leases are
as follows (in thousands):
1997 $3,787
1998 2,063
1999 1,296
2000 3,969
2001 3,785
Thereafter $5,054
(9) RELATED PARTY TRANSACTIONS
In 1994, in connection with the purchase of a larger airplane, the
Company sold its smaller airplane to a local broker. The smaller airplane
was subsequently sold by the broker within a few days to two officers of the
Company for substantially the same consideration. During 1994 and 1995, the
Company paid approximately $17,000 and $9,000, respectively, to these
officers for use of this airplane.
(10) REORGANIZATION
On June 14, 1994, the stockholders of PLC approved a resolution
effecting the voluntary liquidation of PLC. As part of this transaction a
new United Kingdom company, Commsco Limited ("Commsco"), was formed as a
wholly owned subsidiary of the Company. Pursuant to the Reorganization
Agreement between PLC, the Company, Commsco, and Pittencrieff Resources plc
("Resources"), the oil and gas business of PLC was transferred to Resources
and PLC's communications business, consisting solely of the shares of PCI
Common Stock held by Ukatex, was transferred to Commsco. In liquidation, PLC
stockholders received one share of Resources and one A ordinary share of
Commsco ("Commsco A Share") for each PLC share.
On June 17, 1994, the Company exercised its right under the articles of
association of Commsco to acquire all of the outstanding Commsco A Shares by
exchanging 5 shares of PCI Common Stock for every 24 Commsco A Shares ("the
Exchange"). The Company issued 6,365,218 shares of PCI Common Stock to the
stockholders of Commsco in the Exchange. The Exchange was accounted for as a
treasury stock transaction.
(11) EMPLOYEE BENEFIT PLAN
During 1994, the Company adopted a 401(k) profit sharing plan for the
benefit of its employees. Under the plan, eligible employees may request the
Company to deduct and contribute a portion of their salary to the plan. The
Company is obligated to make matching contributions to the plan in the amount
of fifty percent of the employee's contribution, limited to three percent of
the employee's salary. The Company made matching contributions of $153,000
during 1995 and $85,000 in 1996.
(12) MERGER TRANSACTION
On October 2, 1996, the Company signed an Agreement of Merger and Plan
of Reorganization (the "Agreement") with Nextel Communications, Inc., Nextel
Finance Company and DCI Merger, Inc., (collectively referred to as "Nextel")
whereby the Company would become a wholly owned subsidiary of Nextel in a
tax-free transaction which calls for the exchange of one registered Nextel
share for 3.17 PCI shares, subject to certain adjustments. Completion of the
transaction is subject to satisfaction of various conditions contained in the
Agreement, approval by the Company's stockholders and approval by the
appropriate regulatory bodies.
F-16
<PAGE>
SCHEDULE II
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
BALANCES AT CHARGES TO BALANCES
BEGINNING CHARGES TO OTHER AT END OF
DESCRIPTION OF YEAR EARNINGS ACCOUNTS (1) DEDUCTIONS (2) YEAR
- ------------------------------------ ----------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994 . . . $ 337 $1,408 $ -- $ (490) $1,255
------ ------ ----- ------- ------
------ ------ ----- ------- ------
Year ended December 31, 1995 . . . $1,255 $ 898 $ 13 $(1,602) $ 564
------ ------ ----- ------- ------
------ ------ ----- ------- ------
Year ended December 31, 1996 . . . $ 564 $ 356 $ -- $ (770) $ 150
------ ------ ----- ------- ------
------ ------ ----- ------- ------
Inventory obsolescence:
Year ended December 31, 1994 . . . $ -- $ 400 $ -- $ -- $ 400
------ ------ ----- ------- ------
------ ------ ----- ------- ------
Year ended December 31, 1995 . . . $ 400 $ 350 $ -- $ (650) $ 100
------ ------ ----- ------- ------
------ ------ ----- ------- ------
Year ended December 31, 1996 . . . $ 100 $ 300 $ -- $ (21) $ 379
------ ------ ----- ------- ------
------ ------ ----- ------- ------
</TABLE>
- --------------------
(1) Relates to accounts receivable acquired by acquisitions.
(2) Relates to write-off of doubtful receivables and obsolete inventory.
F-17
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF MERGER AND PLAN
OF REORGANIZATION
dated as of
December 3, 1996
by and between
NEXTEL COMMUNICATIONS, INC.,
NEXTEL FINANCE COMPANY,
DCI MERGER INC.
and
PITTENCRIEFF COMMUNICATIONS, INC.
<PAGE>
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
TABLE OF CONTENTS
Page
----
ARTICLE I. CONVERSION OF PCI STOCK INTO NEXTEL COMMON STOCK; TREATMENT
OF OPTIONS AND WARRANTS . . . . . . . . . . . . . . . . . . . 3
1.1 Exchange Ratio and Conversion of Shares . . . . . . . . . . . 3
1.2 Value Cap Adjusted for Channels Not Delivered . . . . . . . . 4
1.3 Value Cap Adjusted for Negative Cash Flow . . . . . . . . . . 8
1.4 Value Cap Adjusted for Negative Working Capital . . . . . . . 9
1.5 Value Cap Adjusted for Option/Warrant Exercise. . . . . . . . 10
1.6 Value Cap Adjusted for Severance Amounts. . . . . . . . . . . 11
1.6A Settlement with Castle Tower. . . . . . . . . . . . . . . . . 11
1.7 Value Cap Adjusted if Closing Occurs After 1997 . . . . . . . 11
1.8 Asset Value and Dilution Adjustments to Exchange Ratio. . . . 12
1.9 Value Cap Adjustment. . . . . . . . . . . . . . . . . . . . . 12
1.10 Additional Consideration in Lieu of Termination . . . . . . . 13
1.11 Nextel Closing Price. . . . . . . . . . . . . . . . . . . . . 14
1.13 Terms of the Merger . . . . . . . . . . . . . . . . . . . . . 15
1.14 Effective Time; Effects of the Merger . . . . . . . . . . . . 16
1.15 Certificate of Incorporation and Bylaws . . . . . . . . . . . 17
1.16 Directors and Officers. . . . . . . . . . . . . . . . . . . . 17
1.17 Exchange Agent. . . . . . . . . . . . . . . . . . . . . . . . 17
1.18 Surrender of Certificates and Delivery of Merger
Consideration . . . . . . . . . . . . . . . . . . . . . . . . 18
1.19 No Fractional Shares. . . . . . . . . . . . . . . . . . . . . 20
1.20 Rights of Holders of Certificates . . . . . . . . . . . . . . 21
1.21 Assumption of Stock Options . . . . . . . . . . . . . . . . . 22
1.22 Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF PCI . . . . . . . . . . . . 26
2.1 Corporate Organization. . . . . . . . . . . . . . . . . . . . 26
2.2 Subsidiaries and Other Entities . . . . . . . . . . . . . . . 27
2.3 Corporate Authorization . . . . . . . . . . . . . . . . . . . 28
2.4 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 29
2.5 Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.6 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . 31
2.7 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.8 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.9 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.10 Intellectual Property . . . . . . . . . . . . . . . . . . . . 37
2.11 Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.12 Financial Statements. . . . . . . . . . . . . . . . . . . . . 38
- i -
<PAGE>
Page
----
2.13 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.14 Transactions Not in the Ordinary Course . . . . . . . . . . . 40
2.15 Capital Projects. . . . . . . . . . . . . . . . . . . . . . . 41
2.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2.17 Bank Accounts; Employees. . . . . . . . . . . . . . . . . . . 42
2.18 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . 43
2.19 Title to Properties . . . . . . . . . . . . . . . . . . . . . 44
2.20 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2.21 Compliance with Securities Laws . . . . . . . . . . . . . . . 47
2.22 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
2.23 Special Liabilities; Warranties . . . . . . . . . . . . . . . 47
2.24 Employee Benefit Matters. . . . . . . . . . . . . . . . . . . 48
2.25 Materially Correct. . . . . . . . . . . . . . . . . . . . . . 52
2.26 Information.. . . . . . . . . . . . . . . . . . . . . . . . . 52
2.27 Regulatory Matters. . . . . . . . . . . . . . . . . . . . . . 53
2.28 Schedule Disclosure . . . . . . . . . . . . . . . . . . . . . 61
2.29 Information in Registration Statement . . . . . . . . . . . . 61
2.30 Castle Tower Agreements . . . . . . . . . . . . . . . . . . . 62
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF NEXTEL AND MERGER SUB . . . 62
3.1 Corporate Organization; Authorization . . . . . . . . . . . . 62
3.3 Common Stock; Registration. . . . . . . . . . . . . . . . . . 64
3.4 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . 64
3.5 Information . . . . . . . . . . . . . . . . . . . . . . . . . 65
3.6 Information in Registration Statement . . . . . . . . . . . . 66
ARTICLE IV. COVENANTS OF PCI. . . . . . . . . . . . . . . . . . . . . . . 66
4.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . 66
4.2 Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . 69
4.3 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . 69
4.4 SEC Registration. . . . . . . . . . . . . . . . . . . . . . . 69
4.5 Antitrust Filing. . . . . . . . . . . . . . . . . . . . . . . 71
4.6 Restraint on Solicitations. . . . . . . . . . . . . . . . . . 71
4.7 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . 73
4.8 Stockholder Approval. . . . . . . . . . . . . . . . . . . . . 73
4.9 Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 73
4.10 Update Information. . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE V. COVENANTS OF NEXTEL . . . . . . . . . . . . . . . . . . . . . 74
5.1 Antitrust Filing. . . . . . . . . . . . . . . . . . . . . . . 74
5.2 Registration Statement. . . . . . . . . . . . . . . . . . . . 75
5.3 Current Public Information. . . . . . . . . . . . . . . . . . 76
5.4 Offer to Warrant Holders. . . . . . . . . . . . . . . . . . . 77
5.5 Directors and Officers Indemnification. . . . . . . . . . . . 77
5.6 Employee Matters. . . . . . . . . . . . . . . . . . . . . . . 78
- ii -
<PAGE>
Page
----
ARTICLE VI. JOINT COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 79
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 79
6.2 Standstill Agreement. . . . . . . . . . . . . . . . . . . . . 81
6.3 Trading Prohibitions. . . . . . . . . . . . . . . . . . . . . 81
6.4 Substitute of Subsidiary. . . . . . . . . . . . . . . . . . . 82
6.6 Cooperation Concerning Extended Implementation Channels . . . 82
6.7 Auction Participation . . . . . . . . . . . . . . . . . . . . 83
ARTICLE VII. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
7.1 Filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
7.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
ARTICLE VIII. CONDITIONS TO OBLIGATIONS . . . . . . . . . . . . . . . . . . 87
8.1 Conditions to Obligations of Nextel and PCI . . . . . . . . . 87
8.2 Conditions to Obligations of Nextel . . . . . . . . . . . . . 89
8.3 Conditions to the Obligations of PCI. . . . . . . . . . . . . 91
ARTICLE IX. TERMINATION/EFFECTIVENESS . . . . . . . . . . . . . . . . . . 92
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 92
9.2 Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
ARTICLE X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 95
10.1 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
10.3 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 97
10.4 Rights of Third Parties . . . . . . . . . . . . . . . . . . . 97
10.5 Reliance. . . . . . . . . . . . . . . . . . . . . . . . . . . 97
10.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 98
10.7 Construction. . . . . . . . . . . . . . . . . . . . . . . . . 98
10.8 Captions; Counterparts. . . . . . . . . . . . . . . . . . . . 98
10.9 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 99
10.10 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . 99
10.11 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . 99
- iii -
<PAGE>
DEFINITIONS
Page
----
Actual PCI Common Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . 4
Adjusted EBITDA Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Adjusted Value Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AMI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Asset List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Awarded License. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
Basic Value Cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
By-Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Castle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Castle License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Castle Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . .62
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . .17
Certificate of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 15,16
Channel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Communications Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Constituent Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Contaminants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Converted Nextel Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Converted Per Share Price. . . . . . . . . . . . . . . . . . . . . . . . . . .24
Current Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
DCI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Defined benefit plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Defined contribution plan. . . . . . . . . . . . . . . . . . . . . . . . . . .49
Delivered. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Dilutive PCI Common Equivalents. . . . . . . . . . . . . . . . . . . . . . . . 4
EA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
EA Auction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . .16
Employee Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
ESMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Excess parachute payments. . . . . . . . . . . . . . . . . . . . . . . . . . .52
Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Executive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Extended Implementation Channel. . . . . . . . . . . . . . . . . . . . . . . . 5
FCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
FCC License. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Fiduciaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Final Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
First Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
FMR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
GCL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Immaterial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
July 1 Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
July 1 Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
- iv -
<PAGE>
Page
----
June 30 Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Market Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 15
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Morgan Stanley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
MSA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Multiemployer plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Multiple employer plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Nasdaq NM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Nextel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Nextel Closing Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Nextel Cure Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94
Nextel Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Nextel Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Nextel Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Non-core Market Channel. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Off the shelf. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Overlap EAs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
PCI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PCI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PCI Cure Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
PCI Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
PCI Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .54
PCI Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
PCI Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
PCI Share Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PCI Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
PCI/PCI Subs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Permitted Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Permitted Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Pollutants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Potentially responsible party. . . . . . . . . . . . . . . . . . . . . . . . .33
Qualifying Extended Implementation Channel . . . . . . . . . . . . . . . . . . 5
Qualifying Extended Implementation Channels. . . . . . . . . . . . . . . . . . 5
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Shortfall Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SMR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SMR License. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
SMR System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
SMR Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Takeover Proposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Terminating Nextel Breach. . . . . . . . . . . . . . . . . . . . . . . . . . .94
Terminating PCI Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
Third-Party Management Agreement . . . . . . . . . . . . . . . . . . . . . . .55
- v -
<PAGE>
Page
----
To the knowledge of PCI. . . . . . . . . . . . . . . . . . . . . . . . . . . .98
To the knowledge of the Subsidiaries . . . . . . . . . . . . . . . . . . . . .98
Transaction Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Unfavorable FCC Response . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Value Floor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Voting stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Welfare Benefit Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
- vi -
<PAGE>
ANNEXES
Annex A - Form of Letter Concerning Compliance with Rule 145
Annex B - Blue Sky
Annex C-1 - Form of Opinion of Gardere & Wynne, L.L.P.
Annex C-2 - Form of Opinion of Gardner, Carton & Douglas
Annex D - Form of Nextel Warrant
Annex E - Form of Opinion of Jones, Day, Reavis & Pogue
Annex F - Letter Agreement between Nextel Communications, Inc. and
Castle Tower Corporation
- vii -
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF MERGER AND PLAN
OF REORGANIZATION
Amended and Restated Agreement of Merger and Plan of Reorganization dated
as of December 3, 1996 ("Agreement") by and among NEXTEL COMMUNICATIONS, INC.,
a Delaware corporation ("Nextel"), NEXTEL FINANCE COMPANY, a Delaware
corporation and a wholly owned subsidiary of Nextel formerly known as Dispatch
Communications, Inc. ("NFC"), DCI MERGER INC., a Delaware corporation and a
wholly owned subsidiary of NFC ("Merger Sub") and PITTENCRIEFF COMMUNICATIONS,
INC., a Delaware corporation ("PCI").
PLAN OF REORGANIZATION
Nextel, through NFC and Merger Sub, and PCI intend to enter into a tax-free
plan of reorganization under the Internal Revenue Code of 1986, as amended (the
"Code").
The plan of reorganization will consist of the merger of Merger Sub with
and into PCI, with PCI being the surviving corporation. This merger ("Merger")
will be consummated in accordance with the terms and conditions hereof and will
be consummated at the "Effective Time of the Merger" as defined herein.
Nextel has caused NFC to form Merger Sub solely for the purpose of
consummating the Merger.
Nextel, NFC, Merger Sub and PCI entered into an Agreement of Merger and
Plan of Reorganization dated as of October 2, 1996 (the "First Agreement").
Simultaneously with the execution of the First Agreement, PCI has delivered
to Nextel (i) an executed letter agreement from Castle Tower Corporation, (ii) a
waiver of preemptive rights from Advanced MobileComm, Inc. ("AMI") pursuant to
that certain
<PAGE>
2
Contribution Agreement, dated as of September 5, 1995, as subsequently
amended, among PCI, Pittencrieff Communications, Inc., a Texas corporation,
AMI and each of the other sellers named therein, which waiver shall be
effective at the Effective Time of the Merger, and (iii) a confirmation from
AMI that the Voting Agreement and Proxy dated January 16, 1996 shall
terminate in accordance with its terms pursuant to Section 4(ii) thereof
effective at the Effective Time of the Merger.
Simultaneously with the execution of the First Agreement, FMR Corp., a
Massachusetts corporation ("FMR"), has agreed that, among other things, at the
Effective Time of the Merger, FMR will exchange its warrants to purchase capital
stock of PCI for a warrant to purchase Class A (Voting) Common Stock of Nextel,
par value $.001 per share ("Nextel Common Stock"), in the form of Annex D.
The parties to the First Agreement desire to amend certain provisions
and restate the First Agreement and, accordingly, the parties have entered
into this Agreement. All schedules to this Agreement set forth information as
of October 2, 1996.
AGREEMENT
In order to consummate the plan of reorganization, and in consideration of
the mutual agreements hereinafter contained, Nextel, NFC, Merger Sub and PCI
agree as follows:
ARTICLE I. CONVERSION OF PCI STOCK INTO NEXTEL COMMON STOCK; TREATMENT
OF OPTIONS AND WARRANTS
1.1 EXCHANGE RATIO AND CONVERSION OF SHARES. At the Effective Time of the
Merger (as defined herein), all the outstanding shares of common stock of PCI,
par value $.01 per share ("PCI Common Stock") shall be converted into shares of
Nextel Common Stock using an exchange ratio of 3.17:1.0, so that
<PAGE>
3
three and seventeen one hundredths shares of PCI Common Stock are converted
into one share of Nextel Common Stock (the "Basic Exchange Ratio"), subject
to the adjustments described in this Article I. As of July 1, 1996, (i) the
total number of shares of PCI Common Stock outstanding ("July 1 Shares"),
plus (ii) the total number of shares of PCI Common Stock issuable upon
exercise of warrants or options, or upon exchange or conversion of
convertible instruments (regardless of whether they were on July 1 or are at
the Effective Time of the Merger "in the money") as set forth on Schedule
2.5(a) ("July 1 Derivatives"), and excluding (y) all treasury shares, and (z)
all other shares, rights to acquire shares or other issuance commitments for
shares of PCI Common Stock that are not July 1 Shares or July 1 Derivatives,
was 27,840,219 (the "PCI Share Base"). The maximum value of Nextel Common
Stock to be issued hereunder at the Effective Time of the Merger with respect
to (a) the PCI Share Base (without adjustment for any instrument that may
have expired without exercise, exchange or conversion into PCI Common Stock),
and (b) any PCI Common Stock, or options, warrants, convertible or
exchangeable instruments or other commitments to issue PCI Common Stock
outstanding at the Effective Time of the Merger that are not July 1 Shares or
July 1 Derivatives (such additional PCI Common Stock or issuance commitments,
the "Dilutive PCI Common Equivalents"; and together with the PCI Share Base
(without adjustment for any instrument that may have expired without
exercise, exchange or conversion into PCI Common Stock), the "Actual PCI
Common Equivalents") shall be $170,000,000 (the
<PAGE>
4
"Basic Value Cap"). The maximum number of shares of Nextel Common Stock to
be issued hereunder at the Effective Time of the Merger shall be 8,782,403,
subject to adjustment only in the event Nextel elects to deliver additional
shares to avert a termination of this Agreement pursuant to Section 1.10, or
for changes to the capitalization of Nextel pursuant to Section 1.12.
1.2 VALUE CAP ADJUSTED FOR CHANNELS NOT DELIVERED. (a) If at the time of
the Closing (as defined herein) the number of Channels Delivered by PCI is (i)
less than 95% of the number of Channels set forth on Schedule 1.2 in any
metropolitan statistical area ("MSA") identified on Schedule 1.2 (each such MSA,
a "Shortfall Market"), or (ii) fewer than 3,000 Channels with regard to the
market areas not listed on Schedule 1.2 (each such Channel, a "Non-core Market
Channel"), then (A) for each Shortfall Market the Channel value set forth on
Schedule 1.2 for that Shortfall Market shall be multiplied by the difference
between the number of Channels set forth on Schedule 1.2 for that Shortfall
Market minus the number of Channels Delivered in that Shortfall Market and (B)
except as provided in Section 1.2(b)(iii), for the Non-core Market Channels, the
shortfall, if any, between 3,000 and the number of Non-core Market Channels
Delivered shall be multiplied by $3,000 (the product of each calculation, a
"Market Adjustment"). The sum of all such Market Adjustments shall be
subtracted from the Basic Value Cap.
(b) If the FCC (as defined herein) responds to PCI's filings for
rejustification of its extended implementation
<PAGE>
5
authority by granting PCI less than twenty four (24) months from the date of
such FCC response to construct any Channel that had extended implementation
authority (an "Unfavorable FCC Response") then (i) each extended
implementation channel identified on Schedule 2.27 ("Extended Implementation
Channel") that received an Unfavorable FCC Response and is located within 25
miles of an MSA will be deemed constructed as required by clause 1.2(d)(iii)
for purposes of determining whether such Extended Implementation Channels are
Delivered, and if all other criteria set forth in Section 1.2(d) for that
Channel to be Delivered have been met, such Extended Implementation Channel
(the "Qualifying Extended Implementation Channel") will be counted toward the
Channel targets set forth on Schedule 1.2(a), provided, however, that the
total number of Qualifying Extended Implementation Channels in any MSA shall
not exceed the number of Extended Implementation Channels for such MSA
identified on Schedule 1.2, (ii) an amount equal to the lesser of (A)
$3,000,000, or (B) the product of $3,658 multiplied by the number of Extended
Implementation Channels receiving an Unfavorable FCC Response, will be
subtracted from the Basic Value Cap, and (iii) the target for Non-core Market
Channels shall be reduced from 3,000 to 1,800 and the shortfall, if any,
between 1,800 and the number of Non-core Market Channels Delivered shall be
multiplied by $5,000 to determine the Market Adjustment, if any, for the
Non-core Market Channels.
