UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
Information Required in Information Statement
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement [ ] Confidential, for use of the
Commission only (as permitted
[x] Definitive Information Statement by Rule 14c-5(d)(2))
PRICELLULAR CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant As Specified in Charter)
PRICELLULAR CORPORATION
- -------------------------------------------------------------------------------
(Name of Person(s) Filing the Information Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
[x] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
PriCellular Class A Common Stock, par value $.01 per share (the "Class A
Shares"), Class B Common Stock, par value $.01 per share (the "Class B
Shares") and Series A Cumulative Convertible Preferred Stock, par value
$.01 per share (the "Series A Preferred Stock").
2) Aggregate number of securities to which transaction applies:
(i) 21,824,566 issued and outstanding Class A Shares, (ii) 13,134,275
issued and outstanding Class B Shares, (iii) options to purchase 1,476,981
Class A shares pursuant to the PriCellular 1994 Stock Option Plan, (iv)
warrants to purchase 1,819,584 Class B Shares, (v) 96,000 shares of Series
A Preferred Stock which are convertible into 14,824,286 Class A Shares, and
(vi) 4,834,004 Class A Shares issuable upon conversion of PriCellular's 10
3/4% Senior Subordinated Convertible Discount Notes due 2004 (the
"Convertible Notes").
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Rule 0-11:
The filing fee of one-50th of one percent of the proposed cash payment to
security holders was based upon the following calculation: one-50th of one
percent of the sum of: (i) 21,824,566 issued and outstanding Class A
Shares, (ii) 13,134,275 issued and outstanding Class B Shares, (iii)
options to purchase 1,476,981 Class A shares, (iv) warrants to purchase
1,819,584 Class B Shares, (v) 14,824,286 Class A Shares issuable upon
conversion of the Series A Preferred Stock and (vi) 4,834,004 Class A
Shares issuable upon conversion of the Convertible Notes multiplied by
$14.00 per share.
4) Proposed maximum aggregate value of transaction: $810,791,740.99
5) Total fee paid: $162,158.35
[x] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of filing.
1) Amount Previously Paid: $162,158.35
2) Form, Schedule or Registration Statement No.: Preliminary Schedule 14C
3) Filing Party: PriCellular Corporation
4) Date Filed: April 6, 1998
DATED May 28, 1998
PRICELLULAR CORPORATION
INFORMATION STATEMENT
--------------
We are sending you this Information Statement to describe the
proposed merger (the "Merger") between PriCellular Corporation ("PriCellular"
or the "Company") and American Cellular Corporation ("ACC"). In the Merger,
ACC will merge with and into PriCellular, with PriCellular as the surviving
corporation. The surviving corporation will change its name to "American
Cellular Corporation" after the Merger. Current holders of PriCellular Class
A Common Stock and Class B Common Stock will exchange their shares for cash,
at $14.00 per share (without interest), and holders of PriCellular Series A
Cumulative Convertible Preferred Stock will receive an amount in cash equal to
$14.00 (without interest) for each share of common stock into which their
preferred stock is convertible at the effective time of the Merger (the
"Merger Consideration"). No Merger Consideration will be paid for shares held
by PriCellular as treasury stock or owned by ACC. The record date for the
determination of your status as a holder of PriCellular stock was May 29, 1998.
Several of PriCellular's principal stockholders (certain
members of the Price family, AT&T Wireless Services, Inc., The Thomas H. Lee
Company and Spectrum Equity Investors, L.P.) have already approved the Merger
by signing a written stockholders' consent. Since those stockholders control
more than 77% of the outstanding votes of PriCellular required to approve the
Merger, no further vote is necessary to approve the Merger. WE ARE NOT ASKING
YOU FOR A PROXY OR A WRITTEN CONSENT AND YOU ARE REQUESTED NOT TO SEND US A
PROXY OR A WRITTEN CONSENT. As we explain in this Information Statement,
however, completion of the Merger is still subject to a number of conditions,
including various regulatory approvals. We cannot predict with certainty when
we will complete the Merger, but we hope to complete the Merger prior to June
30, 1998.
We are sending this Information Statement to all holders of
shares of PriCellular Class A Common Stock (the "Class A Shares"), Class B
Common Stock (the "Class B Shares" and, together with the Class A Shares, the
"Common Stock") and Series A Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock"). The PriCellular Class A Shares, Class B Shares
and Series A Preferred Stock are sometimes collectively referred to in this
Information Statement as the "PriCellular Shares" or the "Shares". As a
result of the Merger, each share of PriCellular stock owned by you will be
exchanged for cash, and you will no longer be a stockholder of PriCellular.
--------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES
REGULATOR, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH
TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Information Statement is dated May 28, 1998,
and was first mailed to stockholders of PriCellular on or about June 2, 1998.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. What is the proposed transaction?