(c) If the FCC responds to PCI's filings for rejustification of its
extended implementation authority by
<PAGE>
6
granting PCI twenty-four (24) months or more from the date of such response
to construct any Extended Implementation Channel, that Extended
Implementation Channel will be deemed constructed as required by clause
1.2(d)(iii) for purposes of determining whether such Extended Implementation
Channel is Delivered regardless of when the date of the Closing occurs, so
long as any postponements of the date of the Closing are not caused by the
action or inaction of PCI.
(d) A "Channel" shall be "Delivered" by PCI if at the Effective Time
of the Merger: (i) the FCC license for such channel has been granted to PCI or a
PCI Subsidiary by a Final Order (as defined herein); (ii) there is a Final Order
approving a transfer of control of that license to Nextel; (iii) if
unconstructed or deconstructed, there are at least 180 days remaining before the
construction or reconstruction deadline applicable to that channel; (iv) in the
case of a channel counted towards or applicable to an MSA market target, such
channel is located within 25 miles of the core of the applicable MSA, except as
otherwise provided on Schedule 1.2; (v) in the case of a channel counted towards
or applicable to an MSA market target, there is no co-channel license located
within 55 miles of the channel, except for co-channel licenses that are PCI, PCI
Subsidiaries, or licenses controlled by Nextel, except as otherwise provided on
Schedule 1.2; (vi) the channel is either (x) a land mobile 800 MHz frequency,
being one of the 430 frequencies allocated for specialized mobile radio ("SMR"),
or (y) a frequency in an MSA identified on Schedule 1.2 and
<PAGE>
7
allocated for public safety, industrial land transportation or business where
the radio service classification has been converted to commercial service
classification (I.E., YX or GX radio service type) or (z) a frequency in a
Non-core Market allocated for public safety, industrial land transportation
or business; (vii) the channel is granted pursuant to a primary license;
(viii) in the case of a channel counted towards or applicable to an MSA
market target, such channel is a discrete frequency within the applicable
market and not subject to any cross border frequency sharing or channel
coordination or similar arrangement, taking into account all frequencies
deemed Delivered pursuant to this Agreement in that market; (ix) the license
for or including the channel is not subject to (A) any agreement to be sold
to a third party, or (B) any option or right of first refusal in favor of any
third party; (x) there is no contract right of any third party or FCC order
otherwise encumbering or limiting the use of the license; (xi) no
consideration is due to any person in connection with the channel; and (xii)
the channel is not subject to any finders' preference action (other than the
pending appeal of a favorable FCC ruling) or otherwise included within any
proceeding commenced or assessed by a third party (other than Nextel) or any
regulatory agency, including, without limitation, the FCC, that could result
in a take-back, termination, cancellation or nonrenewal of the relevant
licenses.
1.3 VALUE CAP ADJUSTED FOR NEGATIVE CASH FLOW. If Adjusted EBITDA
Earnings for the period from April 1, 1996 to the last day of the calendar
quarter most recently ended before the Effective
<PAGE>
8
Time of the Merger is negative, that amount shall be annualized (i.e.
adjusted) to equal the loss that PCI would have experienced in a 12-month
period at that rate of loss, and that annualized amount shall be subtracted
from the Basic Value Cap. In the event the Effective Time of the Merger is
more than one year from the date of the First Agreement, so long as any
postponements of the date of the Closing are not caused by the action or
inaction of PCI, there shall be no value cap adjustment pursuant to this
Section 1.3. "Adjusted EBITDA Earnings" means PCI's earnings from continuing
operations as shown on the unaudited consolidated financial statements that
are prepared by PCI in the ordinary course of business consistent with past
practice, (a) before interest expense, taxes, depreciation, amortization,
other income and expense, all determined in accordance with past practices, to
the extent consistent with GAAP (as herein defined), and (b) without reduction
for reasonable accounting, legal, printing and financial advisory fees, special
employee incentive bonuses (as agreed to by Nextel from time to time) and
expenses associated with the Agreement and the transactions contemplated
hereby (the "Transaction Costs") so long as the Transaction Costs in the
aggregate for the period through and including the Closing (regardless
whether GAAP would reflect them in that period) do not exceed $1,500,000, all
determined in accordance with past practices, to the extent consistent with
GAAP.
1.4 VALUE CAP ADJUSTED FOR NEGATIVE WORKING CAPITAL. (a) Based on the
unaudited consolidated balance sheet of PCI as of the month-end preceding the
Effective Time of the Merger
<PAGE>
9
prepared by PCI in the ordinary course of business, consistent with past
practices, if the working capital (herein defined) of PCI is negative, the
negative amount of such working capital shall be subtracted from the Basic
Value Cap. The terms used in this Section shall have the meaning given to
those terms in current use in the accounting profession in the United States
under Generally Accepted Accounting Principles ("GAAP"). For the purposes of
this Section, with the exceptions herein listed, working capital shall mean
the result obtained by subtracting current liabilities from current assets.
(b) For purposes of calculating working capital pursuant to this
Section, (i) the long term portion of the long term debt of PCI shall be
included in the current liabilities; (ii) all accounts and/or notes receivable
from the five executive officers of PCI shall be excluded from the current
assets; (iii) discounts on notes payable shall be excluded from the current
liabilities (thus increasing current liabilities); (iv) both (A) the Transaction
Costs that were paid on or before the period reflected on the balance sheet, and
(B) the Transaction Costs that have not been paid on or before the period
reflected on the balance sheet (regardless whether GAAP would reflect them as
current liabilities as of that date) shall, up to an aggregate maximum for all
amounts under this clause (iv) of $1,500,000, be excluded from the current
liabilities; (v) all severance costs that have been incurred or are estimated to
be incurred as a result of the Merger and change of control effected thereby
shall be included in the current liabilities of PCI under the
<PAGE>
10
provisions of this Section (regardless whether GAAP would reflect them as
current liabilities as of that date); (vi) any cash advanced by Nextel
pursuant to Section 6.6 and any expenditures of those funds shall be excluded
from either current assets or current liabilities, as applicable; and (vii)
any cash that was received upon the exercise of any July 1 Derivatives (as
those instruments were in effect on July 1, 1996) prior to the Effective Time
of the Merger will be excluded from current assets.
1.5 VALUE CAP ADJUSTED FOR OPTION/WARRANT EXERCISE. If at the Effective
Time of the Merger, PCI (on a consolidated basis) does not have cash in an
amount equal to the aggregate exercise price or other consideration due upon
exercise, exchange or conversion under the terms of the July 1 Derivatives (as
those instruments were in effect on July 1, 1996) exercised prior to the
Effective Time of the Merger, or has issued any shares of PCI Common Stock in
respect of any July 1 Derivatives in any cashless exercise transaction, the
Basic Value Cap shall be reduced by the difference between the amount of cash
that should have been received upon such exercise and the actual amount of cash
received upon such exercise and held at the Effective Time of the Merger.
1.6 VALUE CAP ADJUSTED FOR SEVERANCE AMOUNTS. If the aggregate amount
paid or to be paid or other value given to the five executives identified in
Section 5.6(b) as described therein whether pursuant to existing commitments or
otherwise, excluding (i) bonuses earned in 1996 or debt forgiven in 1996 up to
an
<PAGE>
11
aggregate of $222,871, and (ii) bonuses earned in 1997 up to 35% of the
salary of each such executive as in effect on the date of the First Agreement,
prorated through the date of the Closing, exceeds $1,260,000, then the amount of
such excess shall be subtracted from the Basic Value Cap.
1.6A SETTLEMENT WITH CASTLE TOWER. Prior to Closing, PCI shall enter
into a settlement and release agreement with Castle (as defined below) pursuant
to which Castle shall settle and release all claims arising under the Castle
Purchase Agreement (as defined below).
1.7 VALUE CAP ADJUSTED IF CLOSING OCCURS AFTER 1997. For purposes of the
exchange ratio adjustments, if any, to be made pursuant to Sections 1.8 and 1.9,
if the date of the Closing occurs after December 31, 1997, then, so long as any
postponements of the date of the Closing are not caused by the action or
inaction of PCI, any adjustments made to the Basic Value Cap pursuant to
Sections 1.2, 1.4, 1.5 and 1.6 shall be reduced to equal one half of the
adjustments otherwise calculated pursuant to those Sections.
1.8 ASSET VALUE AND DILUTION ADJUSTMENTS TO EXCHANGE RATIO. If there are
any reductions to the Basic Value Cap under Section 1.2, 1.3, 1.4, 1.5, 1.6 or
1.7 or if there are any Dilutive PCI Common Equivalents at the Effective Time of
the Merger then, in lieu of the Basic Exchange Ratio set forth in Section 1.1,
the exchange ratio shall equal:
<PAGE>
12
(i) 3.17; multiplied by
(ii) the quotient of (A) the Basic Value Cap of $170,000,000,
divided by (B) the Basic Value Cap minus the sum of any
reductions pursuant to Sections 1.2, 1.3, 1.4, 1.5 and 1.6,
or, if Section 1.7 is applicable, one-half of such sum (the
"Adjusted Value Cap"); multiplied by
(iii) the quotient of (Y) the Actual PCI Common Equivalents,
divided by (Z) the PCI Share Base.
1.9 VALUE CAP ADJUSTMENT. If, at the Effective Time of the Merger:
(a) (i) the PCI Share Base, or, if higher, (ii) the Actual PCI Common
Equivalents; divided by
(b) (i) the Basic Exchange Ratio of 3.17 or, if Section 1.8 applies,
(ii) the exchange ratio calculated under Section 1.8; multiplied
by
(c) the Nextel Closing Price,
is greater than the lower of (y) the Basic Value Cap, or (z) the Adjusted Value
Cap, then the exchange ratio shall be further adjusted to equal:
(A) (i) the PCI Share Base, or, if higher, (ii) the Actual PCI Common
Equivalents; multiplied by
(B) the Nextel Closing Price; divided by
(C) (i) the Basic Value Cap, or, if lower, (ii) the Adjusted Value
Cap.
<PAGE>
13
1.10 ADDITIONAL CONSIDERATION IN LIEU OF TERMINATION. (a) If the Board of
Directors of PCI has elected (as contemplated by Section 9.1(d)(iv)) to
terminate this Agreement because the Nextel Closing Price on the day before the
scheduled date of the Closing is less than $14.00, Nextel may elect to deliver
shares of Nextel Common Stock with an aggregate value, based on the Nextel
Closing Price on the day of the Closing equal to the product of (i) $14,
multiplied by (ii) the total number of shares of Nextel Common Stock that would
be issued or issuable with respect to Actual PCI Common Equivalents as otherwise
determined under this Article I (the "Value Floor").
(b) If Nextel makes the election contemplated by Section 1.10(a),
then: (i) the termination election made by the PCI Board of Directors under
Section 9.1(d)(iv) shall be automatically rescinded and cancelled; (ii) the
Merger shall proceed pursuant to this Agreement; and (iii) in lieu of the
exchange ratio set forth in Section 1.1 or calculated and adjusted under Section
1.8 or 1.9, the Actual PCI Common Equivalents shall be converted into shares of
Nextel Common Stock in the ratio that (i) Actual PCI Common Equivalents, bears
to (ii) the quotient of the Value Floor divided by the Nextel Closing Price on
the date of the Closing.
1.11 NEXTEL CLOSING PRICE. As used in this Agreement, the "Nextel Closing
Price" shall be the arithmetic average of the closing sales price for Nextel
Common Stock on the Nasdaq National Market (the "Nasdaq NM") for the 20 trading
days
<PAGE>
14
immediately preceding the date on which the Nextel Closing Price is to be
determined.
1.12 OTHER ADJUSTMENTS. Nextel and PCI agree that in the event of any
change in the terms of the authorized capital stock of Nextel (other than a
change solely in the number of shares), or the declaration or payment of any
share dividend or share distribution by Nextel to its stockholders, or any
distribution of cash, property or securities by Nextel to its stockholders
(other than regular quarterly cash dividends payable out of earnings), or any
split, reclassification, recapitalization, subdivision or exchange in respect of
the outstanding stock of Nextel, then appropriate adjustments shall be made to
the number of shares of Nextel Common Stock issuable in the Merger, as set forth
in Section 1.1, to place each of Nextel, NFC, and Merger Sub, PCI and the
holders of PCI Common Stock in the same posture as if the Effective Time of the
Merger had occurred immediately prior to the occurrence of the event giving rise
to such adjustment. Further, Nextel and PCI agree that in the event of any
change in the terms of the authorized capital stock of PCI, or any distribution
of securities by PCI to its stockholders, or any split, reclassification,
recapitalization, subdivision or exchange in respect of the outstanding stock of
PCI, appropriate adjustments shall be made to place each of Nextel, Merger Sub,
PCI and the holders of PCI Common Stock in the same posture as if the Effective
Time of the Merger had occurred immediately prior to the occurrence of the event
giving rise to such adjustment. No adjustment shall be made pursuant to the
preceding sentence
<PAGE>
15
for redemptions, repurchases or other cancellation or retirement of
outstanding shares of PCI Common Stock or rights to acquire shares of PCI
Common Stock.
1.13 TERMS OF THE MERGER. Upon the terms and subject to the conditions set
forth herein, and in accordance with the General Corporation Law of the State of
Delaware ("GCL"), as soon as practicable following the satisfaction (or, to the
extent permitted, the waiver) of the conditions set forth in Article VIII,
Merger Sub and PCI shall cause a Certificate of Merger (the "Certificate of
Merger") to be executed and filed with the Secretary of State of Delaware as
provided in Section 251 of the GCL. The Certificate of Merger shall provide
that Merger Sub shall be merged with and into PCI (the "Merger"). Following the
Merger, PCI shall continue as the surviving corporation (the "Surviving
Corporation").
1.14 EFFECTIVE TIME; EFFECTS OF THE MERGER. The Merger shall become
effective when both (a) this Agreement shall be adopted and approved by the
stockholders of PCI in accordance with the applicable provisions of the GCL and
(b) the Certificate of Merger, executed in accordance with the relevant
provisions of the GCL, is filed with the Secretary of State of Delaware (the
time the Merger becomes effective being referred to as the "Effective Time of
the Merger"). Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time of the Merger: the separate existence of Merger
Sub shall cease; the Surviving Corporation shall possess all assets and property
of every description, and all interests therein, wherever located,
<PAGE>
16
and the rights, privileges, immunities, powers, franchises and authority, of
a public as well as of a private nature, of each of Merger Sub and PCI (the
"Constituent Corporations"); all obligations belonging to or due each of the
Constituent Corporations shall be vested in, and become the obligations of,
the Surviving Corporation without further act or deed; title to any real
estate or any interest therein vested in either of the Constituent
Corporations shall not revert or in any way be impaired by reason of the
Merger; all rights of creditors and all liens upon any property of any of the
Constituent Corporations shall be preserved unimpaired, and the Surviving
Corporation shall be liable for all of the obligations of each of the
Constituent Corporations; and any claim existing, or action or proceeding
pending, by or against either of the Constituent Corporations may be
prosecuted to judgment with right of appeal, as if the Merger had not taken
place.
1.15 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Merger Sub as in effect immediately preceding the Effective
Time of the Merger shall constitute the Certificate of Incorporation of the
Surviving Corporation (the "Certificate of Incorporation") within the meaning of
the GCL Section 104. The By-Laws of Merger Sub as in effect immediately
preceding the Effective Time of the Merger shall constitute the By-Laws of the
Surviving Corporation (the "By-Laws") until amended in accordance with
applicable law and the Certificate of Incorporation.
<PAGE>
17
1.16 DIRECTORS AND OFFICERS. The directors and officers of Merger Sub
immediately prior to the Effective Time of the Merger shall be the directors and
officers of the Surviving Corporation at the Effective Time of the Merger and
shall hold office from the Effective Time of the Merger until their respective
successors are duly elected or appointed and qualified in the manner provided
in the Certificate of Incorporation and By-Laws of the Surviving Corporation, or
as otherwise provided by law.
1.17 EXCHANGE AGENT. Prior to the Effective Time of the Merger, Nextel
shall designate a bank or trust company to act as exchange agent in the Merger
(the "Exchange Agent"). Prior to the Effective Time of the Merger, Nextel shall
contribute to NFC the shares of Nextel Common Stock necessary to make payment
for each share of the capital stock of PCI being converted by reason of the
Merger. Immediately thereafter, NFC shall contribute such shares of Nextel
Common Stock to Merger Sub and Merger Sub will immediately prior to or at the
Effective Time of the Merger deliver to the Exchange Agent such shares of Nextel
Common Stock.
1.18 SURRENDER OF CERTIFICATES AND DELIVERY OF MERGER CONSIDERATION.
(a) Promptly after the Effective Time of the Merger, Nextel shall
cause the Exchange Agent to mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time of the Merger
represented outstanding shares of PCI Common Stock (the "Certificates") (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only
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18
upon proper delivery of the Certificates to the Exchange Agent and shall be
in form approved by Nextel and the Exchange Agent) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for
certificates representing shares of Nextel Common Stock and cash for
fractional shares. Upon surrender to the Exchange Agent of a Certificate or
Certificates, together with a letter of transmittal duly executed (in the
approved form), and such other documents as the Surviving Corporation or the
Exchange Agent may reasonably request, a holder of a Certificate shall be
entitled to receive in exchange therefor a portion of Nextel Common Stock as
set forth in Section 1.1, as adjusted pursuant to this Article I (the "Merger
Consideration").
(b) The stock transfer books of PCI shall be closed at the Effective
Time of the Merger and no transfer of capital stock of PCI outstanding prior to
the Effective Time of the Merger shall be registered on the stock transfer books
of the Surviving Corporation. If Nextel Common Stock is to be issued to a
person other than the person in whose name the Certificates are registered, it
shall be a condition of issuance that the Certificates surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such issuance shall pay all transfer and other taxes required by
reason of the receipt by a person other than the registered holder of the
Certificates surrendered, or establish to the reasonable satisfaction of the
Surviving Corporation or the Exchange Agent that such tax has been paid or is
not applicable.
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19
(c) At any time following ninety days after the Effective Time of the
Merger, Nextel shall be entitled to require the Exchange Agent to deliver to
Nextel any Nextel Common Stock which had been made available to the Exchange
Agent by or on behalf of Nextel or the Surviving Corporation and which has not
been disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to Nextel (subject to abandoned property, escheat or other
similar laws) only as general creditors thereof with respect to the Nextel
Common Stock payable upon due surrender of their Certificates. Notwithstanding
the foregoing, Nextel shall not be liable to a holder of Certificates for
amounts delivered to a public official pursuant to any applicable abandoned
property, escheat or similar laws. Nextel shall pay all charges and expenses,
including those of the Exchange Agent, in connection with the exchange of
shares.
(d) If any Certificates shall not have been surrendered prior to one
year after the Effective Time of the Merger (or immediately prior to such
earlier date on which any payment in respect thereof would otherwise escheat to
or become the property of any governmental unit or agency), the payment in
respect of such Certificates shall, to the extent permitted by applicable law,
become the property of Nextel, free and clear of all claims of interest of any
person previously entitled thereto.
(e) Certificates, if and when presented to the Exchange Agent or the
Surviving Corporation after the Effective Time of the Merger, shall be cancelled
and exchanged for the
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20
consideration provided for, and in accordance with, the procedures set forth
in this Section.
1.19 NO FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement (but subject to the final sentence of this Section 1.19), no
fractional share of Nextel Common Stock or certificates or scrip therefor shall
be issued as a result of the conversion of issued and outstanding capital stock
of PCI into Nextel Common Stock, but in lieu of each fractional interest there
shall be made a payment in cash therefor, without interest, at a pro rata price
based on the Nextel Closing Price. The Surviving Corporation shall provide (or
shall cause one or more of its Affiliates to provide) the Exchange Agent with
sufficient cash to make such payments, and, thereafter, the Surviving
Corporation shall cause the Exchange Agent to make such payments to the holders
of Certificates in cash, without interest, on the surrender of their
Certificates. Wherever in this Agreement it is contemplated that, in connection
with the Merger, cash payment shall be made in lieu of fractional share
interests to persons otherwise entitled to receive such fractional share
interests, Nextel may (in its sole and absolute discretion) deliver to such
persons a number of whole shares, determined by rounding up to the nearest whole
share, and thereupon shall be relieved of any obligation hereunder to make cash
payments to such persons in lieu of any fractional share interests.