A. ACC will merge with PriCellular, with PriCellular as the surviving
corporation. Following the Merger, PriCellular will change its name to
American Cellular Corporation. As a result of the Merger, holders of
PriCellular Common Stock will receive $14.00 per share (without interest),
and holders of PriCellular Series A Preferred Stock will receive $14.00
(without interest) for each share of common stock into which their preferred
stock is convertible at the Effective Time of the Merger. Immediately
following the Merger, the current shareholders of ACC will become the owners
of all of the outstanding stock of PriCellular.
Q. What effect will the Merger have on me?
A. Each share of PriCellular stock owned by you will be exchanged for cash, and
you will no longer be a stockholder of PriCellular.
Q. Will the value of the transaction change between now and the time the Merger
is completed?
A. No. The price per share that you will receive is fixed, regardless of when
the Merger is completed.
Q. Why is there no stockholder vote?
A. Certain members of the Price family, along with AT&T Wireless Services, Inc.
and The Thomas H. Lee Company, control about 56% of the fully diluted voting
power of PriCellular. On the day that the Merger Agreement was signed, these
stockholders (the "Principal Stockholders") signed an agreement with ACC to
vote their shares in favor of the Merger.
In addition, Spectrum Equity Investors, L.P. ("Spectrum"), one of whose
affiliates is a shareholder of ACC, controls approximately an additional 11%
of the fully-diluted voting power of PriCellular.
On May 27, 1998, the Principal Stockholders and Spectrum approved the Merger
by executing a written stockholders' consent. This consent met the
stockholder approval requirements under Delaware law, so no separate
stockholder vote is necessary.
Q. Will the Principal Stockholders receive anything different in the Merger
than I will?
A. No. These stockholders will exchange their shares for cash at the same per
share price.
Q. Am I entitled to appraisal rights?
A. Yes. Under Delaware law, you are entitled to appraisal rights. For a
discussion of such rights, and the procedures for exercising them, see
"Appraisal Rights of Dissenting Stockholders" on page 58.
Q. What do I need to do now?
A. Nothing. After the Merger is completed, you will receive written
instructions and a letter of transmittal for exchanging your PriCellular
shares for cash. Please do not send your share certificates until you
receive the instructions and letter of transmittal.
Q. When do you expect the Merger to be completed?
A. We are working to complete the Merger as quickly as possible. However, due
to certain regulatory approvals that we must receive before we can go ahead
with the Merger, we do not expect to complete the Merger prior to June 24,
1998.
Q. Where can I find more information about PriCellular and ACC?
A. You may obtain more information from the various sources described under
"Where You Can Find More Information" on page 61.
TABLE OF CONTENTS
-----------------
Page
----
QUESTIONS AND ANSWERS ABOUT THE MERGER.......................................2
SUMMARY......................................................................6
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS...................9
THE COMPANIES................................................................9
PriCellular...............................................................9
ACC.......................................................................9
SELECTED HISTORICAL FINANCIAL INFORMATION OF PRICELLULAR....................10
THE MERGER..................................................................12
Background of the Merger.................................................13
Recommendation of the PriCellular Board; Reasons for the Merger..........17
Opinions of the Financial Advisors to the PriCellular Board..............19
Purpose and Structure of the Transactions; Reasons of ACC, Spectrum and
Applegate for the Merger; Fairness of the Transaction..................26
Merger Consideration.....................................................28
Effective Time of the Merger.............................................28
Surrender of and Payment for Shares......................................28
Certain Effects of the Merger............................................29
Conduct of Business Pending the Merger...................................29
Conduct of Business After the Merger.....................................29
Conditions to Consummation of the Merger.................................29
Accounting Treatment of the Merger.......................................29
Certain Federal Income Tax Consequences..................................30
Regulatory Approvals.....................................................31
Interests of Certain Persons in the Merger...............................31
Appraisal Rights.........................................................33
Merger Financing.........................................................33
Note Tender; Consent Solicitation........................................35
Risks of Insolvency on Former Stockholders of PriCellular................35
Expenses of the Transaction..............................................37
THE MERGER AGREEMENT........................................................37
The Merger...............................................................37
Conversion of PriCellular Common Stock and Series A Preferred Stock
in the Merger..........................................................38
Treatment of Options.....................................................38
Surrender of and Payment for Shares......................................38
Dissenting Shares........................................................39
Effective Time of the Merger.............................................39
The Surviving Corporation................................................39
Representations and Warranties...........................................39
Certain Pre-Closing Covenants............................................40
No Solicitation of Transactions..........................................41
Indemnification and Insurance............................................41
High Yield Financing.....................................................42
Equity Financing.........................................................42
Cooperation and Reasonable Best Efforts..................................42
FCC Application..........................................................43
HSR Act Matters..........................................................43
Warrants.................................................................43
Convertible Discount Notes...............................................43
Conditions to the Consummation of the Merger.............................43
Termination..............................................................45
Expenses and Fees........................................................46
Amendment and Waiver.....................................................46
THE VOTING AGREEMENT........................................................46
Voting...................................................................47
Transfer Restrictions....................................................47
No Solicitation..........................................................47
Appraisal Rights.........................................................48
Redemption Rights and Amendment to Charter...............................48
Acquisition Proposals....................................................48
Indemnification..........................................................49
Certain Representations and Warranties...................................50
Termination..............................................................50
OTHER AGREEMENTS............................................................50
Spectrum Letter..........................................................50
AT&T Consent and Waiver..................................................50
MANAGEMENT OF PRICELLULAR...................................................51
MANAGEMENT OF ACC...........................................................52
MARKET PRICE OF AND DIVIDENDS ON PRICELLULAR COMMON STOCK...................53
PURCHASES OF PRICELLULAR STOCK BY PRICELLULAR AND ACC.......................54
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF
PRICELLULAR..............................................................55
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS.................................58
INDEPENDENT ACCOUNTANTS.....................................................61
WHERE YOU CAN FIND MORE INFORMATION.........................................61
INDEX OF DEFINED TERMS......................................................63
APPENDICES
APPENDIX A -- Agreement and Plan of Merger dated as of March 6, 1998 between
PriCellular and ACC, as amended by Amendment No. 1 thereto
dated as of May 27, 1998
APPENDIX B -- Voting Agreement dated as of March 6, 1998 by and among ACC
and the Principal Stockholders
APPENDIX C -- Opinion of Gleacher Natwest Inc.
APPENDIX D -- Opinion of SBC Warburg Dillon Read Inc.
APPENDIX E -- Section 262 of the General Corporation Law of the State of
Delaware
APPENDIX F -- Annual Report on Form 10-K/A for PriCellular for the year
ended December 31, 1997 (as filed with the Securities and
Exchange Commission on May 22, 1998)
APPENDIX G -- Quarterly Report on Form 10-Q for PriCellular for the three
months ended March 31, 1998
SUMMARY
This summary highlights selected information from this document
and may not contain all of the information that is important to you. To
understand the Merger fully and for a more complete description of the legal
terms of the Merger, you should read carefully the entire document and the
documents to which we have referred you.
The Companies
PriCellular Corporation
711 Westchester Avenue
Westchester, New York 10604
Tel: 914-422-0800
PriCellular is one of the largest independent cellular telephone systems
operators in the United States. Through its subsidiaries, PriCellular owns and
operates FCC-licensed cellular telephone systems in rural areas, primarily in
the Midwest and the East.
American Cellular Corporation
c/o MLC Industries
1336 Basswood
Suite F
Schaumburg, IL 60173
Tel: 847-843-9081
American Cellular Corporation was founded in February, 1998 by a group of
individual and institutional investors in order to acquire PriCellular. ACC
has not carried on any activities to date other than those incident to its
formation and to the Merger.
Spectrum Equity Investors II, L.P., an affiliate of Spectrum, is one of ACC's
founding stockholders. Spectrum is a stockholder of PriCellular and controls
approximately 11% of the fully-diluted voting power of PriCellular. See "THE
MERGER - Interests of Certain Persons in the Merger" on page 31.
The Principal Stockholders of PriCellular
Certain members of the Price family, along with AT&T Wireless Services, Inc.
("AWS") and The Thomas H. Lee Company, collectively control about 63% of the
outstanding votes of PriCellular required to approve the Merger.
Reasons For The Merger (see page 17)
PriCellular's Board of Directors believes that the Merger is fair to
PriCellular's stockholders, and is in the best interests of PriCellular and its
stockholders. PriCellular's Board of Directors has also approved the Merger
Agreement and the Merger.
No Further Stockholder Approval Required;
PriCellular Board Approval (see page 17)
We are not asking you to vote on the Merger. On March 6, 1998, the Principal
Stockholders, who collectively control about 63% of the outstanding votes of
PriCellular, signed an agreement with ACC to vote their shares in favor of the
Merger (the "Voting Agreement"). On May 27, 1998, the Principal Stockholders
and Spectrum executed written stockholders' consents to approve the Merger
Agreement and the Merger. Their vote was sufficient for stockholder approval
of the Merger, so no further stockholder vote is necessary. For a summary of
the Voting Agreement, see "THE VOTING AGREEMENT" on page 46.
Fairness Opinions (see page 19)
Two of PriCellular's financial advisors, Gleacher NatWest Inc. ("Gleacher
NatWest") and SBC Warburg Dillon Read Inc. ("SBC Warburg Dillon Read"), have
given written fairness opinions to PriCellular's Board of Directors. The
opinions state that, as of the date of the opinions and based upon and subject
to the matters and limitations stated in the opinions, the Merger
Consideration is fair to PriCellular stockholders from a financial point of
view. The Gleacher NatWest and SBC Warburg Dillon Read opinions do not
address any other aspects of the Merger or any related transactions.