1.20 RIGHTS OF HOLDERS OF CERTIFICATES.
(a) At the Effective Time of the Merger, the holders of Certificates
for shares of capital stock of PCI (other than
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21
certificates representing shares held in PCI's treasury, which shall be
automatically cancelled pursuant to the Merger) shall cease to have any
rights as stockholders of PCI, and their sole rights shall pertain to the
shares of Nextel Common Stock into which their shares of PCI capital stock
shall have been converted by the Merger. After the Effective Time of the
Merger, each holder of outstanding Certificates for shares of capital stock
of PCI shall be entitled upon surrender of the same duly transmitted to the
Exchange Agent to receive in exchange therefor certificates representing the
number of whole shares of Nextel Common Stock into which such holder's shares
of capital stock of PCI shall have been converted by the Merger, plus (if
applicable) cash in lieu of fractional shares.
(b) Pending surrender and exchange under this Agreement, a holder's
Certificates for capital stock of PCI shall be deemed for all corporate
purposes, other than the payment of dividends, to evidence the number of whole
shares of Nextel Common Stock into which such shares have been converted by the
Merger and, subject to the last sentence of Section 1.19, the right to receive
cash for any fractional interests resulting therefrom. Subject to
Section 1.18(d), unless and until any outstanding Certificates for shares of PCI
capital stock are surrendered, no dividend (stock or cash) payable to holders of
record of Nextel Common Stock as of any date subsequent to the Effective Time of
the Merger shall be paid to the holder of any such Certificate, but upon such
surrender of such Certificates there shall be paid to the record holder of the
certificate for
<PAGE>
22
Nextel Common Stock issued in exchange therefor the amount of dividends, if
any, but without interest, that have theretofore become payable subsequent to
the Effective Time of the Merger with respect to the number of whole shares
of Nextel Common Stock represented by the certificate issued upon such
surrender and exchange.
1.21 ASSUMPTION OF STOCK OPTIONS.
(a) Schedules 2.5(a) and 2.5(b) set forth a list of each director and
employee stock option outstanding on the date of the First Agreement, whether or
not fully exercisable (collectively, the "PCI Stock Options"), to purchase PCI
Common Stock heretofore granted or assumed by PCI pursuant to any stock option,
stock purchase or similar plan adopted, assumed or maintained at any time by
PCI, any of its controlled Affiliates or any of their respective predecessors in
interest, including but not limited to the PCI 1993 Stock Option Plan, the PCI
1994 Non-Employee Director Stock Option Plan, the PCI 1996 Stock Option Plan,
and the PCI 1996 Non-Employee Director Stock Option Plan, each as amended and in
effect on the date of the First Agreement (collectively the "PCI Option Plans").
Schedules 2.5(a) and 2.5(b) also set forth with respect to each PCI Stock Option
the option exercise price, the number of shares subject to the option, any
related stock appreciation rights, the dates of grant, vesting, exercisability
and expiration of the option and whether the option is an incentive stock option
or a non-qualified stock option. All rights under the PCI Stock Options shall
be treated as provided in this Section 1.21, and to the
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23
extent the terms of the PCI Option Plans and/or of any related agreements are
inconsistent with the treatment to be accorded to the PCI Stock Options
pursuant to this Section 1.21, then PCI shall cause the PCI Option Plans
and/or any related agreements with affected participants to be amended, and
all required third party, governmental and regulatory body consents or
approvals to such amendments to be procured, such that all such
inconsistencies shall be eliminated by the Effective Time of the Merger.
(b) Each PCI Stock Option outstanding immediately prior to the
Effective Time of the Merger shall be converted at the Effective Time of the
Merger into an issued and outstanding option of Nextel in accordance with the
terms of the PCI Option Plans, so that (i) from and after the Effective Time of
the Merger, each such PCI Stock Option may be exercised only for shares of
Nextel Common Stock notwithstanding any contrary provision of the PCI Option
Plans or stock option agreements executed in connection therewith, (ii) each
such PCI Stock Option shall at the Effective Time of the Merger become an option
to purchase a number of shares of Nextel Common Stock equal to the quotient
arrived at by dividing the number of shares of PCI Common Stock subject to such
option immediately prior to the Effective Time, by the Basic Exchange Ratio, as
adjusted pursuant to Article I ("Converted Nextel Shares"), and (iii) the
exercise price per share of Nextel Common Stock at which each such PCI Stock
Option is exercisable shall be the amount (rounded up to the next whole cent)
arrived at by multiplying the exercise price
<PAGE>
24
per share of PCI Common Stock at which such PCI Stock Option is exercisable
immediately prior to the Effective Time by the Basic Exchange Ratio, as
adjusted pursuant to Article I (the "Converted Per Share Price"); provided,
however, that, notwithstanding the foregoing, Nextel shall not issue or pay
for any fractional share otherwise issuable upon any exercise by any holder
of PCI Stock Options that are so converted, and provided further, however,
that in the case of each PCI Stock Option which is an incentive stock option,
the Basic Exchange Ratio shall be adjusted for such option, if necessary, so
as not to constitute a modification, extension or renewal of the option,
within the meaning of Section 424(h) of the Code. All PCI Stock Options
converted into issued and outstanding options of Nextel pursuant to the
preceding sentence, except those PCI Stock Options held by directors who are
not also employees or consultants of PCI or any of its subsidiaries, shall be
so converted into issued and outstanding options under Nextel's Amended and
Restated Incentive Equity Plan, as amended May 13, 1996 (the "Nextel Plan").
(c) The Board of Directors of PCI and/or of the Surviving
Corporation, as appropriate, shall take such action as may be required under the
PCI Option Plans and the Compensation Committee of the Board of Directors of
Nextel shall take such action as may be required under the Nextel Plan to
effectuate the foregoing. Prior to the Effective Time of the Merger, Nextel
shall reserve for issuance the number of shares of Nextel Common Stock necessary
to satisfy the obligations of Nextel under this Section 1.21, and within five
(5) business days
<PAGE>
25
after the Effective Time of the Merger, Nextel shall register such shares
pursuant to the Securities Act of 1933, as amended (the "Securities Act").
Prior to the Effective Time of the Merger, PCI, and thereafter the Surviving
Corporation, as may be appropriate, shall take such actions as are necessary
to effect the provisions of this Section 1.21 and to preserve for the holders
of PCI Stock Options the benefits to be provided pursuant to this Section
1.21. Notwithstanding anything in this Section 1.21(c), neither PCI nor
Nextel shall have any liability for failing to take (or to cause to be taken)
actions in respect of any stock option plan or related agreement that would
violate (in any material respect) the terms thereof or would be prohibited by
applicable law.
1.22 WARRANTS. At the Effective Time of the Merger, PCI's outstanding
warrants (the "Warrants") to purchase shares of PCI Common Stock shall be
assumed by Nextel. Each Warrant shall thereafter evidence a warrant to purchase
the number of shares of Nextel Common Stock into which the number of shares of
PCI Common Stock issuable pursuant to such Warrant would have been converted in
the Merger at an exercise price per share equal to the amount (rounded up to the
next whole cent) arrived at by dividing the aggregate exercise price under such
Warrant by the number of shares of Nextel Common Stock purchasable thereunder,
unless exchanged at the Closing for warrants of Nextel pursuant to agreements
with the warrant holders as described in the Recitals or as contemplated by
Section 5.4.
<PAGE>
26
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF PCI
PCI represents and warrants to Nextel that:
2.1 CORPORATE ORGANIZATION.
(a) PCI has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware and has the
corporate power and authority to own or lease its properties and to conduct its
business as it has been and is now being conducted. The copies of the
Certificate of Incorporation of PCI, certified by the Secretary of the State of
Delaware, and its By-Laws, certified by the Secretary of PCI, previously
delivered by PCI to Nextel, are true, correct and complete.
(b) The subsidiaries of PCI are listed on the Schedules with
reference to this Section (collectively, the "Subsidiaries"). Each of the
Subsidiaries has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the state of its incorporation, as set forth
on the Schedules with reference to this Section and has the corporate power and
authority to own or lease its properties and to conduct its business as it has
been and is now being conducted. The copies of the Certificate of Incorporation
of each Subsidiary, certified by the Secretary of State of the state of its
incorporation, and its By-Laws, certified by such Subsidiary's Secretary,
previously delivered by PCI to Nextel, are true, correct and complete.
(c) PCI and each Subsidiary are duly licensed or qualified and in
good standing as a foreign corporation in all
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27
jurisdictions identified on the Schedules with reference to this Section and
such jurisdictions are the only ones in which their ownership of property or
the character of their activities is such as to require them to be so licensed
or qualified.
2.2 SUBSIDIARIES AND OTHER ENTITIES.
(a) All the outstanding capital stock of each Subsidiary is duly
authorized, validly issued, fully paid and nonassessable. PCI owns all the
issued and outstanding capital stock of each Subsidiary. Except as set forth on
the Schedules with reference to this Section, PCI holds all the issued and
outstanding capital stock of each Subsidiary free and clear of any mortgage,
pledge, security interest, encumbrance, lien, claim or charge of any kind. As
of the Closing, PCI shall hold all the issued and outstanding capital stock of
each Subsidiary free and clear of any mortgage, pledge, security interest,
encumbrance, lien, claim or charge of any kind.
(b) There are no warrants, options, subscriptions, other convertible
instruments, and no commitments, obligations, or agreement (whether firm or
conditional) pursuant to which PCI or any Subsidiary is or may be obligated to
issue, transfer, deliver or sell shares of capital stock of any Subsidiary or
other securities of any Subsidiary.
(c) Except for the Subsidiaries, and except as set forth in the
Schedules with reference to this Section, none of PCI or the Subsidiaries has
any direct or indirect subsidiaries, nor do any of them own, directly or
indirectly, any partnership, equity, profit, participation or similar ownership
interest in
<PAGE>
28
any corporations, partnerships, joint ventures, trusts, unincorporated
organizations, associations or similar entities.
2.3 CORPORATE AUTHORIZATION.
(a) The Board of Directors of PCI, by unanimous vote of all directors
at a meeting duly called and held, has (i) determined that the Merger is fair to
and in the best interests of the stockholders of PCI and (ii) resolved to submit
this Agreement to and recommend approval of this Agreement by the stockholders
of PCI.
(b) PCI has all necessary corporate power and authority to enter into
this Agreement and to perform all of the obligations to be performed by it
hereunder. The execution, delivery and performance of this Agreement by PCI has
been duly authorized by PCI, and, upon the execution and delivery hereof by,
respectively, Nextel, NFC and Merger Sub, this Agreement will constitute the
valid and legally binding obligations of PCI, enforceable against PCI in
accordance with its terms, except as enforceability thereof may be limited by
applicable bankruptcy, reorganization, insolvency or other similar laws
affecting creditors' rights generally, by equitable principles of general
applicability with respect to the availability of equitable remedies, or by
public policies applicable to securities laws.
(c) The Board of Directors of PCI received an opinion of Morgan
Stanley & Co. Incorporated ("Morgan Stanley"), its financial advisor, at or
before the Board meeting (prior to the approval vote) described in Section
2.3(a) above, to the effect that the consideration to be received by PCI's
stockholders in
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29
the Merger is fair to the stockholders from a financial point of view. PCI
has provided Nextel with a correct and complete copy of the engagement letter
between Morgan Stanley and PCI.
2.4 CAPITAL STOCK. The entire authorized capital stock of PCI consists
solely of 50,000,000 shares of PCI Common Stock, of which 26,162,225 shares are
issued and outstanding as of the date of the First Agreement, and 1,000,000
shares of preferred stock, par value $.01 per share, none of which are issued or
outstanding. All of the outstanding shares of PCI Common Stock (and any shares
issuable pursuant to presently outstanding options, if exercised and purchased
at the applicable exercise price) were duly authorized and will be, when issued
and the option price paid (if applicable), validly issued, fully paid and
nonassessable. Except as set forth in the Schedules with reference to this
Section, none of the capital stock or other securities of PCI is entitled or
subject to preemptive rights or registration rights. Other than the requisite
vote of PCI stockholders to consummate the Merger, the authorization or consent
of no person is required in order to consummate the transactions contemplated
herein by virtue of any such person having an equitable or beneficial interest
in the PCI Common Stock. Except as set forth on the Schedules with reference to
this Section, there are not now, and at the Effective Time of the Merger there
will not be, any voting trusts or other agreements or understandings to which
PCI is a party or is bound with respect to the voting of PCI Common Stock. To
the knowledge of PCI, all outstanding shares of PCI Common
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30
Stock were offered, sold and issued in compliance with all applicable laws and
regulations.
2.5 OPTIONS. (a) PCI has set forth on the Schedules with reference to
this Section all warrants, options, subscriptions and other convertible
instruments or agreements pursuant to which PCI was obligated as of July 1, 1996
to issue, transfer, deliver or sell shares of PCI Common Stock and the exercise
or purchase price of each such warrant, option, subscription, convertible
instrument or agreement. Except as set forth in the Schedules with reference to
this Section, as of July 1, 1996, no options or warrants to purchase shares of
PCI Common Stock have ever been granted, except for employee options that have
been exercised or have terminated without exercise prior to July 1, 1996,
pursuant to the terms of the respective PCI Option Plans. Except as set forth
in the Schedules with reference to this Section, as of July 1, 1996, there were
no commitments or obligations of PCI, either firm or conditional, to issue,
deliver or sell, whether under offers, stock option agreements, stock bonus
agreements, stock purchase plans, incentive compensation plans, warrants,
conversion rights or otherwise, any authorized but unissued shares, or treasury
shares, of PCI Common Stock or other securities of PCI.
(b) PCI has set forth on the Schedules with reference to this Section
all warrants, options, subscriptions and other convertible instruments or
agreements pursuant to which PCI was or is obligated as of July 1, 1996, as of
the date hereof, and as of the Closing to issue, transfer, deliver or sell
shares of PCI
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31
Common Stock, which are not set forth on Schedule 2.5(a). Additionally, set
forth on such Schedule with reference to this Section are the exercise or
purchase price of each warrant, option, subscription, convertible instrument
or agreement set forth thereon.
2.6 COMPLIANCE WITH LAWS. Except for matters that individually and in the
aggregate will not have a material adverse effect on the business, financial
condition, results of operations, liabilities or assets of PCI and its
Subsidiaries, taken as a whole, and that will not impair PCI's ability to
perform, in any material respect, its obligations under this Agreement or any
other document or instrument to which PCI is a party in connection with the
transactions contemplated herein, or as set forth in the Schedules with
reference to this Section, to the knowledge of PCI, (i) neither PCI nor any
Subsidiary is currently in violation (nor is any of them currently liable or
otherwise currently responsible with respect to prior violations) of any
statute, law or regulation applicable to any of their presently or formerly
owned properties or to the conduct of their current or past businesses;
(ii) none of the processes followed, results obtained, services provided or
products made, modified or installed by any of them (in the ordinary course of
their businesses or otherwise), or by any managers with respect to SMR Licenses
(as defined herein) held by any of PCI or its Subsidiaries (pursuant to Third
Party Management Agreements (as defined herein) or otherwise) or by PCI or its
Subsidiaries in the management or operation of SMR Licenses managed by any of
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32
them (pursuant to PCI Management Agreements or otherwise), violate any statute,
law or regulation applicable thereto; (iii) none of (a) the businesses of PCI or
any Subsidiary, (b) the processes, results, services or products performed, sold
or otherwise made available by PCI or any Subsidiary, (c) the processes,
results, services or products performed, sold or otherwise made available by any
manager with respect to SMR Licenses held by PCI or any Subsidiary (pursuant to
Third Party Management Agreements or otherwise) or (d) the processes, results,
services or products performed, sold or otherwise made available by PCI or any
Subsidiary in the management or operation of SMR Licenses managed by any of them
(pursuant to PCI Management Agreements or otherwise) violates any applicable law
or regulation relating to air, water or noise pollution or employee health and
safety or the production, storage, labeling, transportation or disposition of
solid waste or hazardous or toxic substances; (iv) PCI, its Subsidiaries, each
of the managers with respect to SMR Licenses held by PCI or a Subsidiary, and
PCI and its Subsidiaries in their capacities as managers under PCI Management
Agreements, has each timely obtained all licenses and permits and timely filed
all reports required to be filed under any such applicable laws or regulations;
(v) neither PCI, its Subsidiaries nor any other person has stored, dumped or
otherwise disposed of any chemical substances, including any "Hazardous
Substances," "Pollutants" or "Contaminants" (as such terms are defined in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
<PAGE>
33
as amended ("CERCLA")) on, beneath or about any of the properties of PCI or its
Subsidiaries; (vi) none of PCI, its Subsidiaries or any of their respective
managers (with respect to SMR Licenses held by PCI or a Subsidiary) has received
written notice that it is a "potentially responsible party" under any
environmental law or of any violation of any environmental, zoning or other land
use ordinance, law or regulation relating to the operation of its or their
businesses, or to any of the processes followed, results obtained, services
provided or products made, modified or installed (in the ordinary course of its
or their businesses or otherwise), including, but not limited to, the Toxic
Substances Control Act of 1976, as amended, the Resource Conservation Recovery
Act of 1976, as amended, the Clean Air Act, as amended, the Federal Water
Pollution Control Act, as amended, CERCLA or the Occupational Safety and Health
Act of 1970, as amended, nor are PCI and any Subsidiary aware of any such
violation. PCI has listed in the Schedules with reference to this Section all
environmental reports known to PCI or its Subsidiaries relating to any owned or
leased real property of PCI or its Subsidiaries and has previously delivered to
Nextel a true, correct and complete copy of each report so listed.
2.7 NO CONFLICT. Except as set forth in the Schedules with reference to
this Section and subject to the adoption and approval of this Agreement by the
stockholders of PCI, the execution and delivery of this Agreement by PCI and the
consummation of the transactions contemplated hereby do not, and will not
constitute an event which, after notice or lapse of time
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34
or both would (a) violate any provision of, or result in the breach of, or
accelerate or permit the acceleration of the performance required by: (i) the
terms of, any applicable law, rule or regulation of any governmental body,
except where any such violation, breach, acceleration, termination or creation,
individually or in the aggregate, would not have a material adverse effect
upon the business, financial condition, results of operation, liabilities or
assets of PCI and the Subsidiaries, taken as a whole, and would not impair
PCI's ability to perform, in any material respect, its obligations under this
Agreement or any other document or instrument to which PCI is a party in
connection with the transactions contemplated herein, (ii) the Certificate of
Incorporation or By-Laws of PCI or any Subsidiary; (iii) any indenture,
material agreement, or other material instrument to which PCI or any Subsidiary
is a party or by which PCI or any Subsidiary may be bound; or (iv) any order,
judgment or decree applicable to any of them, except where any such violation,
breach, acceleration, termination, creation or order, individually or in the
aggregate, would not have a material adverse effect upon the business, financial
condition, results of operation, liabilities or assets of PCI and the
Subsidiaries, taken as a whole, and would not impair PCI's ability to perform,
in any material respect, its obligations under this Agreement or any other
document or instrument to which PCI is a party in connection with the
transactions contemplated herein, or (b) terminate or result in the termination
of any indenture, material agreement or other material instrument, or result
in the creation
<PAGE>
35
of any lien, charge or encumbrance upon any of the properties or assets of PCI
or any Subsidiary under any agreement to which any of them is a party, except
where any such violation, breach, acceleration, termination or creation,
individually or in the aggregate, would not have a material adverse effect
upon the business, financial condition, results of operation, liabilities or
assets of PCI and the Subsidiaries, taken as a whole, and would not impair
PCI's ability to perform, in any material respect, its obligations under this
Agreement or any other document or instrument to which PCI is a party in
connection with the transactions contemplated herein.
2.8 LITIGATION. Except as set forth in the Schedules with reference to
this Section, there are no actions, suits, proceedings, claims or investigations
formally instituted and pending or, to the knowledge of PCI and its
Subsidiaries, threatened against or specifically affecting PCI or any Subsidiary
or involving any of their properties or assets, at law or in equity, or before
or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
any arbitration panel or alternative dispute resolution body, except where the
outcome of any such actions, suits, proceedings, claims or investigations,
individually or in the aggregate, would not have a material adverse effect upon
the business, financial condition, results of operation, liabilities or assets
of PCI and the Subsidiaries, taken as a whole, and would not impair PCI's
ability to perform, in any material respect, its obligations
<PAGE>
36
under this Agreement or any other document or instrument to which PCI is a
party in connection with the transactions contemplated herein. Except as set
forth in such Schedule, neither PCI nor any Subsidiary is subject to or is in
default under, any order, writ, injunction or decree of any court or Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, or any arbitration panel or alternative dispute
resolution body.
2.9 INSURANCE. Set forth in the Schedules with reference to this Section
is a list of (a) all insurance policies held by PCI or any Subsidiary
(indicating the insurer, type, amount and term of coverage, deductible,
description of vehicles, latest property insurable values by location (100%
replacement value), workers' compensation payroll (separately for clerical,
sales and technical employees), and additional named insureds with respect to
each such policy); and (b) to the knowledge of PCI, all claims pending under
any of such insurance policies. Except as set forth in such Schedule, all of
these policies are in full force and effect and all premiums due thereon have
been paid or accrued and there are no retroactive experience-based premium
adjustment features in any policy.