A copy of Gleacher NatWest's fairness opinion is attached as Appendix C, and a
copy of SBC Warburg Dillon Read's fairness opinion is attached as Appendix D.
You should read them carefully for a description of the procedures followed,
assumptions made, matters considered and limitations on the review undertaken
in connection with the opinions.
The Merger
The Merger Agreement (see page 37)
The Merger Agreement is the legal document that governs the Merger. It is
attached as Appendix A to this Information Statement, and we encourage you to
read it carefully. For a summary of its most important terms, see "THE MERGER
AGREEMENT" on page 37.
Conditions to the Merger (see page 43)
The Merger will occur, and your PriCellular shares will be exchanged for cash,
as soon as practicable after the satisfaction or waiver of all of the
conditions specified in the Merger Agreement. Those conditions include
receipt of certain regulatory approvals and consents, receipt of certain
financing by ACC, receipt of an opinion confirming the solvency of the Company
after the Merger, and the absence of certain material adverse changes in
PriCellular.
Certain Regulatory Matters (see page 31)
In order to complete the Merger, PriCellular and ACC must file with or get
approval from various federal and state governmental agencies. These filings
and approvals relate primarily to the change of control with respect to
cellular and microwave licenses granted to PriCellular by the Federal
Communications Commission.
Material Federal Income Tax Considerations (see page 30)
Generally, the receipt of cash in the Merger will be a taxable transaction for
federal income tax purposes. In addition, unless an exemption applies, a
PriCellular stockholder may be required to provide its taxpayer identification
number and certain certifications with regard thereto in order to avoid backup
withholding of 31% of the proceeds to be received by such stockholder in the
Merger.
Termination (see page 45)
The Merger Agreement may be terminated in only a limited number of
circumstances (unless both parties agree to terminate). See "THE MERGER
AGREEMENT -- Termination."
Effect of the Merger on PriCellular Stockholders
As a result of the Merger, each share of PriCellular stock owned by you will
be exchanged for $14.00 in cash, and you will no longer be a stockholder of
PriCellular. See "THE MERGER -- Certain Effects of the Merger" on page 29.
For a discussion of certain insolvency risks related to the Merger and
circumstances under which a stockholder of PriCellular might be required to
return the Merger Consideration, see "THE MERGER -- Risks of Insolvency on
Former Stockholders of PriCellular" on page 35.
Voting Agreement and Other Agreements (see pages 46 and 50)
ACC has entered into the Voting Agreement with certain members of the Price
Family, AT&T Wireless Services, Inc. and The Thomas H. Lee Company, pursuant
to which these Principal Stockholders agreed to vote their shares of
PriCellular stock in favor of the Merger. In this agreement, these Principal
Stockholders also agreed to pay ACC certain amounts if they sell or otherwise
transfer their respective shares of PriCellular stock under certain
circumstances. The Voting Agreement is attached as Appendix B to this
Information Statement, and we encourage you to read it carefully. For a
summary of its most important terms, see "THE VOTING AGREEMENT" on page 46.
PriCellular has also entered into a letter agreement with Spectrum under which
Spectrum has agreed to be bound by certain provisions of the voting agreement
between ACC and the Principal Stockholders with respect to the PriCellular
preferred stock it holds. In addition, PriCellular entered into a consent and
waiver agreement with AWS whereby AWS has agreed to waive certain rights in
connection with the Merger.
Interests of Officers, Directors and the Principal
Stockholders in the Merger (see page 31)
The officers, directors and principal stockholders of PriCellular may have
interests in the Merger that are different from, or in addition to, yours.
One member of the Company's Board of Directors is affiliated with the investor
group that founded ACC, and certain other directors are affiliated with, or
are themselves, the Principal Stockholders who approved the Merger by written
consent. In addition, the president of PriCellular is expected to enter into
a Consulting and Noncompetition Agreement with ACC at the time of the Merger,
although he will not be an employee or director of ACC following the Merger.
For a further discussion of such interests, see "THE MERGER -- Interests of
Certain Persons in the Merger" on page 31.
Markets and Market Prices (see page 53)
The PriCellular Class A Shares trade on the American Stock Exchange. On
December 31, 1997, PriCellular Class A Shares closed at $10.44 per share. On
March 6, 1998, the last full day of trading prior to the public announcement
of the proposed merger, PriCellular Class A Shares closed at $13 per share.
On May 27, 1998, PriCellular Class A Shares closed at $13.50 per share. You
may obtain more recent stock price quotes in most newspapers or in other
financial sources.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Information Statement contains forward-looking statements,
including statements concerning possible or assumed future results of
operations of PriCellular set forth under "Recommendation of the PriCellular
Board; Reasons for the Merger" and "Opinions of the Financial Advisors to the
PriCellular Board." These statements include statements regarding the intent,
belief or current expectations of PriCellular, its directors or its officers
primarily with respect to PriCellular's operations and financial performance.