2.10 INTELLECTUAL PROPERTY. Except for the name of PCI and except as set
forth in the Schedules with reference to this Section, to the knowledge of PCI,
there are no patents or patent applications; trademarks, service marks, trade
dress, trade names, corporate names or any applications to register any of the
foregoing marks or names; copyrights or copyright registrations;
<PAGE>
37
or any licenses, other than software licenses acquired solely through the
purchase of the underlying software, to or from third parties with respect to
any of the foregoing (including, without limiting the generality of the
foregoing, all computer software, data and documentation) relating to PCI's
or the Subsidiaries' business as now conducted or as presently proposed to be
conducted. To the knowledge of PCI, except as set forth in the Schedules with
reference to this Section, (i) neither of PCI nor any Subsidiary has infringed,
misappropriated or otherwise conflicted with any proprietary rights of any third
parties; (ii) PCI is not aware of any infringement, misappropriation or conflict
which will occur as a result of the continued operation of PCI's or the
Subsidiaries' business as now conducted or as presently proposed to be
conducted; and (iii) neither PCI nor any Subsidiary has received any notices
of any infringement or misappropriation from any third party.
2.11 ASSETS. PCI has delivered to Nextel a Schedule (which makes reference
to this Section) that lists all fixed capital assets owned by PCI (including,
without limitation, all repeater and ancillary equipment necessary for the
operation of the business of PCI, all assets located at each site, all office
equipment and furniture owned by PCI and all other material tangible assets
owned by PCI) (the "Asset List"). The assets on the Asset List include
substantially all of the tangible assets presently used by PCI in the conduct of
its business in Arizona, California, Colorado, New Mexico, North Dakota,
Oklahoma, South Dakota and Texas (collectively, the "States").
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38
2.12 FINANCIAL STATEMENTS. PCI has previously delivered to Nextel the
following financial statements (including any notes thereto), all of which have
been prepared in accordance with GAAP consistently applied throughout the
periods involved and present fairly in all material respects the consolidated
financial position of PCI and its Subsidiaries, at the dates stated in such
financial statements and the results of their operations for the periods stated
therein (subject in the case of the financial statements referenced in
paragraph (b) to the absence of notes and to normal year-end adjustments):
(a) a Consolidated Balance Sheet at December 31, 1995, and a
Consolidated Statement of Operations, Statement of Stockholders' Equity and
Consolidated Statement of Cash Flows for the year ended December 31, 1995 which
have been audited by and that are accompanied by the report of KPMG Peat Marwick
LLP; and
(b) a Consolidated Balance Sheet at June 30, 1996 and a Consolidated
Statement of Operations, and a Consolidated Statement of Cash Flows for the six
months ended June 30, 1996.
2.13 LIABILITIES. PCI and its Subsidiaries do not have any liability or
obligation, secured or unsecured (whether accrued, absolute, contingent or
otherwise), except:
(i) trade payables and accrued expenses incurred in the
ordinary course of business and consistent with past practices for which
the stated due date has not passed ("Current Payables");
(ii) those liabilities or obligations (for which the stated due
date has not passed) relating to operating
<PAGE>
39
contracts or leases entered into in the ordinary course of business
consistent with past practice;
(iii) liabilities and obligations of the type shown on PCI's
balance sheet at June 30, 1996 that was previously delivered to Nextel (the
"June 30 Balance Sheet") and any increase in the amount of such liabilities
after June 30, 1996 was either (1) consented to in writing by Nextel, or
(2) incurred by PCI or any Subsidiary in the ordinary course of business
after such date;
(iv) the Transaction Costs which shall not exceed $1,500,000;
and
(v) other liabilities or obligations that do not exceed $10,000
individually and do not exceed $100,000 in the aggregate or that are set
forth in the Schedules with reference to this Section specifically
identified and agreed to by Nextel as Permitted Liabilities for purposes of
this Agreement (and, to the extent reasonably ascertainable, have been
identified by type, source and dollar amount) (the liabilities and
obligations described in this clause and clauses (i) through (iv) above,
collectively, the "Permitted Liabilities").
2.14 TRANSACTIONS NOT IN THE ORDINARY COURSE. Except as set forth on the
Schedules with reference to this Section, since July 1, 1996 until the date
of the First Agreement, neither PCI nor any Subsidiary has (a) incurred any
liability or obligation not in the ordinary course of business or entered into
any transaction other than in the ordinary course of
<PAGE>
40
business the value of which did not exceed $10,000 individually and did not
exceed $100,000 in the aggregate; (b) declared or made any payment or
distribution to stockholders or other holders of equity or other similar
ownership or participation interests, including stock splits, stock dividends
and profit distributions, or purchased or redeemed any shares or other equity or
other similar ownership or participation interests except as provided for in
this Agreement; (c) mortgaged, pledged or subjected to lien, charge or any other
encumbrance, any of its assets, tangible or intangible; (d) sold or transferred,
or agreed to sell or transfer, or acquired or agreed to acquire any SMR
Licenses; (e) sold or transferred any of its other assets, tangible or
intangible, the value of which did not exceed $10,000 individually and did not
exceed $100,000 in the aggregate except, in each case, in the ordinary course of
business; (f) cancelled any debts or claims except in each case in the ordinary
course of business; (g) increased the rate of compensation of any officer or of
any employee receiving (giving effect to such increase) more than $50,000 per
annum or paid or declared any bonus (excluding fixed-formula compensation
incentive payments such as may be paid to certain sales employees from time to
time), except as set forth in the Schedules with reference to this Section;
(h) agreed to or amended or instituted any employment contract, bonus plan,
stock option plan, profit sharing plan, pension plan, retirement plan or other
similar arrangement or plan, except as set forth in the Schedules with reference
to this Section.
<PAGE>
41
2.15 CAPITAL PROJECTS. Set forth in the Schedules with reference to this
Section is a description of all capital projects currently committed for or
authorized by PCI for (i) SMR Systems (as defined herein) and (ii) all other
capital projects involving the expenditure of more than $50,000 in any single
case or more than $200,000 in the aggregate.
2.16 TAXES. Except as set forth in the Schedules with reference to this
Section, the Subsidiaries have been included in a consolidated Federal income
tax return filed by PCI. Except as set forth in the Schedules with reference to
this Section, (i) PCI, on behalf of itself and its Subsidiaries (collectively,
"PCI/PCI Subs"), has accurately prepared and has duly and timely filed with all
appropriate Federal, foreign, state and local governmental agencies, all tax
returns and reports required to be filed by it; (ii) all taxes owed or withheld,
or which may be claimed to be owed or required to be withheld, to or for the
benefit of any governmental agency for or with respect to the periods covered by
such returns and reports or with respect to any period (or portions thereof)
ending at or before the Closing, and all interest, penalties, assessments and
deficiencies connected therewith, have been or will be timely paid in full or
provided for in full; (iii) PCI/PCI Subs has not executed or filed with any
taxing authority any agreement extending the period for assessment or collection
of any taxes; (iv) PCI/PCI Subs is not a party to any pending audit, inquiry,
action or proceeding, nor has PCI/PCI Subs been notified of the inception of any
such audit, inquiry, action or proceeding by any Federal,
<PAGE>
42
foreign, state or local governmental entity or municipality or subdivision
thereof or any authority, department, commission, board, bureau, agency,
court or instrumentality for the assessment or collection of taxes; (v) no
deficiency or assessment notices or reports or statements of tax due have
been received by PCI/PCI Subs in respect of any of its tax returns; and (vi)
to the best of PCI's knowledge, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will have no
material effect upon the tax treatment of any previously consummated
transaction in which PCI acquired all or any part of the assets or capital
stock of another entity.
2.17 BANK ACCOUNTS; EMPLOYEES. Set forth in the Schedules with reference
to this Section is a complete list of (a) all banks in which PCI or any
Subsidiary has an account or safe deposit box and the names of all persons
authorized to draw thereon or have access thereto; (b) the current fixed annual
rate of compensation (plus total cash compensation broken down between fixed and
bonus components for fiscal year 1995) as of the date of such list for each of
the five (5) then highest paid employees of PCI and each Subsidiary for the
current fiscal year and a summary of the basis on which each such person is
compensated if such basis is other than exclusively a fixed salary rate; (c) the
names of all persons holding powers of attorney from PCI and each Subsidiary and
a summary statement of the terms thereof; and (d) the name of each person who is
an "affiliate" of PCI for purposes of Rule 145 under the Securities Act.
<PAGE>
43
2.18 REAL ESTATE. The Schedules with reference to this Section list all
real estate, real estate options and leaseholds owned or held by PCI or any
Subsidiary. Except for matters that individually and in the aggregate will not
have a material adverse effect on the business, financial condition, results of
operations, liabilities or assets of PCI and its Subsidiaries, taken as a whole,
and that will not impair PCI's or the Subsidiaries' ability to perform, in any
material respect, its or their obligations under this Agreement or any other
document or instrument to which PCI or a Subsidiary is a party in connection
with the transactions contemplated herein, or as set forth on the Schedules with
reference to this Section, there are no title defects, issues of validity or
enforceability, deficiencies in rights of possession or use or similar matters
relating to or affecting any real estate owned or leased, or which is subject to
an option to buy, sell or lease, of or by PCI or any Subsidiary. Except for
Permitted Liens (as defined herein), for matters that individually and in the
aggregate will not have a material adverse effect on the business, financial
condition, results of operations, liabilities or assets of PCI and its
Subsidiaries, taken as a whole, and that will not impair PCI's or the
Subsidiaries' ability to perform, in any material respect, its or their
obligations under this Agreement or any other document or instrument to which
PCI or a Subsidiary is a party in connection with the transactions contemplated
herein, or as set forth in the Schedules with reference to this Section, PCI or
a Subsidiary, as the case may be, has good and marketable title in fee simple to
<PAGE>
44
all real estate owned by it and good leasehold interests in all of its
leaseholds, none of which interests will be materially and adversely affected by
the transactions contemplated hereby, and each lease with an initial term of
more than one year is, to the knowledge of PCI and its Subsidiaries, enforceable
against the lessor thereunder and PCI or its Subsidiary, as the case may be,
enjoys quiet possession of all leaseholds.
2.19 TITLE TO PROPERTIES. Except for matters that individually and in the
aggregate will not have a material adverse effect on the business, financial
condition, results of operations, liabilities or assets of PCI and its
Subsidiaries, taken as a whole, and that will not impair PCI's or the
Subsidiaries' ability to perform, in any material respect, its or their
obligations under this Agreement or any other document or instrument to which
PCI or a Subsidiary is a party in connection with the transactions contemplated
herein, or as set forth on the Schedules with reference to this Section, each of
PCI and its Subsidiaries has good title to all of its personal properties and
assets, tangible and intangible (including, without limitation, those on the
Asset List). Except for liens or encumbrances set forth in the Schedules with
reference to this Section (which identifies those that will be removed prior to
the Closing), none of such properties or assets is subject to any lien or
encumbrance other than (a) any liens securing Current Payables, (b) any liens or
encumbrances connected with operating leases entered into in the ordinary course
of business consistent with past practice, (c) such other encumbrances that do
not secure
<PAGE>
45
indebtedness and do not materially detract from the value of, or
interfere with the present or future use of, the property subject thereto and
affected thereby or otherwise materially impair the business, financial
condition, results of operations or operations of PCI and its Subsidiaries,
taken as a whole, or (d) as otherwise disclosed to and approved by Nextel in
writing (collectively, "Permitted Liens").
2.20 CONTRACTS. Except as set forth in the Schedules with reference to
this Section, neither PCI nor any Subsidiary (nor any of their properties) is a
party to or bound by any (a) agreement or other arrangement not made in the
ordinary course of business, involving payments or receipts in excess of $25,000
individually or more than $100,000 in the aggregate; (b) employment or
consulting contract; (c) contract with any labor union; (d) employee bonus,
pension, profit-sharing, retirement, stock purchase or other benefit or welfare
plan or agreement; (e) lease or management agreement relating to the use or
operation of an SMR Channel; (f) other lease with respect to real or personal
property, whether as lessor or lessee, involving lease payments in excess of
$50,000 per annum or $200,000 in the aggregate; (g) contract or commitment for
the purchase of raw materials or supplies or the sale of products involving more
than $50,000 per annum or $200,000 in the aggregate; (h) indenture, agreement,
note, mortgage, guaranty or other writing which evidences or relates to any loan
of money to, or indebtedness for money borrowed by, PCI or any Subsidiary;
(i) license agreement or other contract or agreement relating to patents,
trademarks,
<PAGE>
46
trade names, techniques or copyrights or applications for any thereof,
inventions, trade secrets or other proprietary know-how or technical
assistance; (j) any loan to officers, directors or employees of PCI or any
Subsidiary (all of which loans will be repaid in full by the Closing); or (k)
any agreement relating to any direct or indirect acquisition of SMR Licenses
in the case of any of the foregoing, whether written or oral (and, in the
case of oral commitments, with PCI providing an accurate written summary of
all material terms to Nextel). Except for matters that individually and in
the aggregate will not have a material adverse effect on the business,
financial condition, results of operations, liabilities or assets of PCI and
its Subsidiaries, taken as a whole, and that will not impair PCI's or the
Subsidiaries' ability to perform, in any material respect, its or their
obligations under this Agreement or any other document or instrument to which
PCI or a Subsidiary is a party in connection with the transactions
contemplated herein, or as set forth in such Schedule, to the knowledge of
PCI, neither PCI nor any Subsidiary, nor any other party thereto, is in
default under the terms of any commitments described in Subsections (a)
through (k) of this Section.
2.21 COMPLIANCE WITH SECURITIES LAWS. PCI has complied with all applicable
Federal and state securities laws and regulations with regard to the
registration, offer and sale of the PCI Common Stock registered under the shelf
registration statement on Form S-4 (Registration No. 33-83810).
<PAGE>
47
2.22 BROKERS. Except for fees paid to Morgan Stanley, neither PCI nor any
Subsidiary has directly or indirectly dealt with anyone acting in the capacity
of a finder or broker and none of them has incurred nor will they incur any
obligation for any finder's or broker's fee or commission in connection with
this Agreement or the Merger.
2.23 SPECIAL LIABILITIES; WARRANTIES. Except for matters that individually
and in the aggregate will not have a material adverse effect on the business,
financial condition, results of operations, liabilities, or assets of PCI and
its Subsidiaries, taken as a whole, and that will not impair PCI's or its
Subsidiaries' ability to perform, in any material respect, its or their
obligations under this Agreement or any other document or instrument to which
PCI or a Subsidiary is a party in connection with the transactions contemplated
herein, or as set forth on the Schedules with reference to this Section,
(i) neither PCI nor any Subsidiary has any liability under any contracts under
which the consideration to be paid or received by PCI or a Subsidiary is
determined in whole or in part based on profits or operating results, nor are
there any contingent payments owing to any person in connection with the
acquisition of any business, entity, frequency or channel by PCI or a
Subsidiary; (ii) neither PCI nor any Subsidiary has extended any warranties to
their respective customers, except those that each of them is authorized to
extend on behalf of product manufacturers; (iii) neither PCI nor any Subsidiary
is now subject to any outstanding, pending or, to the knowledge of PCI,
threatened
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48
claims based on warranty coverage; and (iv) there are no pending or
threatened claims by any manufacturer or vendor of equipment to disallow or
invalidate manufacturers' warranty coverage.
2.24 EMPLOYEE BENEFIT MATTERS. Except as set forth on the Schedules with
reference to any particular subsection of this Section, to the knowledge of PCI:
(a) PCI does not have and never has had any obligation to contribute
to any "multiemployer plan" (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) or any "multiple
employer plan" described in Section 210(a) of ERISA or Section 413(c) of the
Code. PCI does not maintain, contribute to, or have any liability under or with
respect to any plan or arrangement, whether or not terminated, which provides or
provided medical, health, life insurance of other welfare-type benefits for
current or future retired or terminated employees (except for limited continued
medical benefit coverage required to be provided under Section 4980B of the Code
or as required under applicable state law). PCI does not maintain, contribute
to or have any liability under or with respect to any employee plan which is a
"defined benefit plan" (as defined in Section 3(35) of ERISA), whether or not
terminated. PCI does not maintain, contribute to or have any liability under or
with respect to any employee plan which is a "defined contribution plan" (as
defined in Section 3(34) of ERISA), whether or not terminated.
(b) PCI does not maintain, contribute to or have any liability under
or with respect to any plan or arrangement
<PAGE>
49
providing benefits to current or former employees or directors, including any
bonus plan, plan for deferred compensation, employee health or other welfare
benefit plan or other arrangement, whether or not terminated (any such plan
or arrangement, an "Employee Plan"). For purposes of this Section 2.24,
"PCI" includes all organizations that now are or that have been, within the
past six years, under common control with PCI pursuant to Section 414(b) or
(c) of the Code. PCI previously has delivered to Nextel true, complete and
correct copies of each of the Employee Plans, including all amendments
thereto, and any other documents or other instruments relating thereto
reasonably requested by Nextel.
(c) All Employee Plans are being, and have been, maintained, operated
and administered in all material respects in accordance with their respective
terms and in compliance with all applicable laws.
(d) No Employee Plan is funded through a "welfare benefit fund" as
defined in Section 419(e) of the Code.
(e) There have been no prohibited transactions or breaches of any of
the duties imposed on "fiduciaries" (within the meaning of Section 3(21) of
ERISA) by ERISA with respect to any Employee Plan that could reasonably be
expected to result in PCI or any Subsidiary becoming liable directly or
indirectly (by indemnification or otherwise) for any material excise tax,
penalty or other liability under ERISA or the Code.
(f) There are no actions or claims pending or, to the knowledge of
PCI or any Subsidiary, threatened, with respect to
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50
any Employee Plan (other than routine claims for benefits), and there are no
investigations or audits of any Employee Plan by any governmental authority
currently pending and there have been no such investigations or audits that
have been concluded that resulted in any liability of PCI and its
Subsidiaries that has not been fully discharged.
(g) All (i) insurance premiums required to be paid with respect to,
(ii) benefits, expenses, and other amounts due and payable under, and (iii)
contributions, transfers, or payments required to be made to, any Employee Plan
have been paid. With respect to any insurance policy providing funding
for benefits under any Employee Plan, (x) there is no liability of PCI and its
Subsidiaries, in the nature of a retroactive or retrospective rate adjustment,
loss sharing arrangement, or other actual or contingent liability, nor would
there be any such liability if such insurance policy was terminated on the date
hereof, and (y) no insurance company issuing any such policy is in receivership,
conservatorship, liquidation or similar proceeding and, to the knowledge of PCI
and its Subsidiaries, no such proceedings with respect to any insurer are
imminent.
(h) Each Employee Plan that is a group health plan subject to Section
4980B of the Code (or which was subject to Section 162(k) of the Code) has been
operated in material compliance with the continuation coverage requirements of
Section 4980B of the Code and Section 162(k) of the Code, as applicable, and
Part 6 of Subtitle B of Title I of ERISA.
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51
(i) Each Employee Plan that is subject to Section 1862(b)(1) of the
Social Security Act has been operated in compliance with the secondary payer
requirements of Section 1862(b)(1) of such Act.
(j) The execution, delivery and performance of this Agreement will
not, solely in and of itself, (i) constitute a stated triggering event under any
Employee Plan that will result in any payment (whether of severance pay or
otherwise) becoming due from PCI or any Subsidiary to any present or former
officer, employee, director, shareholder or consultant, or former employee (or
dependents of any thereof), or (ii) accelerate the time of payment or vesting,
or increase the amount, of compensation due to any employee, officer, director,
shareholder or consultant of PCI or any Subsidiary.
(k) Neither PCI nor any Subsidiary has agreed or committed to make
any amendments to any of the Employee Plans not already embodied in the
documents comprising any such Employee Plan, other than any amendments required
by law.
(l) All contributions, transfers, and payments by PCI or any
Subsidiary in respect of any Employee Plan have been or are fully deductible
under the Code.
(m) PCI's financial statements at and for the six months ended
June 30, 1996 contain and, at and for the period ending on the Closing, will
contain adequate accruals for (i) bonuses, sales commissions and vacation pay
earned but not received as of such dates and (ii) incurred or continuing but
unpaid claims under Employee Plans not funded by insurance.
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52
(n) No Employee Plan provides benefits to any individual who is not a
current or former employee of PCI or a Subsidiary, or the dependents or other
beneficiaries of any such individual.
(o) Except as set forth on Schedule 2.24(o), no "excess parachute
payments" within the meaning of Section 280G of the Code will be made in
connection with or as a result of the Merger (without regard to whether any such
payment might be reasonable compensation for personal services performed or to
be performed in the future).
2.25 MATERIALLY CORRECT. Article II of this Agreement together with the
Schedules referenced herein does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
disclosures contained therein in the light of the circumstances under which they
are made, not misleading.
2.26 INFORMATION. PCI has made available to Nextel each registration
statement, schedule, report, proxy statement or information statement it has
filed with the Securities and Exchange Commission (the "SEC") since January 1,
1994, including, without limitation, (a) PCI's Annual Report on Form 10-K for
the years ended December 31, 1994 and December 31, 1995, including all documents
incorporated by reference therein, and (b) PCI's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996 and any Report on Form 8-K filed since
December 31, 1995 (collectively, the "PCI Reports"). The PCI Reports, taken as
a whole and taken together
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53
with information previously furnished by PCI to Nextel, did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made therein, in
light of the circumstances in which they were made, not misleading. As used
in this Section 2.26, "material" means material to the business, financial
condition, results of operations, liabilities or assets of PCI and its
Subsidiaries taken as a whole. PCI has delivered to Nextel on or prior to
the date of the First Agreement all private placement, confidential offering or
similar memoranda and other offering or solicitation materials used at any time
by PCI or anyone acting on its behalf in connection with any offer or sale of
securities of PCI.
2.27 REGULATORY MATTERS.
(a) DEFINITIONS. For purposes of this Agreement, the following terms
shall have the indicated meanings:
"FCC" shall mean the Federal Communications Commission or any
successor thereto.
"FCC LICENSE" shall mean any paging, mobile telephone, SMR or
other license, permit, consent, certificate of compliance, franchise, approval
or authorization of any type granted or issued by the FCC, including, without
limitation, any of the foregoing authorizing the acquisition, construction or
operation of an SMR System (as defined herein), radio paging system or other
radio communications system.
"PCI MANAGEMENT AGREEMENT" shall mean any management or other
agreement (other than a loading agreement)
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54
pursuant to which PCI or a Subsidiary agrees to manage or to perform other
services (other than loading) with respect to SMR Licenses held by another
person in exchange for either the right to receive a portion of the revenues
derived from such SMR Licenses or the right to purchase such SMR Licenses or
any loading agreement pursuant to which such Subsidiary is loading SMR
Licenses held by another person in exchange for either the right to receive a
portion of the revenues derived from such SMR Licenses in excess of 25% of
the aggregate revenues derived from such SMR Licenses or the right to
purchase such SMR Licenses.
A fact or circumstance shall be "IMMATERIAL" for purposes of this
Section if such fact or circumstance would not result in the cancellation,
revocation, termination, adverse modification or any other material adverse
effect on any 800 MHz FCC license; the cancellation, revocation, termination,
adverse modification or any other material adverse effect on 5% or more of the
frequencies in any category of service set forth on Schedule 2.27; or any other
material adverse effect on any other right granted or enjoyed by PCI, with
respect to the FCC frequencies.
"SMR LICENSE" shall mean an FCC License authorizing the
construction, ownership and operation of an SMR system in the 800 or 900 MHz
band issued pursuant to 47 CFR Part 90 of the Rules and Regulations of the FCC.
"SMR SYSTEM" shall mean an SMR system licensed under 47 CFR Part
90 of the Rules and Regulations of the FCC.
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55
"SMR UNITS" shall mean the number of mobile and control stations
(within the meaning of 47 CFR Part 90 of the Rules and Regulations of the FCC)
subscribing to SMR Systems licensed to or managed by PCI or a Subsidiary
excluding, however, any such units which are subject to a Third-Party Management
Agreement if the respective third party has a right to purchase the SMR Licenses
which are subject to such Third-Party Management Agreement.
"THIRD-PARTY MANAGEMENT AGREEMENT" shall mean any management or
other agreement (other than a loading agreement) pursuant to which a person
(other than PCI or a Subsidiary) is managing SMR Licenses held by PCI or a
Subsidiary or any loading agreement pursuant to which a person (other than PCI
or a Subsidiary) is loading SMR Licenses held by PCI or a Subsidiary in exchange
for the right to receive a portion of the revenues derived from such SMR
Licenses in excess of 25% of the aggregate revenues derived from such SMR
Licenses.
(b) LICENSE INFORMATION. Schedule 2.27 sets forth a true and
complete list of the following information, which need not with respect to the
information called for by clause (ii) below include Immaterial information, for
each FCC License issued to or operated by PCI or its Subsidiaries (including all
FCC Licenses subject to a PCI Management Agreement):
(i) for all FCC Licenses (including all SMR Licenses), the name
of the licensee, the name of the seller(s), the call sign, the transmitter
location (by site coordinates and city), the category or type of service
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56
(E.G., paging, SMR, etc.), the frequency or frequencies authorized, and
operating entity;
(ii) in the case of SMR Licenses, the number of channels
authorized, the number of channels constructed, whether the license is for
a conventional or trunked SMR System, the applicable loading date, whether
the SMR License is subject to a Finders Preference, whether the SMR License
is operating under Special Temporary Operating Authority ("STA") and the
applicable STA expiration date, and whether the SMR License is managed by
PCI pursuant to a PCI Management Agreement or by any other persons pursuant
to a Third-Party Management Agreement;
(iii) each holder of any such FCC License that is neither wholly
owned by PCI nor owned entirely by unaffiliated persons and managed by PCI;
and
(iv) for all FCC Licenses (including SMR Licenses), whether such
FCC Licenses are subject to rights of first refusal, options and other such
rights or obligations in existence on the date of the First Agreement,
including, without limitation, entitlements to acquire additional ownership
interests, which may affect the ownership interests of PCI.
(c) CONDITION OF SYSTEMS. All of the properties, equipment and
systems owned and/or operated by PCI and related to the FCC licenses set forth
on Schedule 2.27 are, and, to the knowledge of PCI, any such properties,
equipment and systems added in connection with any contemplated system expansion
or
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57
construction prior to the Closing will be, in compliance with all standards
or rules imposed by any governmental agency or authority (including, without
limitation, the FCC, the Federal Aviation Administration and (if applicable),
any public utilities commission or other state or local governments or
instrumentalities) applicable to PCI or its operation of the properties,
equipment and systems or as imposed under any agreements with customers, except
for any non-compliance that is, individually or in the aggregate Immaterial. To
the knowledge of PCI, all of the equipment and systems owned and/or operated by
PCI are in good repair and working order, ordinary wear and tear excepted. In
addition to the other representations and warranties set forth herein which are
expressly based upon PCI's knowledge, with regard to the 450 MHz FCC Licenses
set forth on Schedule 2.27, the representations in this Section 2.27(c) are made
to the best of PCI's knowledge.
(d) FEES; LICENSE COMPLIANCE. PCI has paid all franchise, license or
other fees and charges which have become due in respect of its business and has
made appropriate provision as is required by generally accepted accounting
principles, consistently applied, for any such fees and charges which have
accrued. Except for Immaterial matters or as set forth in Schedule 2.27, PCI
has duly secured all necessary permits, licenses, consents and authorizations
from, and has filed all required registrations, applications, reports and other
documents with, the FCC and, if applicable, any public utilities commission and
other entity exercising jurisdiction over the SMR businesses,
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58
radio paging businesses and other radio communications businesses of PCI or
the construction of delivery systems therefor, as such businesses are
currently conducted. PCI or a Subsidiary holds or has the contractual right
to obtain the FCC Licenses specified on Schedule 2.27 and, except for matters
that are, individually or in the aggregate Immaterial, or as indicated in
such Schedule, all such FCC Licenses are valid and in full force and effect
without conditions except for such conditions as are stated on the FCC
License or as are generally applicable to holders of similarly situated FCC
Licenses. PCI has filed with the FCC prior to any applicable deadline a
complete and accurate application for rejustification of any unconstructed or
deconstructed FCC License related to previously granted or requested wide
area Enhanced Specialized Mobile Radio ("ESMR") licenses. Except as set
forth on Schedule 2.27, with regard to FCC Licenses related to wide area ESMR
frequencies, neither PCI nor any of its Subsidiaries is subject to a short
space agreement or any other agreement, FCC waiver or otherwise applicable
regulations encumbering or limiting the use of such FCC License. Except for
Immaterial matters or as set forth on Schedule 2.27, all applicable loading
requirements with respect to any SMR Licenses listed on such Schedule have
been met and PCI has taken every reasonable action to cause the same to be
loaded in compliance with FCC regulations. Except matters that are,
individually or in the aggregate Immaterial, or as set forth on Schedule
2.27, to the knowledge of PCI no event has occurred and is continuing which
could (i) result in the revocation,
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59
termination or adverse modification of any FCC License listed on such
Schedule or (ii) adversely affect any rights of PCI thereunder. Except as
indicated on Schedule 2.27, PCI has no reason to believe and no knowledge
that all of the FCC Licenses specified on Schedule 2.27 will not be renewed
in the ordinary course. Except with regard to any planned enhanced SMR
Systems of PCI and except as shown on Schedule 2.27, PCI has sufficient time,
materials, equipment, contract rights and other required resources to
complete, in a timely fashion and in full, construction of all the SMR
Systems, radio paging and other radio communications systems associated with
the FCC Licenses listed on Schedule 2.27 in compliance with all applicable
technical standards and construction requirements and deadlines. Except for
matters that are, individually or in the aggregate Immaterial, or as set
forth on Schedule 2.27, the current ownership and operation by PCI of such
SMR Systems, radio paging and other radio communications systems comply with
the Communications Act of 1934, as amended (the "Communications Act"), and
all applicable rules, regulations and policies of the FCC. In addition to
the other representations and warranties set forth herein which are expressly
based upon PCI's knowledge, with regard to the 450 MHz FCC Licenses set forth
on Schedule 2.27, the representations in this Section 2.27(d) are made to the
best of PCI's knowledge.
(e) MANAGEMENT AGREEMENTS. Set forth on Schedule 2.27(e) is a
complete and correct list of all PCI Management Agreements (and associated
option agreements, if any) and
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Third-Party Management Agreements to which PCI or any Subsidiary is a party
that correctly identifies the manager under each such agreement and the
holder of the SMR Licenses which are the subject of such agreements, the
transmitter locations (by address), and number of channels covered by such
SMR Licenses, the term of such agreements, any options or calls (and the
respective option or call prices as well as the time period in which any
option or call must be exercised or made) in favor of any party to such
agreements to purchase or sell any interest in such SMR Licenses and the
respective fees or revenues payable or receivable under any such agreements.
Except for matters that are, individually or in the aggregate, Immaterial or
as set forth on Schedule 2.27(e) to the knowledge of PCI and its
Subsidiaries, the terms of all such PCI Management Agreements and Third-Party
Management Agreements and the operation of each SMR System pursuant thereto
comply with the Communications Act and all applicable rules, regulations and
policies of the FCC. Except for matters that are, individually or in the
aggregate Immaterial, or as set forth on Schedule 2.27(e), none of the
channels licensed to PCI or its Subsidiaries are subject to a Third Party
Management Agreement. Each PCI Management Agreement includes an option
allowing PCI or a Subsidiary to purchase the channels that are subject to
that agreement and no such option will be adversely affected by the Merger.
(f) DISCRETE FREQUENCY APPLICATION. PCI has provided Nextel access
to, and prior to December 16, 1996 will have delivered to Nextel a true and
correct copy of, each Request for
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Rule Waiver and related digital mobile system application and each general
cover letter related to an ESMR application, as filed with the FCC, and any
correspondence relating to any frequency sent to the FCC and all supplemental
or related materials filed or sent in connection therewith by or on behalf of
PCI, all materials submitted to the FCC and/or to PCI in connection therewith
by any third party, and any written communication issued by the FCC or any
FCC staff member in response to, or otherwise in connection with, any of the
foregoing.
2.28 SCHEDULE DISCLOSURE. Regardless of any qualifications or limitations
on the representations and warranties set forth in this Article II regarding
materiality, PCI has used all reasonable best efforts to list and/or describe on
the Schedules all matters required to be listed and/or described by the
representations and warranties set forth herein.
2.29 INFORMATION IN REGISTRATION STATEMENT. The information, regarding PCI,
its subsidiaries and affiliates, included in the Registration Statement referred
to in Sections 4.4 and 5.2 of this Agreement will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
2.30 CASTLE TOWER AGREEMENTS. PCI, a certain PCI Subsidiary and Castle
Tower Corporation, formerly known as Castle Communications Corporation
("Castle"), entered into that certain
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License Agreement dated as of January 10, 1995, as amended, (the "Castle
License Agreement") and that certain Purchase and Sale Agreement dated as of
December 23, 1994, as amended, (the "Castle Purchase Agreement"). Except as
set forth in the Schedules with reference to this Section, (i) there are no
actions, suits or proceedings, formally instituted, pending or threatened,
against PCI or any of its affiliates related to the Castle Purchase Agreement
or the Castle License Agreement, and (ii) all radio communications equipment,
including base stations, antennae, poles, dishes or masts, cabling or wiring
and accessories used therewith, leased to or owned by PCI and located on
property owned by Castle is currently in compliance with the technical
standards relating to frequency compatibility, radio interference protection,
antenna type and location and physical installation set forth on Exhibit B to
the License Agreement.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF NEXTEL AND MERGER SUB
Nextel and Merger Sub, jointly and severally, represent and warrant to PCI
that:
3.1 CORPORATE ORGANIZATION; AUTHORIZATION. (a) Each of Nextel and Merger
Sub has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Delaware and has the corporate power and
authority to own or lease its properties and to conduct its business as it is
now being conducted.
(b) Each of Nextel and Merger Sub has all necessary corporate power and
authority to enter into this Agreement and to
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perform all of the obligations to be performed by it hereunder. The
execution, delivery and performance of this Agreement by Nextel and Merger
Sub have been duly authorized by Nextel and Merger Sub, respectively, and
upon the execution and delivery hereof by Nextel and Merger Sub, this
Agreement will constitute the valid and legally binding obligations of Nextel
and Merger Sub, enforceable against each of them in accordance with its terms.
3.2 CAPITAL STOCK. The entire authorized capital stock of Nextel consists
solely of (a) 515,000,000 shares of Nextel Common Stock, of which 337,899,220
shares were issued and outstanding as of August 30, 1996, (b) 35,000,000 shares
of Class B Non-Voting Common Stock, par value $.001 per share, of which
17,830,000 shares were issued and outstanding as of August 30, 1996, (c)
10,000,000 shares of preferred stock, par value $.01 per share, of which (i)
8,163,265 Class A shares, (ii) 82 Class B shares and (iii) no other Preferred
shares of any other Class were issued and outstanding as of August 30, 1996. At
the Effective Time of the Merger, the shares of Nextel Common Stock issued by
reason of the Merger will be duly authorized, validly issued, fully paid and
nonassessable, and their issuance in connection with the Merger will be
registered under the Securities Act and registered or exempt from registration
under applicable state securities laws and such shares of Nextel Common Stock
will be listed on the Nasdaq NM. At the Effective Time of the Merger, Nextel
will have a sufficient number of authorized but unissued shares of Nextel
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Common Stock reserved under the Nextel Plan for issuance upon conversion and
exercise of the PCI Stock Options.
3.3 COMMON STOCK; REGISTRATION. At the Closing, the shares of Nextel
Common Stock issued by reason of the Merger will be duly authorized, validly
issued, fully paid and nonassessable, will be registered under the Securities
Act, and will be "voting stock" within the meaning of Section 368(a)(1)(B) of
the Code.
3.4 NO CONFLICT. The execution and delivery of this Agreement by Nextel
and Merger Sub and the consummation of the transactions contemplated hereby do
not and will not violate any provision of, or result in the breach of, or
accelerate or permit the acceleration of the performance required by the terms
of, any applicable law, rule or regulation of any governmental body, the Amended
and Restated Certificate of Incorporation or the Amended and Restated By-Laws of
Nextel, or the Certificate of Incorporation or the By-Laws of Merger Sub or any
agreement, indenture or other instrument to which Nextel or Merger Sub is a
party or by which Nextel or Merger Sub may be bound, or of any order, judgment
or decree applicable to it, or terminate or result in the termination of any
such agreement, indenture or instrument, or result in the creation of any lien,
charge or encumbrance upon any of the properties or assets of Nextel or Merger
Sub under any agreement to which either of them is a party, or constitute an
event which, after notice or lapse of time or both, would result in any such
violation, breach, acceleration, termination or creation of a lien, charge or
encumbrance, except where any such violation, breach,
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acceleration, termination or creation would not have a material adverse
effect on the business, financial condition, results of operations,
liabilities or assets of Nextel and its subsidiaries, taken as a whole, or
would not impair Nextel's or Merger Sub's ability to perform, in any material
respect, its obligations under this Agreement or any other document or
instrument to which Nextel or Merger Sub is a party in connection with the
transactions contemplated herein.
3.5 INFORMATION. Nextel has delivered to PCI each registration statement,
schedule, report, proxy statement or information statement it has filed with the
SEC from January 1, 1996 to the date of the First Agreement, including, without
limitation, (a) Nextel's Annual Report on Form 10-K for the year ended
December 31, 1995 and (b) Nextel's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, (collectively, the "Nextel Reports"). As of the date of
the First Agreement, the Nextel Reports, taken as a whole and taken together
with any other information previously furnished by Nextel to PCI (except for any
forecasts or projections or forward-looking estimates or similar predictive
information contained therein), did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading. As used in this Section, "material" means
material to the business, financial condition, results of operations,
liabilities or assets of Nextel and its subsidiaries, taken as a whole. The
representation made in this
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Section shall also be deemed to be made by Nextel to PCI immediately prior to
the Closing, but with reference to all information furnished by Nextel to PCI
prior to the Closing.
3.6 INFORMATION IN REGISTRATION STATEMENT. The information, except
information regarding PCI, its Subsidiaries and affiliates, included in the
Registration Statement referred to in Sections 4.4 and 5.2 of this Agreement
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
ARTICLE IV. COVENANTS OF PCI
4.1 CONDUCT OF BUSINESS. (a) From the date of the First Agreement until
the Effective Time of the Merger, PCI shall conduct its business, and shall
cause each Subsidiary to conduct such Subsidiary's business, only in the
ordinary course and, without limiting the generality of the foregoing, neither
PCI nor any Subsidiary shall, without the written consent of Nextel: (i) except
as permitted by Section 4.1(b), dispose or contract to dispose of any SMR
Channels or FCC Licenses except as may occur as a result of an FCC enforcement
action or otherwise required under law; (ii) except as set forth on a Schedule
that refers to this Section, dispose of or contract to dispose of any other
assets, tangible or intangible, except in the ordinary course of business,
consistent with past practice and, with respect to capital assets, in connection
with the replacement of the asset
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being disposed of; (iii) except as set forth in Section 4.7 or as permitted
by Section 4.1(b), acquire or contract to acquire any SMR Channels or FCC
Licenses or any rights to acquire any SMR Channels or FCC Licenses or acquire
or contract to acquire, directly or indirectly, any interest in an entity
that has any interest in SMR Channels or FCC Licenses; (iv) voluntarily incur
any absolute or contingent debt obligation except in the ordinary course of
business under currently existing lines of credit; (v) enter into any lease
or contract for the purchase or sale of real estate or of any interest
therein; (vi) encumber any property or other assets except for encumbrances
constituting Permitted Liens or encumbrances of which Nextel is promptly
notified in writing and which will be removed prior to the Closing; (vii)
declare or pay any dividend or purchase or redeem any of its shares, notes or
other securities or make any other distribution to shareholders; (viii) other
than in accordance with normal compensation adjustment policies (all of
which, including year-end bonuses, are included in the Schedules), increase
the rate of remuneration to any of its directors, officers, employees or
other representatives, or agree to do so or fail to pay any year-end bonuses
then owed included on such Schedule prior to the Effective Time of the
Merger; (ix) except for obtaining stockholder approval of the 1996 Stock
Option Plan and the 1996 Non-Employee Director Stock Option Plan, amending
the 1994 Non-Employee Director Stock Option Plan to eliminate automatic
granting of PCI Options or as permitted by Section 5.6(a), adopt any new or
amend any existing employee benefit plan
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or any employment agreement or amend any PCI Stock Option once implemented
except as set forth in Section 1.21(a); (x) form or cause to be formed any
subsidiary; (xi) issue, sell, distribute or dispose of any shares, notes or
other securities of PCI or offer to sell or sell any PCI Common Stock
registered pursuant to PCI's shelf registration statement on Form S-4
(Registration No. 33-83810) or commit itself to do so; (xii) make any
commitments for capital improvements; or (xiii) fail to keep its properties
insured substantially to the same extent as they are currently insured.
(b) PCI may dispose of or contract to dispose of any non-SMR Channel or
FCC License that is within 25 miles of an MSA market identified on Schedule 1.2
but does not meet the criteria set forth in Section 1.2(d)(vi)(y) in exchange
for SMR Channels or FCC Licenses that enable PCI to Deliver additional Channels.
PCI may acquire third-party FCC Licenses that are located within 55 miles of a
PCI controlled license, but PCI may not pay more than $10,000 per frequency so
acquired.
4.2 REASONABLE EFFORTS. PCI shall, and shall cause each Subsidiary to,
use all reasonable efforts to preserve intact its business organization and to
preserve its goodwill as to customers, suppliers and others having business
relations with it.
4.3 INSPECTION. PCI shall, and shall cause each Subsidiary to, permit
representatives of Nextel, during normal business hours, to examine PCI's and
each Subsidiary's properties, books, contracts, tax returns and other records,
and shall furnish such
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representatives with all such information concerning such affairs as they may
reasonably request.
4.4 SEC REGISTRATION. (a) PCI shall use its reasonable best efforts to,
and shall use its reasonable best efforts to cause each Subsidiary to, furnish
to Nextel such information about PCI and each Subsidiary (including their
respective affiliates) as may be necessary to enable Nextel to prepare and file
with the SEC a Registration Statement on Form S-4 under the Securities Act and
the rules and regulations promulgated thereunder, in respect of the shares of
Nextel Common Stock to be issued by reason of the Merger (such registration
statement, the prospectus included therein and the proxy statement to be
furnished to the holders of PCI Common Stock, in each case together with any
amendments or supplements thereto, the "Registration Statement"). PCI shall use
its reasonable best efforts so that the PCI Information (as defined below)
included in the Registration Statement shall not, at the time the Registration
Statement is declared effective, at the time the proxy statement/prospectus
contained therein is first mailed to PCI's stockholders, or at the time of the
meeting of the stockholders of PCI to approve the Merger, contain any untrue
statement of a material fact, omit to state any material fact required to be
stated therein, or omit any material fact necessary in order to make the
statements therein not misleading. If at any time prior to the Effective Time
any event or circumstance should come to the attention of PCI with respect to
the PCI Information which is required to be set forth in an
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amendment or supplement to the Registration Statement, PCI will immediately
notify Nextel and shall assist Nextel in appropriately amending or
supplementing the Registration Statement in the manner contemplated in
Section 5.2(b). An amendment or supplement may be accomplished, to the
extent permitted by law, rule or regulation, by including such information in
a filing under the Exchange Act that is incorporated by reference into the
Registration Statement. The Registration Statement insofar as it relates to
information concerning PCI, its Subsidiaries, or any of their respective
businesses, assets, directors, affiliates, officers or shareholders that is
supplied by PCI for inclusion in the Registration Statement, including
incorporation by reference to SEC filings (the "PCI Information"), will
comply as to form and substance in all material respects with the applicable
requirements of the Securities Act and the rules and regulations thereunder
and the Exchange Act and the rules and regulations thereunder; except that
PCI shall have no liability or obligation for any information other than the
PCI Information.