For those statements, PriCellular claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. You are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in the
forward-looking statements as a result of various factors, including the
following: (i) PriCellular's limited operating history and history of net
losses, (ii) PriCellular's high degree of leverage and the requirement for
significant and sustained growth in PriCellular's cash flow to meet its debt
service requirements, (iii) the status of any pending potential acquisitions
or dispositions of cellular systems ("Systems") and the risk that new Systems
and Systems recently acquired may not perform as expected, (iv) competition
from the other cellular operators in PriCellular's clusters or from other
technologies, (v) dependence on corporate management, (vi) reliance on the
CELLULARONE[Registered] trademark, (vii) potential for adverse regulatory
change and the need for renewal of cellular licenses, (viii) fluctuations in
market value of licenses, (ix) equipment failure or natural disaster and (x)
concerns about radio frequency emissions.
THE COMPANIES
PriCellular Corporation
PriCellular is one of the largest independent cellular
telephone systems operators in the United States. Through its subsidiaries,
PriCellular owns and operates FCC-licensed cellular telephone systems in rural
areas of the Midwest and the East. PriCellular's license areas are grouped in
four main operating clusters of cellular systems in (i) the Upper Midwest
(including parts of Minnesota, Wisconsin and Michigan), (ii) the Mid-Atlantic
(including parts of Ohio, Pennsylvania and West Virginia), (iii) suburban New
York and (iv) Kentucky and Tennessee. PriCellular markets its products and
services primarily under the CELLULARONE brand name.
PriCellular was incorporated in 1990 under the laws of the
State of Delaware and has its principal executive offices at 711 Westchester
Avenue, White Plains, New York 10604 (telephone number 914-422-0800).
American Cellular Corporation
American Cellular Corporation is a Delaware corporation formed
in February 1998 solely for the purpose of being merged with and into
PriCellular. ACC has not carried on any activities to date other than those
incident to its formation and to the Merger. As of the date hereof, all of
the outstanding capital stock of ACC is owned by a group of individual and
institutional investors, one of whom is an affiliate of Spectrum, a current
stockholder of PriCellular.
The mailing address of ACC's principal executive offices is c/o
MLC Industries, 1336 Basswood, Suite F, Schaumburg, Illinois 60173 (telephone
number 847-843-9081).
SELECTED HISTORICAL FINANCIAL INFORMATION OF PRICELLULAR
In the tables below, we provide you with selected consolidated
financial data derived from the audited historical financial statements of
PriCellular. The financial statements for the years 1993 through 1997 have
been audited by Ernst & Young LLP, independent auditors.
When you read this selected historical consolidated financial
data, you should consider reading along with it the historical financial
statements and accompanying notes that PriCellular has included in its Annual
Report on Form 10-K/A for the year ended December 31, 1997, which is attached
hereto as Appendix F.
PriCellular acquired all of its existing Systems (excluding
minority interests) between April 1994 and January 1998. Many of the Systems
at the time of acquisition were relatively dormant or running at a minimum
level of operating efficiency. Accordingly, the following historical financial
data is not necessarily indicative of future results of operations. The
selected financial data set forth below for PriCellular for the years ended
December 31, 1997, 1996 and 1995 and as of December 31, 1997 and 1996, is
derived from, and qualified by reference to, the audited consolidated
financial statements included in PriCellular's Report on Form 10-K/A for the
year ended December 31, 1997. The selected financial data set forth below for
the years ended December 31, 1994 and 1993 and as of December 31, 1995, 1994
and 1993 are derived from the audited consolidated financial statements of
PriCellular not included or incorporated by reference in this Information
Statement.