(b) PCI shall instruct its accountants to deliver and shall use its
reasonable best efforts to cause its accountants, KPMG Peat Marwick LLP, to
deliver to Nextel letters dated at the time the Registration Statement becomes
effective and as of the Closing, addressed to Nextel, each containing such
matters as are customarily contained in auditors' letters regarding information
about PCI and its Subsidiaries expressly for inclusion in the
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Registration Statement, and in a form and substance reasonably satisfactory
to Nextel.
4.5 ANTITRUST FILING. In connection with the transactions contemplated by
this Agreement, PCI (and, to the extent required, its affiliates) shall promptly
file or cause to be filed any reports, documents, filings or other data required
to be filed by PCI pursuant to the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act") and the rules and regulations promulgated thereunder,
and shall use its best efforts to respond as promptly as practicable to all
inquiries received for additional information or documentation.
4.6 RESTRAINT ON SOLICITATIONS. From the date of the First Agreement
until the Effective Time of the Merger, neither PCI nor any of its respective
directors, officers, employees, affiliates, representatives or agents, shall
directly or indirectly, encourage (including by way of furnishing information),
solicit, initiate, participate in or otherwise be a party to any discussions or
negotiations with any corporation, partnership, person or other entity or group
concerning any transaction that constitutes, or may reasonably be expected to
lead to, any Takeover Proposal (as defined herein). Neither the Board of
Directors of PCI nor any committee thereof shall (a) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Nextel, the approval or
recommendation by the Board of Directors of PCI of the Merger or this Agreement
or (b) approve or recommend, or propose to approve or recommend, any Takeover
Proposal or any other acquisition of outstanding shares of PCI
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Common Stock other than pursuant to the Merger or this Agreement.
Notwithstanding the foregoing, nothing contained in this Agreement shall
prevent the Board of Directors of PCI from furnishing information to, or
entering into discussions or negotiations with, any unsolicited corporation,
partnership, person or other entity or group, or taking any action described
in clauses (a) and (b) of the preceding sentence, if and only to the extent
that the Board of Directors of PCI shall have determined in good faith, after
receiving written advice of its outside counsel, that such action would be
required under applicable law in the exercise of its fiduciary duties. PCI
will immediately notify Nextel if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations
or discussions are sought to be initiated or continued with, PCI. As used in
this Agreement, "Takeover Proposal" shall mean any tender or exchange offer,
proposal, other than a proposal by Nextel or any of its affiliates, for a
merger, share exchange or other business combination involving PCI or any
proposal or offer to acquire in any manner a substantial equity interest in
PCI or a substantial portion of the assets of PCI.
4.7 BEST EFFORTS. PCI shall, and shall cause each Subsidiary to, use its
reasonable best efforts (i) to obtain prior to Closing all of the SMR licenses
or applications being sought by PCI and/or a Subsidiary that are on file with
and pending approval from the FCC prior to Closing, including all frequencies or
applications pending as of the date of the First Agreement for
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wide area ESMR filings and all finder's preference applications, and (ii) to
obtain as promptly as practicable and in any event prior to Closing all FCC
approvals or consents necessary to permit the consummation of the
transactions contemplated by this Agreement. PCI shall obtain the
amendments, consents and approvals regarding the PCI Stock Options and/or any
related agreements contemplated by Section 1.21(a).
4.8 STOCKHOLDER APPROVAL. After the Registration Statement has become
effective, PCI shall use its reasonable best efforts to promptly furnish a copy
of the proxy statement/ prospectus included therein to each stockholder of PCI
and to call and convene a special meeting to obtain promptly any approvals of
the PCI stockholders required in connection with the transactions contemplated
by this Agreement.
4.9 AFFILIATES.
(a) PCI shall use all reasonable efforts to cause each person who is
an "affiliate" of PCI for purposes of Rule 145 under the Securities Act to
deliver to Nextel prior to the date of PCI's stockholders' meeting a written
agreement substantially in the form attached hereto as Annex A.
4.10 UPDATE INFORMATION. Not earlier than ten (10) and not less than five
(5) days before the date scheduled for Closing, PCI shall correct and supplement
in writing any information furnished on Schedules that, to the knowledge of PCI,
is incorrect or incomplete (or otherwise expressly contemplated by Article II of
this Agreement), and shall promptly furnish such corrected and supplemented
information to Nextel, so that such
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information shall be correct and complete at the time such updated
information is so provided. Thereafter, to the Closing, PCI shall notify
Nextel in writing of any changes or supplements to the updated information
needed, to the knowledge of PCI, to make such information correct and
complete at all times to the Closing. It is agreed that the furnishing of
such corrected and supplemental information, in and of itself, shall not
create any presumption that such information constitutes or evidences the
existence of a material change or any breach or violation by PCI of any
provision of this Agreement.
ARTICLE V. COVENANTS OF NEXTEL
5.1 ANTITRUST FILING. In connection with the transactions contemplated by
this Agreement, Nextel shall promptly file or cause to be filed any reports,
documents, filings or other data required to be filed by Nextel pursuant to the
HSR Act and the rules and regulations promulgated thereunder, and shall use its
best efforts to respond as promptly as practicable to all inquiries received for
additional information or documentation.
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5.2 REGISTRATION STATEMENT.
(a) Nextel shall file the Registration Statement and use its
reasonable best efforts to cause such Registration Statement to become effective
as promptly as practicable, and shall use its reasonable best efforts to take
any action required to be taken to comply in all material respects with any
applicable federal or state securities laws in connection with the issuance of
Nextel Common Stock in the Merger; except that such covenant of Nextel is made,
as to those portions of the Registration Statement containing or required to
contain PCI Information, assuming and relying on timely and full compliance with
Section 4.4.
(b) Nextel shall use its reasonable best efforts so that the
information included in the Registration Statement, shall not, at the time the
Registration Statement is declared effective, at the time the proxy
statement/prospectus contained therein is first mailed to PCI's stockholders, or
at the time of the meeting of the stockholders of PCI to approve the Merger,
contain any untrue statement of a material fact, omit to state any material fact
required to be stated therein, or omit to state any material fact necessary in
order to make the statements therein not misleading; except that such covenant
of Nextel is made, as to those portions of the Registration Statement containing
or required to contain PCI Information, assuming and relying on timely and full
compliance with Section 4.4. If at any time prior to the Effective Time any
event or circumstance should come to the attention of Nextel which is required
to be
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set forth in an amendment or supplement to the Registration Statement,
Nextel will use its reasonable best efforts to appropriately amend or supplement
the Registration Statement. An amendment or supplement may be accomplished, to
the extent permitted by law, rule or regulation, by including such information
in a filing under the Exchange Act that is incorporated by reference into the
Registration Statement. The Registration Statement and all other documents
required to be filed by Nextel with the SEC in connection with the transactions
contemplated herein will comply as to form and substance in all material
respects with the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules and regulations
thereunder; except that Nextel shall have no liability or obligation for any PCI
Information.
5.3 CURRENT PUBLIC INFORMATION. Nextel shall use all reasonable efforts
to file all reports required to be filed by it under the Securities Act or the
Securities Exchange Act of 1934 and the rules and regulations adopted by the SEC
thereunder and shall use all reasonable efforts to take such further action as
may be necessary to ensure that the requirements of Rule 144(c) under the
Securities Act are satisfied such as to enable any "affiliates" of PCI (for
purposes of Rule 145 under the Securities Act) to offer or sell the shares of
Nextel Common Stock received by them in the Merger pursuant to paragraph (d) of
Rule 145 (subject to compliance with the provisions of paragraphs (e), (f) and
(g) of Rule 144).
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5.4 OFFER TO WARRANT HOLDERS. Nextel shall offer to each holder of a
warrant listed on Schedule 2.5(a) (other than FMR, Corp.) the opportunity to
exchange its warrant at the Closing for a warrant to purchase shares of Nextel
Common Stock in the form attached as Annex D. Any terms and conditions
negotiated by Nextel with any warrant holder shall not give any other warrant
holder the right to comparable terms and conditions. Nextel's offer pursuant to
this Section 5.4 shall expire at the time the Registration Statement is filed
with the SEC.
5.5 DIRECTORS AND OFFICERS INDEMNIFICATION. (a) For a period of three
years from and after the Effective Time of the Merger, Nextel shall cause the
Surviving Corporation to indemnify and hold harmless each present and former
director and officer of PCI against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, proceeding, investigation or action,
whether civil, criminal, administrative or investigative, arising out of or
pertaining to matters existing or occurring at or prior to the Effective Time of
the Merger, whether asserted or claimed prior to, at or after the Effective Time
of the Merger, to the fullest extent that PCI would have been permitted under
the Certificate of Incorporation or By-Laws of PCI in effect immediately prior
to the Effective Time of the Merger to indemnify such person (including the
advancing of expenses as incurred to the fullest extent permitted under
applicable law; PROVIDED that the person to whom such expenses are advanced
provides an undertaking to the Surviving
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Corporation to repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
(b) For a period of three years from and after the Effective Time of
the Merger, Nextel shall cause the Surviving Corporation to use all reasonable
efforts to maintain director and officer insurance comparable to that maintained
by PCI at the Effective Time of the Merger. After the third anniversary of the
Closing, the Surviving Corporation may terminate such insurance provided that
the Board of Directors of the Surviving Corporation reasonably determines that
the Surviving Corporation has the financial ability to satisfy its
indemnification obligations under this Section 5.5.
5.6 EMPLOYEE MATTERS. (a) If any individual who is employed by PCI at the
Effective Time of the Merger whose employment with the Surviving Corporation
(and all affiliates of the Surviving Corporation) is involuntarily terminated by
the Surviving Corporation or an affiliate without cause (as defined below)
during the six-month period immediately after the Effective Time of the Merger
then (y) such individual shall receive a severance payment, subject to
applicable withholding and other taxes, in an amount equal to (i) three (3)
times such employee's monthly salary, plus (ii) an additional week's salary for
each year that such employee had been employed by PCI, plus (iii) an amount
equal to the unvested employer's contributions made or accrued on or before the
date of the Closing to the PCI 401(k) Plan for the account of that employee and
(z) all issued and outstanding options of Nextel held by such employee shall
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automatically vest. For purposes of this Section, termination without cause
shall mean the termination of any employee's employment with the Surviving
Corporation and all affiliates of the Surviving Corporation other than a
termination for one or more of the following reasons: (i) willful, knowing and
intentional violation of an express direction or rule or regulation of general
application; (ii) theft, misappropriation or embezzlement of the employer's
funds; (iii) conviction of a felony; or (iv) repeated and consistent failure to
be present at work during regular hours without a valid reason therefor.
(b) In accordance with the terms and provisions of the executive
employment agreements dated as of February 22, 1996 and presently in existence
between PCI and each of Dale E. Harkins, Warren D. Harkins, Thomas R. Modisett,
C.G. Whitten and Bradley B. Waldrip (each, an "Executive"), the employment of
each Executive shall be terminated upon the occurrence of a "change of control"
as defined therein, and, upon such termination, the Surviving Corporation will
pay and make available to each Executive, all of the severance payments and
rights provided for in Section 2.2(e) of each such agreement.
(c) At the Effective Time of the Merger, all issued and outstanding
options of PCI held by non-employee directors of PCI shall automatically vest.
ARTICLE VI. JOINT COVENANTS
6.1 CONFIDENTIALITY.
(a) Except (i) for the use of information as required in connection
with Nextel's Registration Statement, (ii) for any
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other governmental filing required in order to complete the transactions
contemplated herein, and (iii) as Nextel and PCI may agree or consent in
writing, all information received by PCI and Nextel and their respective
representatives pursuant to the terms of this Agreement shall be kept in
strictest confidence by the receiving party and its representatives. If the
transactions contemplated hereby shall fail to be consummated, all copies of
documents or extracts thereof containing information and data as to one of
the other parties, including all information prepared by the receiving party
or such receiving party's representatives, shall be turned over to the party
furnishing same, except that such information prepared by the receiving party
or such receiving party's representatives may be destroyed at the option of
the receiving party, with notice of such destruction (or return) to be
confirmed in writing to the disclosing party. Any information not so
destroyed (or returned) will remain subject to these confidentiality
provisions (notwithstanding any termination of this Agreement) until the
second anniversary of the date of the First Agreement.
(b) The foregoing confidentiality provisions shall not apply to such
portions of the information received which (i) are or become generally available
to the public through no action by the receiving party or by such party's
representatives or (ii) are or become available to the receiving party on a
nonconfidential basis from a source, other than the disclosing party or its
representatives, which the receiving party believes, after reasonable inquiry,
is not prohibited from disclosing such
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portions to it by a contractual, legal or fiduciary obligation, and shall not
apply to any disclosure by Nextel of any information disclosed by PCI, so
long as such disclosure occurs after the Closing.
6.2 STANDSTILL AGREEMENT. From the date of the First Agreement until
the Effective Time of the Merger, neither PCI, nor any representatives of PCI,
acting on its behalf or in concert with it, will directly or indirectly (i)
acquire, or offer, propose or agree to acquire, by purchase or otherwise, any
Nextel Common Stock, or (ii) participate in or encourage the formation of any
partnership, syndicate or other group which owns or seeks or offers to acquire
beneficial ownership of, any Nextel Common Stock.
6.3 TRADING PROHIBITIONS. PCI hereby acknowledges that as a result of
disclosures by Nextel contemplated under this Agreement, PCI and its affiliates
may, from time to time, have material, non-public information concerning Nextel
and other companies. PCI confirms that it and its affiliates are aware and PCI
has advised its representatives that (i) the United States securities laws may
prohibit a person who has material, non-public information from purchasing or
selling securities of any company to which such information relates, and (ii)
material non-public information shall not be communicated to any other person
except as permitted herein.
6.4 SUBSTITUTE OF SUBSIDIARY. Nextel has the option to substitute any
wholly-owned direct or indirect subsidiary of Nextel either for NFC or Merger
Sub in connection with the
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Merger, provided that such substitution does not adversely affect the
interests of PCI or its stockholders. If Nextel makes such an election, each
reference to NFC or Merger Sub, as applicable, herein shall be deemed to
refer to the new subsidiary.
6.5 SUPPORT OF TRANSACTIONS. Nextel, PCI and their respective affiliates
shall each (i) use his or its reasonable best efforts to assemble, prepare and
file any information (and, as needed, to supplement such information) as may be
reasonably necessary to obtain as promptly as practicable all governmental and
regulatory consents required under Article VIII, (ii) exert his or its
reasonable best efforts to obtain all material consents and approvals of third
parties that either of Nextel, PCI or their respective affiliates are
responsible to obtain in order to consummate the Merger, (iii) take such other
action as may reasonably be necessary or as another party may reasonably request
to satisfy the conditions of Article VIII or otherwise to comply with this
Agreement, and (iv) provide the other parties, and such other party's employees,
officers, accountants, lawyers, financial advisors and other representatives
with access to its personnel, properties, business and records under all
reasonable circumstances.
6.6 COOPERATION CONCERNING EXTENDED IMPLEMENTATION CHANNELS. Nextel, PCI
and their respective controlled affiliates agree to cooperate and to use their
respective best efforts to achieve the maximum amount of time from the FCC for
construction of the Extended Implementation Channels. Accordingly, PCI agrees
to present reasonably in advance of any proposed filing with the
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FCC a draft for review by Nextel and either (i) to make such changes as are
proposed by Nextel or (ii) to discuss any changes proposed by Nextel that
will not be made in the filing. Further, Nextel, PCI and their respective
controlled affiliates shall cooperate with regard to any design, engineering,
zoning, equipment selection or construction efforts to achieve construction
of such Extended Implementation Channels as economically as possible and in
full compliance with all applicable rules and regulations of the FCC. Nextel
may, in its sole discretion, advance cash to PCI to enable PCI to construct
channels on which there is at any time prior to Closing less than six months
remaining to construct Extended Implementation Channels after the FCC has
responded to PCI's filings for rejustification of its extended implementation
grants.
6.7 AUCTION PARTICIPATION.
(a) DEFINITIONS. For purposes of this Section, the following
terms shall have the following indicated meanings:
(i) "EA" means Bureau of Economic Analysis Economic Area, the
defined market-based service areas in which blocks of SMR spectrum are
proposed to be assigned pursuant to the EA Auction.
(ii) "EA Auction" means the 800 MHz SMR block license auction
established by the FCC in the First Report and Order, PR Docket No. 93-144,
released December 15, 1995.
(iii) "Overlap EAs" means the following EAs: 127 (Dallas/Ft.
Worth); 128 (Abilene); 129 (San Angelo); 130 (Austin); 131 (Houston); 132
(Corpus Christi); 133 (McAllen); 134 (San Antonio); 135 (Odessa-Midland);
136 (Hobbs); 137 (Lubbock); 138 (Amarillo); 157 (El Paso); and 87
(Beaumont).
(b) FORMATION OF CONSORTIUM. In the event that, pursuant to FCC
rules, the filing deadline for eligibility to participate in the EA Auction
occurs prior to the earlier of the Effective Time of the Merger or the
expiration or termination of this Agreement, PCI and Nextel or a designated
subsidiary (hereinafter referred to as "Nextel") shall form a consortium to
participate in bidding in the EA Auction for block licenses in the Overlap EAs.
Nextel shall determine and control all aspects of the consortium's bidding
strategy and participation (including, without limitation, determining the
amount of the joint bids to be submitted by the consortium, the EAs in which
to bid, and whether to top competing bids) and shall be responsible for funding
100% of the consortium's bids. Neither party shall bid for block licenses in
the Overlap EAs except via the consortium and PCI shall not bid for block
licenses in EAs outside of the Overlap EAs. Nextel shall be free to bid for
block licenses outside of the Overlap EAs individually or in consortia formed
with other parties, and without reference to the consortium procedures set
forth herein.
(c) AWARDED CHANNELS. Nextel shall be entitled to retain the
right to all channels included in block licenses the consortium is awarded
pursuant to the EA Auction, if any (each, an "Awarded License") subject to
the PCI purchase option hereinafter described. In the event of the
termination or expiration of this Agreement prior to the Effective Time of
the Merger but after the formation of the consortium, PCI shall have the
right to purchase an aggregate of twenty (20) channels in each Overlap EA in
which an Awarded License is granted (but no more than twenty (20) channels in
any Overlap EA), exercisable by written notice to Nextel within thirty (30)
days after the later of (i) such expiration or termination, and (ii) the
grant of the Awarded License to the consortium; provided that (A) the
consortium is granted Awarded License(s) including more than twenty (20)
channels in the Overlap EA with respect to which PCI wishes to exercise its
purchase option; and (B) if the disaggregation of channels from an Awarded
License would be necessary to permit the assignment and sale of such channels
to PCI, such disaggregation of channels included in licenses granted pursuant
to the EA Auction is permitted under FCC rules. The purchase price payable to
Nextel upon the exercise of such option shall be an amount in cash equal to
the auction bid price paid by the consortium for such channels. The channels
sold to PCI upon an exercise of the purchase option shall be chosen by Nextel
and shall be contiguous channels included in an Awarded License. The parties
shall use all reasonable efforts to effect the assignment to PCI of any
channels with respect to which the purchase option is exercised (including,
without limitation, cooperation in the submission of applications for the
assignment or transfer of control of subject channels required under
applicable FCC rules) promptly following such exercise. Such purchase option
is applicable only to the rights to use of spectrum in the Overlap EAs which
may be obtained by the consortium in the EA Auction (if any), and shall not
apply to existing channel holdings of Nextel or its subsidiaries or channel
holdings that Nextel or its subsidiaries may acquire other than as an Awarded
License in the EA Auction.
(d) FURTHER ASSURANCES; REGULATORY COMPLIANCE. The provisions of
this Agreement reflect the intention of the parties with respect to their
participation in the EA Auction, but such provisions are based on certain
assumptions regarding the procedures and rules adopted by the FCC pursuant to
which the EA Auction will be conducted (including, without limitation, the
permissibility of parties bidding jointly via a consortium for block licenses
in specified EAs, but individually and without reference to the consortium in
other EAs). If, however, such procedures and rules vary from those assumed by
the parties hereto, such that the provisions of this Agreement are inapposite
or otherwise unworkable, the parties agree to negotiate in good faith to
amend this Agreement in order to provide an alternate manner of cooperating
in their participation in the EA Auction in the Overlap EAs to carry out the
intent of the parties set forth herein. Notwithstanding the foregoing, if any
provision herein does not comport with regulations adopted by the FCC, such
provision will be null and void. The parties will extend all reasonable good
faith efforts to act in conformance with the intent of this Agreement but
under no circumstances will this Agreement be interpreted as requiring either
party to take any action prohibited, or fail to take any action required, by
FCC regulations.