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993(3)
--------- -------- -------- ------- --------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues................... $181,000 $112,616 $ 41,504 $ 5,209 $ 3,809
Cost of cellular service............. 48,691 29,571 10,694 1,892 835
Cost of equipment sold............... 12,841 10,073 4,951 814 255
-------- -------- -------- ------- -------
Gross margin......................... 119,468 72,972 25,859 2,503 2,719
Selling, general and administrative.. 53,485 34,502 16,512 6,005 1,659
Depreciation and amortization........ 28,759 19,537 10,337 2,720 1,695
-------- -------- -------- ------- -------
Operating income (loss).............. 37,224 18,933 (990) (6,222) (635)
Gain (loss) on sale of investments in
cellular operations................ 8,423 (1,401) 11,598 6,819 11,986
Interest expense, net................ (62,528) (42,201) (18,839) (1,940) (271)
Other income (expense), net.......... 3,250 1,626 520 (97) (439)
-------- -------- -------- ------- -------
Income (loss) before provision for
income taxes and extraordinary
item............................... (13,631) (23,043) (7,711) (1,440) 10,641
Provision for income taxes........... (172)
Gain on early extinguishment of
debt, net of tax................... 147
-------- -------- -------- ------- -------
Net income (loss).................... $(13,631) $(23,043) $ (7,711) $(1,440) $10,616
======== ======== ======== ======= =======
Net income (loss) after adjustment
for accrued preferred stock
dividends.......................... $(20,171) $(29,221) $ (7,711) $(1,440) $10,616
======== ======== ======== ======= =======
Net income (loss) per common
share (1).......................... $ (0.55) $ (0.76) $ (0.24) $ (0.06) $ 1.05
-------- -------- -------- ------- -------
Net income (loss) per common
share-assuming dilution (1)........ $ (0.55) $ (0.76) $ 0.24) $ (0.06) $ 0.45
-------- -------- -------- ------- -------
Weighted average shares
outstanding (2).................... 36,751 38,493 32,214 23,023 12,695
======== ======== ======== ======= =======
Adjusted weighted average shares
for assumed conversions (2)........ 36,751 38,493 32,214 23,023 23,725
======== ======== ========= ======= =======
<CAPTION>
As of December 31
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993(3)
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit)............ $ 44,518 $ 89,749 $116,415 $ 26,488 $ (139)
Net fixed assets..................... 104,854 73,327 52,041 26,144 389
Total assets......................... 747,656 735,816 544,766 215,744 6,755
Long-term debt....................... 568,323 524,517 315,216 113,683 4,000
Total liabilities.................... 613,476 555,897 339,038 137,508 4,680
Stockholders' equity................. 134,180 179,919 205,728 78,236 2,075
<CAPTION>
(Unaudited)
At or for the Year Ended December 31,
-------------------------------------
1997 1996 1995
Historical: -------- -------- --------
<S> <C> <C> <C>
Per Share of PriCellular Common Stock:
Book value........................................................................... $3.84 $4.68 $8.34
Cash dividends declared.............................................................. -- -- --
Earnings - diluted................................................................... (0.55) (0.55) (0.55)
</TABLE>
- ------------
(1) --The earnings (loss) per share amounts prior to 1997 have been restated to
comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share.
(2) --Weighted average shares outstanding for the year ended December 31, 1993
were computed based upon the number of shares of common stock outstanding
immediately prior to the closing of the Initial Public Offering. Adjusted
weighted average shares and assumed conversions for the year ended December
31, 1993 were computed based upon the number of shares of common stock
outstanding immediately prior to the closing of the Initial Public Offering
(i) after giving effect to the conversion of Series A and B Convertible
Preferred Stock and the exercise of all options and warrants outstanding
(applying the treasury stock method) as if such shares were outstanding on
January 1, 1993 and (ii) after giving retroactive effect for the October
1996, March 1996 and August 1995 5-for-4 Class A and Class B Common Stock
Splits. Weighted average shares outstanding for the year ended December 31,
1994 were computed by using the pro forma shares outstanding as calculated
above plus the weighted average shares outstanding in connection with the
Initial Public Offering after giving effect for the October 1996, March 1996
and August 1995 5-for-4 Class A and Class B Common Stock splits. Weighted
average shares outstanding for the years ended December 31, 1996 and 1995
were computed using the weighted average shares outstanding during the
period after giving effect to the October 1996, March 1996 and August 1995
5-for-4 Class A and Class B Common Stock splits.
(3) --For 1993, basic earnings before extraordinary item per common share and
net income before extraordinary item per common share, assuming dilution,
were $1.04 and $0.44, respectively. The extraordinary item on a per share
basis would have been $0.01 for both basic earnings and net income per
common share assuming dilution.
THE MERGER
We are furnishing this Information Statement to you in connection
with the proposed Merger between PriCellular and ACC. The Merger will be
carried out as provided in the Agreement and Plan of Merger, dated as of March
6, 1998 between PriCellular and ACC, as amended by Amendment No. 1 thereto dated
as of May 27, 1998 (the "Merger Agreement"). A copy of the Merger Agreement is
attached as Appendix A.
This Information Statement has been sent to you because you
meet one of the following criteria:
o You are a holder of PriCellular Class A Common Stock, par
value $0.01 per share (the "Class A Shares").
o You are a holder of PriCellular Class B Common Stock, par
value $0.01 per share (the "Class B Shares" and, together
with the Class A Shares, the "Common Stock").
o You are a holder of PriCellular Series A Cumulative
Convertible Preferred Stock, par value $0.01 per share (the
"Series A Preferred Stock" and, together with the Common
Stock, the "PriCellular Shares" or the "Shares").
The record date for the determination of your status as a holder
of PriCellular Shares was May 29, 1998.