ARTICLE VII. CLOSING
7.1 FILING. As soon as all of the conditions set forth in Article VIII of
this Agreement have either been fulfilled or waived, the Boards of Directors of
Nextel, NFC, Merger Sub and PCI hereby direct their officers forthwith to file
and record all relevant documents with the appropriate government officials to
effectuate the Merger.
7.2 CLOSING. The Closing shall, unless another date or place is agreed to
in writing by the parties hereto, take place at a location and time mutually
agreed upon by Nextel and PCI at the earliest practicable date, and such date,
time and location shall be confirmed in writing by such parties not less than
ten
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(10) days prior to the scheduled date of the Closing. The term "Closing,"
when used in this Agreement, means the Effective Time of the Merger.
ARTICLE VIII. CONDITIONS TO OBLIGATIONS
8.1 CONDITIONS TO OBLIGATIONS OF NEXTEL AND PCI. The obligations of
Nextel and PCI to consummate, or cause to be consummated, the Merger are subject
to the satisfaction of the following conditions, any one or more of which may be
waived in writing by such parties:
(a) The stockholders of PCI shall have taken all necessary action to
authorize, approve and adopt this Agreement and the transactions referred to
herein.
(b) All waiting periods under the HSR Act and the regulations
promulgated thereunder applicable to the Merger shall have expired or been
terminated.
(c) All necessary approvals, clearances and consents of governmental
and regulatory authorities required to be procured by Nextel and PCI in
connection with the Merger (including all required FCC approvals and consents,
which shall be deemed to be obtained for purposes of this Agreement only when
they have become Final Orders), and all material approvals and consents of third
parties that are required to be obtained in connection with the transactions
contemplated by this Agreement or the Merger Agreement, shall have been
procured. Any consent or approval granted or an order entered by the FCC shall
be a "Final Order" when a sufficient number of days shall have elapsed
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85
from the date of entry or grant thereof without the filing of any adverse
request, petition or appeal by any party or third party or by the FCC (on its
own motion) with respect to such consent, approval or order, or any aspect or
portion thereof, or any resubmissions of any applications or requests for any
of such consents, approvals or orders, or, if challenged, that such consent,
approval or order (or affected aspects or portions thereof) shall have been
reaffirmed or upheld and the applicable period for seeking further
administrative or judicial review shall have expired without the filing of
any action, petition or request for further review.
(d) There shall not be in force any order or decree, statute, rule or
regulation nor shall there be on file any complaint by a governmental agency
seeking an order or decree, restraining, enjoining or prohibiting the
consummation of the Merger, and neither Nextel nor NFC nor Merger Sub nor PCI
nor any of its Subsidiaries shall have received notice from any governmental
agency that it has determined to institute any suit or proceeding to restrain or
enjoin the consummation of the Merger or to nullify or render ineffective this
Agreement if consummated, or to take any other action which would result in the
prohibition or material change in the Merger.
(e) Nextel's Registration Statement shall have become effective under
the Securities Act and no stop order suspending such effectiveness shall have
been issued or threatened with respect thereto.
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(f) The registration statements or other filings as may be required
under applicable blue sky laws pursuant to Annex B shall have become effective,
and no stop order shall be threatened or in effect with respect thereto.
(g) The shares of Nextel Common Stock issuable in the Merger shall
have been listed or approved for listing upon notice of issuance by the
Nasdaq NM.
8.2 CONDITIONS TO OBLIGATIONS OF NEXTEL. The obligation of Nextel to
consummate, or cause to be consummated, the transactions contemplated by this
Agreement is subject to the satisfaction of the following additional conditions,
any one or more of which may be waived in writing by Nextel:
(a) Each of the representations and warranties of PCI contained in
this Agreement shall be true and correct both on the date of the First
Agreement and as of the Closing, as if made anew at and as of that time, and
each of the covenants and agreements of PCI and its Subsidiaries to be performed
as of or prior to the Closing shall have been duly performed, except in each
case for changes after the date of the First Agreement which are contemplated or
expressly permitted by this Agreement.
(b) PCI shall have delivered to Nextel a certificate signed by its
President, dated the Closing, certifying, in form reasonably satisfactory to
Nextel and to its counsel that, to the best of the knowledge and belief of such
officer, the conditions specified in Section 8.1 as they relate to PCI and in
subsection 8.2(a), (d), (e), (i) and (j) have been fulfilled.
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87
(c) Nextel shall have received opinions, dated the Closing, from
Gardere & Wynne, L.L.P. in the form of Annex C-1 and from Gardner, Carton &
Douglas, in the form of Annex C-2.
(d) The FCC shall have acted on PCI's filing(s) for rejustification
of its extended implementation authority.
(e) PCI shall have no liabilities or obligations except Permitted
Liabilities.
(f) Nextel shall have received letters from KPMG Peat Marwick LLP,
dated as of the date the Registration Statement becomes effective and as of the
Closing, addressed to Nextel, containing such matters as are customarily
contained in auditors' letters regarding information about PCI and its
Subsidiaries expressly for inclusion in the Registration Statement, and in form
and substance reasonably satisfactory to Nextel.
(g) At the time the Registration Statement becomes effective, and
also at the Closing, PCI and its Subsidiaries shall have furnished to Nextel
certificates, dated as of said times and signed by its President and Secretary,
to the effect that to the best of the knowledge and belief of the signing
persons the material contained in the Registration Statement which relates to
PCI and its Subsidiaries, contains, as of the date of each of such certificates,
no material misstatement of fact and does not omit to state any material fact
necessary to make the statements made not misleading.
(h) Nextel shall have received from each "affiliate" of PCI (as
defined in Rule 145 under the Securities Act) a Rule 145 Letter in the form of
Annex A.
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88
(i) No stockholder of PCI shall be entitled to exercise dissenter's
or appraisal rights under the GCL.
(j) PCI shall be the sole owner of each entity listed on
Schedule 2.2(b).
(k) Nextel and Castle shall have entered into definitive agreements
that are consistent with the terms set forth in Annex F.
8.3 CONDITIONS TO THE OBLIGATIONS OF PCI. The obligation of PCI to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following additional conditions, any one or more of which
may be waived in writing by PCI:
(a) Each of the representations and warranties of Nextel contained in
this Agreement shall be true and correct in all material respects both on the
date of the First Agreement and as of the Closing, as if made anew at and as of
that time, and each of the covenants and agreements of Nextel to be performed as
of or prior to the Closing shall have been duly performed, except in each case
for changes after the date of the First Agreement which are contemplated or
expressly permitted by this Agreement.
(b) Nextel shall have delivered to PCI a certificate signed by an
officer of Nextel, dated the Closing, certifying, in form reasonably
satisfactory to PCI and its counsel, to the effect that to the best of the
knowledge and belief of such officer, the conditions specified in Section 8.1 as
they relate to Nextel and in subsection 8.3(a) have been fulfilled.
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(c) PCI shall have received an opinion, dated the Closing, from
Jones, Day, Reavis & Pogue in the form of Annex E.
ARTICLE IX. TERMINATION/EFFECTIVENESS
9.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby abandoned:
(a) By mutual written consent of the parties authorized by their
respective Boards of Directors, at any time prior to the Closing.
(b) By PCI by written notice to Nextel on December 31, 1997 if the
Closing has not occurred on or before such date so long as any postponements of
the date of the Closing are not caused principally by the action or inaction of
PCI.
(c) Prior to the Closing, by written notice to PCI from Nextel
authorized by the Board of Directors of Nextel, if (i) there is a material
breach of any representation, warranty, covenant or agreement on the part of PCI
or any Subsidiary set forth in this Agreement, or if a representation or
warranty of PCI shall be untrue in any material respect, in either case such
that the condition specified in Sections 8.2(a) or 8.2(b) would not be satisfied
at Closing (a "Terminating PCI Breach"), except that, if such Terminating PCI
Breach is curable by PCI through the exercise of its reasonable best efforts,
then, for up to thirty (30) days, but only as long as PCI continues to exercise
such reasonable best efforts, Nextel may not terminate this Agreement under this
Section 9.1(c)(i) (the number of days elapsed prior to any such cure, the "PCI
Cure Period"), (ii) any
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90
governmental or regulatory consent or approval required for consummation of
the transactions contemplated hereby is denied by or in a final order or
other final action issued or taken by the appropriate governmental or
regulatory authority, agency or similar body or (iii) consummation of any of
the transactions contemplated hereby is enjoined, prohibited or otherwise
restrained by the terms of a final, non-appealable order or judgment of a
court of competent jurisdiction. If any amendments, consents and approvals
with respect to stock option agreements for the PCI Stock Options have not
been obtained by October 30, 1996, such failure shall be a material breach of
a covenant for purposes of this Section 9.1(c).
(d) Prior to the Closing, by written notice to Nextel from PCI
authorized by its Board of Directors, if (i) there is a material breach of any
representation, warranty, covenant or agreement on the part of Nextel set forth
in this Agreement, or if a representation or warranty of Nextel shall be untrue
in any material respect, in either case such that the condition specified in
Sections 8.3(a) or 8.3(b) would not be satisfied at Closing (a "Terminating
Nextel Breach"), except that, if such Terminating Nextel Breach is curable by
Nextel through the exercise of its reasonable best efforts then for up to 30
days, but only as long as Nextel continues to exercise such reasonable best
efforts, PCI may not terminate this Agreement under this Section 9.1(d)(i) (the
number of days elapsed prior to any such cure, the "Nextel Cure Period"), (ii)
any governmental or regulatory consent or approval required for consummation of
the
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transactions contemplated hereby is denied by or in a final order or other
final action issued or taken by the appropriate governmental or regulatory
authority, agency or similar body, (iii) consummation of any of the
transactions contemplated hereby is enjoined, prohibited or otherwise
restrained by the terms of a final, non-appealable order or judgment of a
court of competent jurisdiction or (iv) the Nextel Closing Price is below
$14.00 and Nextel does not adjust the Exchange Ratio, as provided in Section
1.10.
(e) By Nextel by written notice to PCI during the thirty (30) day
period commencing on March 1, 1997, if Nextel and Castle have not entered into
the agreements contemplated by Section 8.2(k) so long as any failure to enter
into such agreements has not been caused by the action or inaction of Nextel.
9.2 EFFECT. Any termination of this Agreement, however effected, shall
not release either Nextel or PCI from any liability or other consequences
arising from any breach or violation by any such party of the terms of this
Agreement prior to the effective time of such termination, nor shall any such
termination release any party from its obligations or duties under this
Agreement which, by their terms and/or expressed intent, may require performance
subsequent to any such termination, and all provisions of this Agreement which
set forth such obligations or duties (including, without limitation, Section 6.1
and, to the extent provided therein, in Section 10.6) and such other general or
procedural provisions which may be
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92
relevant to any attempt to enforce such obligations or duties, shall survive
any such termination of this Agreement until such obligations or duties shall
have been performed or discharged in full.
ARTICLE X. MISCELLANEOUS
10.1 WAIVER. Any party to this Agreement may, at any time prior to the
Closing, by action taken by its Board of Directors, or officers thereunto duly
authorized, waive any of the terms or conditions of this Agreement or agree to
an amendment or modification to this Agreement by an agreement in writing
executed in the same manner (but not necessarily by the same persons) as this
Agreement.
10.2 NOTICES. All notices and other communications among the parties shall
be in writing and shall be deemed to have been duly given when (i) delivered in
person, or (ii) five days after posting in the United States mail having been
sent registered or certified mail return receipt requested, or (iii) delivered
by telecopy, which must be received in its entirety during normal business
hours, meaning between the hours of 10:00 a.m. and 6:00 p.m., McLean, Virginia
time, and promptly confirmed by delivery in person or post as aforesaid in each
case, with postage prepaid, addressed as follows:
(a) If to Nextel, to:
1505 Farm Credit Drive
Suite 100
McLean, Virginia 22102
Attention: General Counsel
Telephone No.: (703) 394-3000
Telecopier No.: (703) 394-3001
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93
with a copy (which shall not constitute notice) to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Jeanne M. Rickert, Esq.
Telephone No.: (216) 586-3939
Telecopier No.: (216) 579-0212
(b) If to PCI, to:
1 Village Drive, Suite 500
Abilene, Texas 79606
Attention: General Counsel
Telephone No.: (915) 690-5800
Telecopier No.: (915) 690-5831
with a copy (which shall not constitute notice) to:
Gardere & Wynne, L.L.P.
1601 Elm Street
Suite 3000
Dallas, Texas 75201
Attention: Randall G. Ray, Esq.
Telephone No.: (214) 999-4544
Telecopier No.: (214) 999-4667
or to such other address or addresses as the parties may from time to time
designate in writing.
10.3 ASSIGNMENT. Except as provided in Section 6.4, no party hereto shall
assign this Agreement or any part hereof without the prior written consent of
the other parties. Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns.
10.4 RIGHTS OF THIRD PARTIES. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto, or any subsidiary of Nextel
joining this
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94
Agreement under the circumstances described in Section 6.4, any right or
remedies under or by reason of this Agreement.
10.5 RELIANCE. Each of the parties to this Agreement shall be deemed to
have relied upon the accuracy of the written representations and warranties made
to it in or pursuant to this Agreement, notwithstanding any investigations
conducted by or on its behalf or notice, knowledge or belief to the contrary.
10.6 EXPENSES. Nextel shall bear its own expenses incurred in connection
with this Agreement and the transactions herein contemplated whether or not such
transactions shall be consummated, including, without limitation, all fees of
its legal counsel and accountants. PCI and its Subsidiaries shall bear their
own legal, financial advisory and accounting fees and expenses incurred in
connection with this Agreement and the transactions herein contemplated if such
transactions shall be consummated. In no event will the expenses borne by PCI
and the Subsidiaries include expenses incurred by PCI's stockholders or the
officers and directors of PCI and its Subsidiaries in connection with the
transactions herein contemplated.
10.7 CONSTRUCTION. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware. Unless otherwise stated,
references to Sections, Articles or Annexes refer to the Sections, Articles and
Annexes to this Agreement. As used in this Agreement, the phrase "to the
knowledge of PCI" or "to the knowledge of the Subsidiaries" shall comprehend
those matters that are, known to any of the executive officers of PCI.
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95
10.8 CAPTIONS; COUNTERPARTS. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
10.9 ENTIRE AGREEMENT. This Agreement (together with the Schedules to this
Agreement), constitutes the entire agreement among the parties and supersedes
any other agreements, whether written or oral, that may have been made or
entered into by or among Nextel or its subsidiaries and PCI or its Subsidiaries
or by any Director or Directors or officer or officers of such parties relating
to the transactions contemplated hereby, or incident hereto. No
representations, warranties, covenants, understandings, agreements, oral or
otherwise, relating to the transactions contemplated by this Agreement exist
between the parties except as expressly set forth in this Agreement.
10.10 AMENDMENTS. This Agreement may be amended or modified in whole
or in part, only by a duly authorized agreement in writing executed in the same
manner as this Agreement and which makes reference to this Agreement.
10.11 PUBLICITY. All press releases or other public communications of
any nature whatsoever relating to the transactions contemplated by this
Agreement, and the method of the release for publication thereof, shall be
subject to the prior mutual approval of Nextel and PCI which approval shall not
be unreasonably withheld by any party; provided, however, that,
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96
subject to compliance with Section 6.1, nothing herein shall prevent any
party from publishing such press releases or other public communications as
such party may consider necessary in order to satisfy such party's legal or
contractual obligations.
IN WITNESS WHEREOF the parties have hereunto caused this Agreement to
be duly executed as of the date first above written.
NEXTEL COMMUNICATIONS, INC.
By: /s/ JOHN H. WILLMOTH
------------------------------------
Title:
---------------------------------
NEXTEL FINANCE COMPANY
By: /s/ JOHN H. WILLMOTH
------------------------------------
Title:
---------------------------------
DCI MERGER INC.
By: /s/ JOHN H. WILLMOTH
------------------------------------
Title:
---------------------------------
PITTENCRIEFF COMMUNICATIONS, INC.
By: /s/ C. G. WHITTEN
------------------------------------
Title:
---------------------------------
<PAGE>
F-2
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO THE
DISTRIBUTION HEREOF OR OF THE COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON
EXERCISE HEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND THE RULES
AND REGULATIONS THEREUNDER. NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE
UPON EXERCISE HEREOF MAY BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933 OR
UPON RECEIPT BY THE COMPANY OF AN OPINION SATISFACTORY AS TO FORM, SCOPE AND
SUBSTANCE OF COUNSEL ACCEPTABLE TO THE COMPANY AS TO AN EXEMPTION THEREFROM.
Common Stock Purchase Warrant
250,000 Shares September 14, 1996
PITTENCRIEFF COMMUNICATIONS, INC., a Delaware corporation (the "Company"),
for value received, hereby certifies that FMR Corp, a Massachusetts corporation,
or registered assigns, is entitled to purchase, except to the extent hereinafter
referred to, from the Company 250,000 duly authorized, validly issued, fully
paid and nonassessable shares (the "Warrant Shares") of Common Stock, par value
$.01 per share (the "Common Stock"), of the Company at the purchase price per
share of $4.725 (the "Exercise Price"), at any time or from time to time prior
to 5:00 P.M., Boston, Massachusetts time, on September 14, 2006 (the "Expiration
Date"), all subject to the terms and conditions set forth below in this Warrant.
This Warrant together with any such warrants issued in substitution
therefor, is referred to herein as the "Warrants").
SECTION 1. REGISTRATION. The Company shall number and register this
Warrant (and any other warrants issued in substitution hereof) in a register as
they are issued. The Company may deem and treat the registered holders of the
Warrants as the absolute owners thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone) for all purposes and shall
not be affected by any notice to the contrary. Notwithstanding the foregoing, a
Warrant, if properly assigned, may be exercised by a new holder without a new
Warrant first having been issued.
SECTION 2. REGISTRATION OF TRANSFER AND EXCHANGES. The Company shall from
time to time register the transfer of the Warrants in a Warrant register to be
maintained by the Company upon surrender thereof accompanied by a written
instrument or instruments of transfer in form reasonably satisfactory to the
Company, duly executed by the registered holder or holders thereof or by the
duly
<PAGE>
appointed legal representative thereof or by a duly authorized attorney and
upon receipt of any applicable transfer taxes or evidence satisfactory to the
Company that no such tax is due. Upon any such registration of transfer, a
new Warrant shall be issued to the transferee(s) and the surrendered Warrant
shall be canceled and disposed of by the Company.
If such a transfer is not made pursuant to an effective Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
the Warrant holder will, if requested by the Company, deliver to the Company an
opinion of counsel, which counsel and opinion shall be satisfactory in form,
scope and substance to the Company, that the Warrants may be sold publicly
without registration under the Securities Act, as well as:
(a) an investment covenant satisfactory to the Company signed by the
proposed transferee;
(b) an agreement by such transferee to the impression of the
restrictive investment legend set forth at the beginning of this Warrant;
and
(c) an agreement by such transferee to be bound by the provisions of
this Warrant.
This Warrant may be exchanged at the option of the holder(s) hereof, when
surrendered to the Company at its office designated for such purpose (the
address of which is set forth in Section 8) for another Warrant or other
Warrants of like tenor and representing in the aggregate a like number of
Warrants, including, without limitation, upon an adjustment in the number of
Warrant Shares purchasable upon exercise of this Warrant. Warrants surrendered
for exchange shall be canceled and disposed of by the Company.
SECTION 3. WARRANTS: EXERCISE OF WARRANTS. Subject to the terms of this
Warrant, the holder of the Warrants shall have the right, which may be exercised
at any time prior to the Expiration Date, to receive from the Company the number
of fully paid and nonassessable Warrant Shares which the holder may at the time
be entitled to receive on such exercise and payment of the Exercise Price then
in effect for such Warrant Shares. No adjustments as to dividends will be made
upon exercise of the Warrants.
This Warrant may be exercised upon surrender hereof to the Company at its
office designated for such purpose (the address of which is set forth in Section
8) with the form of election to purchase attached hereto duly filled in and
signed, upon payment to the Company of the Exercise Price per Warrant Share, for
the number of Warrant Shares in respect of which this Warrant is then exercised.
Payment of the aggregate Exercise Price shall be made (a) in cash or by
certified or bank cashier's check payable to the order of the Company, or (b) by
delivery to the Company of that number of shares of Common Stock having a Fair
Market Value (as hereinafter defined) equal to the then applicable Exercise
Price multiplied by the number of Warrant Shares then being purchased. In the
alternative, this Warrant may be exercised on a net basis, such that, without
the exchange of any funds, the holder of this Warrant receives that number of
Warrant Shares subscribed to less that number of shares of Common Stock having
an aggregate Fair Market Value at the time of exercise
-2-
<PAGE>
equal to the aggregate Exercise Price that would otherwise have been paid by
such holder for the number of Warrant Shares subscribed to. As used herein
the term "Fair Market Value", on a per share basis, means the Closing Price
of the Common Stock on the Date of Exercise. As used herein, the term "Date
of Exercise" with respect to any Warrant means the date on which such Warrant
is exercised as provided herein. For purposes of this Warrant, the "Closing
Price" for any date shall mean the last sale price reported in the WALL
STREET JOURNAL or other trade publication regular way or, in case no such
reported sale takes place on such date, the average of the last reported bid
and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading if that is the principal market for the Common Stock, or, if not
listed or admitted to trading, on any national securities exchange or if such
national securities exchange is not the principal market for the Common
Stock, the last sale price as reported by the National Association of
Securities Dealers, Inc. Automated National Market System ("NASDAQ") or its
successor, if any, or, if the Common Stock is not so reported, the average of
the reported bid and asked prices in the over-the-counter market, as
furnished by the National Quotation Bureau, Inc., or if such firm is not then
engaged in the business of reporting such prices, as furnished by any similar
firm then engaged in such business and selected by the Company or, if there
is no such firm, as furnished by any NASD member selected by the Company or,
if the Common Stock is not quoted in the over-the-counter market, the fair
value thereof determined in good faith by the Company's Board of Directors as
of a date which is within fifteen (15) days of the date as of which the
determination is to be made.
Subject to the provisions of Section 4, upon such surrender of this Warrant
and payment of the Exercise Price, the Company shall issue and cause to be
delivered with all reasonable dispatch (and in any event within ten (10)
business days) to or upon the written order of the holder, and in the name of
this Warrant holder or its nominee, a certificate or certificates for the number
of full Warrant Shares issuable upon such exercise together with such other
property (including cash) and securities as may be then deliverable upon such
exercise. Such certificate or certificates shall be deemed to have been issued
and the person so named therein shall be deemed to have become a holder of
record of such Warrant Shares as of the date of the surrender of this Warrant
and payment of the Exercise Price.
This Warrant shall be exercisable, at the election of the holder hereof,
either in full or from time to time in part, and, in the event that this Warrant
is exercised in respect of fewer than all of the Warrant Shares issuable on such
exercise at any time prior to the Expiration Date, a new Warrant evidencing the
remaining Warrant or Warrants will be issued and delivered pursuant to the
provisions of this Section and of Section 4.
The Company shall not be required to issue fractional Warrant Shares on the
exercise of Warrants. If more than one Warrant shall be presented for exercise
in full at the same time by the same holder, the number of full Warrant Shares
which shall be issuable upon the exercise thereof shall be computed on the basis
of the aggregate number of Warrant Shares purchasable on exercise of the
Warrants so presented. If any fraction of a Warrant Share would, except for the
provisions of this Section, be issuable on the exercise of any Warrants (or
specified portion thereof), the
-3-
<PAGE>
Company shall pay an amount in cash equal to the Exercise Price on the day
immediately preceding the date the Warrant is presented for exercise,
multiplied by such fraction.
All Warrants surrendered upon exercise shall be canceled and disposed of by
the Company. The Company shall keep copies of this Warrant and any notices
received hereunder available for inspection by the normal business hours at its
office until the sixth anniversary of the date of exercise.
SECTION 4. PAYMENT OF TAXES. The Company will pay all stamp taxes in
connection with the issuance, sale, delivery or transfer of the Warrants, as
well as all such taxes attributable to the initial issuance of Warrant Shares
upon the exercise of this Warrant and payment of the Exercise Price.
SECTION 5. MUTILATED OR MISSING WARRANTS. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, upon delivery of an indemnity
agreement or security satisfactory to the Company in form, scope, substance and
amount, the Company shall issue, in exchange and substitution for and upon
cancellation of the mutilated Warrants or in lieu of and substitution for the
Warrant lost, stolen or destroyed, a new Warrant of like tenor and representing
an equivalent number of Warrants.
SECTION 6. RESERVATION OF WARRANT SHARES. The Company will at all times
reserve and keep available, free from preemptive or similar rights, out of the
aggregate of its authorized but unissued capital stock or its authorized and
issued capital stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of each class of capital stock constituting a part of
the Warrant Shares which may then be deliverable upon the exercise of all
outstanding Warrants. The Company shall cause all Warrant Shares of each class
of Common Stock or other securities reserved for issuance upon exercise of the
Warrants to be listed (or to be listed subject to notice of issuance) on each
securities exchange or automated quotation system, if any, on which such shares
of Common Stock or any such other securities are listed.
The Company or, if appointed, the transfer agent for shares of each class
of Common Stock (the "Transfer Agent") and every subsequent transfer agent for
any shares of the Company's capital stock issuable upon the exercise of the
Warrants will be irrevocably authorized and directed at all times to reserve
such number of authorized shares as shall be required for such purpose. The
Company will keep a copy of this Warrant on file with the Transfer Agent and
with every subsequent transfer agent for any shares of the Company capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments, and certificates related thereto, transmitted to each holder
pursuant to Section 7.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon payment of the Exercise Price therefor and
issue, be validly issued, fully paid,
-4-
<PAGE>
nonassessable, free of preemptive or similar rights and free from all taxes,
liens, charges and security interests with respect to the issue thereof.
SECTION 7. ADJUSTMENTS, NOTICES AND OTHER EVENTS.
(a) ADJUSTMENT OF EXERCISE PRICE. Subject to the provisions of this
Section 7, the Exercise Price in effect from time to time shall be subject
to adjustment, as follows:
(i) In case the Company shall (x) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in shares
of its Common Stock, (y) subdivide or reclassify the outstanding
shares of its Common Stock into a greater number of shares, or (z)
combine or reclassify the outstanding shares of its Common Stock into
a smaller number of shares, the Exercise Price in effect immediately
after the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by
a fraction, of which (A) the numerator shall be the number of shares
of Common Stock outstanding immediately before such dividend,
distribution, subdivision, combination or reclassification, and of
which (B) the denominator shall be the number of shares of Common
Stock outstanding immediately after such dividend, distribution,
subdivision, combination or reclassification. Any shares of Common
Stock of the Company issuable in payment of a dividend shall be deemed
to have been issued immediately prior to the record date for such
dividend for purposes of calculating the number of outstanding shares
of Common Stock of the Company under Section 7(a)(ii) and 7(a)(iii)
hereof. Such adjustment shall be made successively whether any event
specified above shall occur.
(ii) In case the Company shall fix a record date for the
issuance of rights, options, warrants or convertible or exchangeable
securities to all holders of its Common Stock entitling them (for a
period expiring within forty-five (45) days after such record date) to
subscribe for or purchase shares of its Common Stock at a price per
share less than the Current Market Price (as such term is defined in
Section 7(a)(iv) hereof) of a share of Common Stock of the Company on
such record date, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying
the Exercise Price in effect immediately prior thereto by a fraction,
of which (A) the numerator shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of
Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered would purchase at the Current Market
Price per share, and of which (B) the denominator shall be the number
of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock offered for subscription
or purchase. Such adjustment shall be made successively whenever such
a record date is fixed. To the extent that any such rights, options,
warrants or convertible or exchangeable securities are not so issued
or
-5-
<PAGE>
expire unexercised, the Exercise Price then in effect shall be
readjusted to the Exercise Price which would then be in effect if
such unissued or unexercised rights, options, warrants or convertible
or exchangeable securities had not been issuable.
(iii) In case the Company shall fix a record date for the making
of a distribution to all holders of shares of its Common Stock (A) of
shares of any class other than its Common Stock or (B) of evidences of
its indebtedness or (C) of assets (excluding cash dividends or
distributions (other than extraordinary cash dividends or
distributions), and dividends or distributions referred to in
Subsection 7(a)(i) hereof) or (D) of rights, options, warrants or
convertible or exchangeable securities (excluding those rights,
options, warrants or convertible or exchangeable securities referred
to in Section 7(a)(ii) hereof), then in each such case the Exercise
Price in effect immediately thereafter shall be determined by
multiplying the Exercise Price in effect immediately prior thereto by
a fraction, of which (x) the numerator shall be the total number of
shares of Common Stock outstanding on such record date multiplied by
the Current Market Price (as such term is defined in Section 7(a)(iv)
hereof) per share on such record date, less the aggregate fair market
value as determined in good faith by the Board of Directors of the
Company of said shares or evidences of indebtedness or assets or
rights, options, warrants or convertible or exchangeable securities so
distributed, and of which (y) the denominator shall be the total
number of shares of Common Stock outstanding on such record date
multiplied by such Current Market Price per share. Such adjustment
shall be made successively whenever such a record date is fixed. In
the event that such distribution is not so made, the Exercise Price
then in effect shall be readjusted to the Exercise Price which would
then be in effect if such record date had not been fixed.
(iv) For the purpose of any computation under Section 7(a)(ii)
or 7(a)(iii) hereof, the "Current Market Price" per share at any date
(the "Computation Date") shall be deemed to be the average of the
daily Closing Prices of the Common Stock for twenty (20) consecutive
Trading Days ending the Trading Day immediately preceding the
Computation Date; provided, however, that if there shall have occurred
prior to the Computation Date any event described in Subsection
7(a)(i), 7(a)(ii) or 7(a)(iii) which shall have become effective with
respect to market transactions at any time (the "Market-Effect Date")
on or within such 20-day period, the Closing Price for each Trading
Day preceding the Market-Effect Date shall be adjusted, for purposes
of calculating such average, by multiplying such Closing Price by a
fraction, of which (A) the numerator shall be the Exercise Price as in
effect immediately prior to the Computation Date and of which (B) the
denominator shall be the Exercise Price as in effect immediately prior
to the Market-Effect Date, it being understood that the purpose of
this proviso is to ensure that the effect of such event on the market
price of the Common Stock shall, as nearly as possible, be eliminated
in order that the distortion in the calculation of the Current Market
Price may be minimized.
-6-
<PAGE>
(b) NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the Exercise
Price in accordance with the provisions of Section 7(a)(i), 7(a)(ii) or
7(a)(iii) hereof need be made unless such adjustment would amount to a
change of at least 1% in such Exercise Price; provided, however, that the
amount by which any adjustment is not made by reason of the provisions of
this Section 7(b) shall be carried forward and taken into account at the
time of any subsequent adjustment in the Exercise Price.
(c) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to Section 7(a)(i), 7(a)(ii) or 7(a)(iii) hereof,
each Warrant shall thereupon evidence the right to purchase that number of
Warrant Shares (calculated to the nearest hundredth of a share) obtained by
multiplying the Exercise Price in effect immediately prior to the
adjustment by the number of Warrant Shares purchasable pursuant hereto
immediately prior to the adjustment and dividing the product thereof by the
exercise price resulting from the adjustment.
(d) REORGANIZATIONS. In case of any capital reorganization, other
than in the cases referred to in Section 7(a) hereof, or the consolidation
or merger of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the continuing corporation
and which does not result in any reclassification of the outstanding shares
of Common Stock or the conversion of such outstanding shares of Common
Stock into shares of other stock or other securities or property), or the
sale or conveyance of the property of the Company as an entirety or
substantially as an entirety (collectively such actions being hereinafter
referred to as "Reorganizations"), there shall thereafter be deliverable
upon exercise of any Warrant (in lieu of the number of Warrant Shares
theretofore deliverable) the number of shares of stock or other securities
or property to which a holder of the number of Warrant Shares which would
otherwise have been deliverable upon the exercise of such Warrant would
have been entitled upon such Reorganization if such Warrant had been
exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the
Board of Directors of the Company, shall be made in the application of the
provisions herein set forth with respect to the rights and interests of the
holder of this Warrant so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares
or other property thereafter deliverable upon exercise of the Warrants.
Any such adjustments shall be made by and set forth in a supplemental
agreement prepared by the Company or any successor thereto, between the
Company, or any successor thereto, and shall for all purposes hereof
conclusively be deemed to be an appropriate adjustment. The Company shall
not effect any such Reorganization, unless upon or prior to the
consummation thereof the successor corporation, or if the Company shall be
the surviving corporation in any such Reorganization and is not the issuer
of the shares of stock or other securities or property to be delivered to
holders of shares of the Common Stock outstanding at the effective time
thereof, then such issuer, shall assume by written instrument the
obligation to deliver to the holder of any Warrants such shares of stock,
securities, cash or other property as such holder shall be entitled to
purchase in accordance with the foregoing provisions.
-7-
<PAGE>
(e) VERIFICATION OF COMPUTATION. The Company shall select a firm of
independent accountants, which selection (i) may be its regular firm of
independent accountants and (ii) may be changed from time to time, to
verify each computation and/or adjustment made in accordance with this
Section 7. The certificate, report or other written statement of any such
firm shall be conclusive evidence of the correctness of any computation
made under this Section 7. Promptly upon its receipt of such certificate,
report or statement from such firm of independent accountants, the Company
shall deliver a copy thereof to the holder of this Warrant.
(f) NOTICE OF CERTAIN ACTIONS. In the event the Company shall:
(i) declare any dividend payable in stock to the holders of its
Common Stock or make any other distribution in property other than
cash to the holders of its Common Stock; or
(ii) offer to the holders of its Common Stock rights to subscribe
for or purchase any shares of any class of stock or any other rights
or options; or
(iii) effect any reclassification of its Common Stock (other
than a reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock) or any capital
reorganization or any consolidation or merger (other than a merger in
which no distribution of securities or other property is made to
holders of Common Stock), or any sale, transfer or other disposition
of its property, assets and business substantially as an entirety, or
the liquidation, dissolution or winding up of the Company;
then in each such case, the Company shall cause notice of such proposed
action to be mailed to the holder of this Warrant as hereinafter set forth
in this Section 7(f). Such notice shall specify the date on which the
books of the Company shall close, or a record be taken, for determining the
holders of Common Stock entitled to receive such stock dividend or other
distribution or such rights or options, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer,
other disposition, liquidation, dissolution, winding up or exchange shall
take place or commence, as the case may be, and the date as of which it is
expected that holders of record of Common Stock shall be entitled to
receive securities or other property deliverable upon such action, if any
such date has been fixed. Such notice shall be mailed in the case of any
action covered by paragraph (i) or (ii) of this Section 7(f), at least ten
(10) days prior to the record date for determining holders of the Common
Stock for purposes of receiving such payment or offer, and, in the case of
any action covered by paragraph (iii), at least ten (10) days prior to the
earlier of the date upon which such action is to take place or any record
date to determine holders of Common Stock entitled to receive such
securities or other property.
(g) CERTIFICATE OF ADJUSTMENTS. Whenever any adjustment is to be
made pursuant to this Section 7, the Company shall prepare a Certificate
executed by the Chief Financial
-8-
<PAGE>
Officer of the Company, setting forth such adjustment to be mailed to the
holder of this Warrant at least fifteen (15) days prior thereto, such
notice to include in reasonable detail (i) the events precipitating the
adjustment, (ii) the computation of any adjustments, and (iii) the
Exercise Price and the number of shares or the securities or other property
purchasable upon exercise of each Warrant after giving effect to such
adjustment. Such Certificate shall be accompanied by the accountant's
verification required by Section 7(e) hereof.
SECTION 8. NOTICES. Any notice or demand authorized by the Warrants to be
given or made by the registered holder of any Warrant to or on the Company shall
be sufficiently given or made when received at the office of the Company
expressly designated by the Company at its office for purposes of the Warrants
(until Warrant holders are otherwise notified in accordance with this Section by
the Company), as follows:
Pittencrieff Communications, Inc.
One Village Drive, Suite 500
Abilene, Texas 79606
Attention: C.G. Whitten, Senior Vice President and General
Counsel and Thomas R. Modisett, Chief Financial
Officer
Any notice pursuant to the Warrants to be given by the Company to the
registered holder(s) of any Warrant shall be sufficiently given when received by
such holder at the address appearing on the Warrant register of the Company
(until the Company is otherwise notified in accordance with this Section by such
holder).
SECTION 9. NO RIGHTS OR LIABILITIES AS STOCKHOLDER; INFORMATION. Nothing
contained in this Warrant shall be construed as conferring upon the holder
hereof the right to vote or to consent as stockholders in respect of the
meetings of stockholders or the election of members of the Board of Directors of
the Company or any other matter, or any rights whatsoever as stockholders of the
Company or as imposing any obligation on such holder to purchase any securities
or as imposing any liabilities on such holder as a stockholder sf the Company,
whether such obligation or liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding the foregoing, the Company will
furnish to each holder of any Warrants, promptly upon their becoming available,
copies of all financial statements, reports, notices and proxy statements sent
or made available generally by the Company to its stockholders or otherwise
filed pursuant to the provisions of the Securities Act or the Securities
Exchange Act of 1934, as amended. The Company shall give to each Warrant holder
written notice of any determination to register any of its Common Stock at the
same time that it gives notice to any holder of securities of the Company
entitled to rights to register securities under the Securities Act.
SECTION 10. AMENDMENT AND MODIFICATION; WAIVER. This Warrant may not be
amended or modified except by a written instrument signed by the Company and the
registered holder of this Warrant at the time such amendment or modification is
sought. Any waiver of any term or condition of this Warrant in any one instance
shall not operate as or be deemed to be or construed as a further or continuing
waiver of such term or condition, nor shall any failure at any time or times to
enforce
-9-
<PAGE>
or require performance of any provision hereof operate as a waiver of or
affect in any manner any party's right at a later time to enforce or require
performance of such provision or any other provision hereof.
SECTION 11. SEVERABILITY. If any provision of this Warrant shall be held
or deemed to be, or shall in fact be, invalid, inoperative or unenforceable as
applied to any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions or in all cases, because of the conflict of any provision with any
constitution or statute or rule of public policy, or for any other reason, such
circumstance shall not have the effect of rendering the provision or provisions
in question invalid, inoperative or unenforceable in any other jurisdiction or
in any other case or circumstance or if rendering any other provision or
provisions herein contained invalid, inoperative or unenforceable to the extent
that such other provisions are not themselves actually in conflict with such
constitution, statute or rule of public policy, but this Warrant shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative or unenforceable provision had never been contained herein and such
provision were formed so that it would be valid, operative and enforceable to
the maximum extent permitted in such jurisdiction or in such case.
SECTION 12. SUCCESSORS. All the covenants and provisions of this Warrant
by or for the benefit of the Company or the Warrant holder shall bind and inure
to the benefit of their respective successors and assigns.
SECTION 13. GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to principles or conflicts of laws.
SECTION 14. HEADINGS. The headings contained in this Warrant are inserted
for convenience only and shall not constitute a part hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
the signature of its duly authorized officer and the corporate seal hereunto
affixed.
PITTENCRIEFF COMMUNICATIONS, INC.
By: /s/ WARREN D. HARKINS
----------------------------------
[Seal] President
-10-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To Be Executed Upon Exercise of Warrant)
The undersigned holder hereby represents that he, she or it is the
registered holder of this Warrant, and hereby irrevocably elects to exercise the
right, represented by this Warrant, to receive shares of Common Stock, $.01
par value, of PITTENCRIEFF COMMUNICATIONS, INC., and herewith tenders payment
for such shares, to the order of PITTENCRIEFF COMMUNICATIONS INC., the amount
of $ in accordance with the terms hereof. The undersigned requests that a
certificate for such shares be registered in the name of the undersigned or
nominee hereinafter set forth, and further that such certificate be delivered to
the undersigned at the address hereinafter set forth or to such other person or
entity as is hereinafter set forth. If said number of shares is less than all
of the shares of Common Stock purchasable hereunder, the undersigned requests
that a new Warrant representing the remaining balance of such shares be
registered in the name of the undersigned or nominee hereinafter set forth, and
further that such certificate be delivered to the undersigned at the address
hereinafter set forth or to such other person or entity as is hereinafter set
forth.
CERTIFICATE TO BE REGISTERED AS FOLLOWS:
CERTIFICATE TO BE DELIVERED AS FOLLOWS:
Date:
------------------------- ------------------------------------------
(Signature must conform in all respects to
the name of the holder as specified on the
face of the Warrant, unless Form of
Assignment has been executed)
-11-
<PAGE>
FORM OF ASSIGNMENT
[To be executed upon Transfer of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto _______________ the right represented
by such Warrant to purchase ________ shares of Common Stock of Pittencrieff
Communications, Inc. (the "Company") to which such Warrant relates, and appoints
_______________ its Attorney to make such transfer on the books of the Company
maintained for such purpose, with full power of substitution in the premises.
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of Warrant)
---------------------------------------
(Street Address)
---------------------------------------
(City), (State) (Zip Code)
-12-
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pittencrieff Communications, Inc.:
We consent to incorporation by reference in the Registration Statements
of Pittencrieff Communications, Inc. on (i) Form S-8 (No. 33-81736 and
No. 33-81738), (ii) Form S-4 (No. 33-83810), and (iii) Form S-3 (No. 333-3356)
of our report dated March 4, 1997, relating to the consolidated balance sheets
of Pittencrieff Communications, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity, cash flows for each of the years in the three-year period ended
December 31, 1996, which report appears in the December 31, 1996 annual report
on Form 10-K of Pittencrieff Communications, Inc.
KPMG Peat Marwick LLP
Dallas, Texas
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,552
<SECURITIES> 0
<RECEIVABLES> 2,753
<ALLOWANCES> 150
<INVENTORY> 4,072
<CURRENT-ASSETS> 12,066
<PP&E> 54,597
<DEPRECIATION> 16,103
<TOTAL-ASSETS> 185,503
<CURRENT-LIABILITIES> 6,768
<BONDS> 0
0
0
<COMMON> 262
<OTHER-SE> 152,122
<TOTAL-LIABILITY-AND-EQUITY> 185,503
<SALES> 11,939
<TOTAL-REVENUES> 36,030
<CGS> 10,341
<TOTAL-COSTS> 45,933
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 356
<INTEREST-EXPENSE> 3,293
<INCOME-PRETAX> (11,873)
<INCOME-TAX> (4,410)
<INCOME-CONTINUING> (7,463)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,463)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> 0
</TABLE>