The Merger Agreement provides that ACC will merge with and into
PriCellular, with PriCellular as the surviving corporation (the "Surviving
Corporation"). In the Merger, each outstanding Share (other than Shares as to
which dissenters' rights have been duly asserted and perfected under the
Delaware General Corporation Law, Shares held by PriCellular as treasury stock
or Shares owned by ACC) will be converted into the right to receive cash.
Holders of Class A Shares and Class B Shares will receive $14.00 per share
(without interest), and holders of Series A Preferred Stock will receive
$14.00 (without interest) for each share of Common Stock into which their
Series A Preferred Stock is convertible at the Effective Time of the Merger
(the "Merger Consideration"). The total aggregate amount of consideration to
be received by PriCellular's stockholders in the Merger is approximately $811
million.
This Information Statement is to inform you of the Merger and
constitutes the notice of corporate action without a meeting required by
Section 228 of the Delaware General Corporation Law. Your vote is not
required for the Merger, because the Principal Stockholders and Spectrum,
which is a stockholder of PriCellular and whose affiliate is a stockholder of
ACC, executed and delivered to PriCellular, on May 27, 1998, written consents
in lieu of a meeting of stockholders approving and adopting the Merger
Agreement and the Merger. The Principal Stockholders and Spectrum then held of
record, in the aggregate, 4,664,378 Class A Shares (entitled to one vote per
share), 11,311,950 Class B Shares (entitled to ten votes per Share) and 66,000
shares of Series A Preferred Stock (entitled to one vote per Class A Share
into which such stock was then convertible). This means that the Principal
Stockholders and Spectrum represented more than a majority of the votes
entitled to be cast at a meeting of PriCellular stockholders to consider the
Merger Agreement and the Merger. As a result, so long as the Merger Agreement
is not amended in any material respect and no material provision of it is
waived, no meeting or further approval or consent of stockholders of
PriCellular is necessary to effect the Merger. The Merger will become
effective no earlier than 20 calendar days after this Information Statement is
mailed to stockholders of PriCellular, but only after satisfaction or waiver of
the conditions to the Merger contained in the Merger Agreement.
Background of the Merger
Since mid-1997, the Board of Directors, management of
PriCellular and certain of PriCellular's significant stockholders have held
discussions periodically concerning PriCellular and possible measures to
maximize shareholder value. Consistent with such discussions and as part of
PriCellular's ongoing effort to maximize shareholder value, the Board of
Directors from time to time has evaluated alternative means of increasing the
value of PriCellular's stock, including business combinations, strategic
acquisitions, share repurchases and the undertaking of operating and financial
measures. In July 1997, PriCellular repurchased and retired 3,994,945 shares
of its Class B Common Stock from Aeneas Venture Corp., an affiliate of Harvard
Private Capital Group, Inc. ("Harvard") at $9.00 per share, which was the then
current market price. In addition, 56,275 warrants to purchase shares of
Class B Common Stock, also owned by Harvard, were redeemed at a net cash
expenditure of $3.83 per warrant ($9.00 per share, less the exercise price of
$5.17).
As part of PriCellular's ongoing efforts to maximize
shareholder value, the Board of Directors retained Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") in November 1997 to assist PriCellular
in its evaluation of strategic opportunities, and authorized DLJ to inquire
whether a sale of PriCellular to a strategic or financial buyer at an
appropriate price was possible. The Board did not make any decision to sell
PriCellular at this time, and viewed DLJ's inquiries as exploratory. Among
the factors considered by the Board in its decision to retain DLJ were (i)
PriCellular's operating results were strong and it might therefore be a
desirable acquisition candidate, (ii) the cellular industry was generally
growing but was entering a period of consolidation and (iii) alternative
wireless technologies could make the industry more competitive in the future.
Since the Board had not yet made a determination as to whether
a sale of PriCellular was the best strategic alternative, the Board considered
whether DLJ's inquiries should be made on a confidential basis. After
consultation with DLJ and its legal advisors, the Board determined that a
public auction was likely to have an adverse effect on the Company's
operations and could expose the Company to harm and uncertainty without
assuring the receipt of an acceptable offer. After consulting with DLJ, the
Board determined that DLJ could identify the logical buyers for PriCellular,
and that it could contact substantially all of such prospective buyers on a
confidential basis. As a result of the foregoing, the Board instructed DLJ to
proceed on a confidential basis.
Between November 17, 1997 and February 22, 1998, DLJ contacted
approximately nine potential acquirors of PriCellular to determine their
interest in receiving non-public information concerning PriCellular so that
they could more fully evaluate PriCellular. Five of those potential acquirors
executed customary confidentiality agreements and received non-public
information concerning PriCellular.
In early December 1997, Brion Applegate, who is a member of
PriCellular's Board, informed DLJ and PriCellular that an affiliate of
Spectrum and a management team were interested in participating in an investor
group that was exploring the possibility of making a bid for PriCellular.
Immediately thereafter, an affiliate of Spectrum and a representative of the
two principal members of the management team, Brian McTernan and John Fujii,
signed confidentiality agreements. During the next few months this investor
group simultaneously evaluated the possibility of acquiring PriCellular and
sought to have additional investors join the group. Although ACC was
incorporated in February 1998, references to ACC prior to such time mean this
investor group. Brion Applegate is the only director or officer of
PriCellular that has ever been associated with ACC. After Mr. Applegate
stated his interest in participating in ACC on behalf of an affiliate of
Spectrum in December 1997, Mr. Applegate recused himself from all discussions
at PriCellular Board meetings involving a potential sale of PriCellular.
During the period from November 17, 1997 to February 22, 1998,
PriCellular's management and DLJ held preliminary discussions and/or meetings
with the potential acquirors to provide supplemental non-public information
and to assess their interest in a possible transaction with PriCellular. Of
the entities with whom management held discussions, five parties, including
ACC, delivered oral indications of interest to DLJ as to the type of
transaction such parties would be willing to pursue and the range of values
such parties would be willing to consider. Three of such entities indicated
that they could not justify a bid price above the then stock market valuation
of $12 per share.
One potential buyer indicated interest at a price per share of
$13, subject to an exclusive due diligence period of at least 2-3 weeks.
Discussions with such party were subsequently abandoned for the following
reasons: (i) PriCellular's management believed it was not in PriCellular's
interest to grant such party an exclusivity period and such party made clear
that it had no interest in pursuing a transaction without one, (ii) the
potential buyer did not have significant financial resources and needed to
raise substantially all of the required financing from third parties, (iii)
the prospective buyer had not taken any steps to raise such financing, which
would lengthen the amount of time before a meaningful bid was received and
(iv) DLJ advised PriCellular that it was not confident that the prospective
buyer could raise the required financing. Management's decision to deny such
interested party an exclusivity period was also determined in part by the
Board's instruction that all qualified third parties be given equal treatment
and equal access to company information.
In early January 1998, ACC expressed interest in acquiring
PriCellular for cash consideration in the price range of $14-15 per share. ACC
further advised PriCellular's management that such range of value was
preliminary and was subject to revision and further due diligence
investigation by the equity investors that were considering an investment in
ACC.
No detailed negotiations were held with any of the parties
other than ACC before or after receipt of its indication of interest, and the
Board believes that in light of the indications received from the other parties
contacted, the transaction as contemplated by the Merger Agreement is fair to
and in the best interests of PriCellular and its stockholders. To ensure a
disinterested process, the Board considered and discussed all acquisition
proposals without Mr. Applegate being present. See "--Interests of Certain
Persons in the Merger."
In early January 1998, PriCellular's legal counsel circulated a
draft of a merger agreement and a voting agreement to members of the ACC
investor group and its advisors for discussion purposes while such investors
continued their diligence investigations. During January 1998,
representatives of PriCellular and ACC held several discussions regarding the
general structure and terms of a possible transaction, including conditions to
consummation. ACC indicated that certain equity and debt financing
arrangements would be necessary in order to finance the proposed transaction.
In the course of these discussions, members of PriCellular's management made
clear PriCellular's desire to seek a transaction that was in the best
interests of its stockholders and for which there would be a relatively high
level of certainty of completion.
In late January, 1998, Mr. Applegate, on behalf of ACC,
approached the Company's representatives with a proposal that contemplated a
merger of PriCellular with a newly formed company in which the Company's
stockholders would receive $14 in cash with respect to each share of
PriCellular stock (the "Proposed Transaction").
On February 6, 1998 the Board held an informational meeting to
review the status of the sale process conducted by DLJ and to discuss the
Proposed Transaction. Each member of the Board was present (except that Mr.
Applegate was present in his capacity as a representative of ACC and not as a
Director of PriCellular), together with certain of PriCellular's financial and
legal advisors. The Board was informed by PriCellular's management and
advisors of DLJ's discussions with third parties and the indications of
interest received, including the fact that none of the potential acquirors
contacted (other than ACC) were willing to pursue a transaction at an offer
price above $13 per share. The Board was also informed of the terms of the
Proposed Transaction. As part of his presentation, Mr. Applegate, on behalf
of ACC, requested that PriCellular grant the investor group an exclusive
negotiating period during which it could complete its due diligence and
financing arrangements.
After considering the information provided, the Board concluded
that it was premature for it to consider the merits of the Proposed
Transaction. The Board indicated to Mr. Applegate that any formal bid proposal
was expected to include the terms of all relevant financing commitments. The
Board rejected ACC's request for an exclusive negotiating period, but
unanimously encouraged management to continue negotiations regarding the
Proposed Transaction and to keep them informed of the status of such
discussions. In addition, the Board advised management and DLJ to again
solicit each potential acquiror previously contacted to determine whether such
potential acquiror had any continuing interest in pursuing a transaction with
PriCellular. In February 1998, ACC was incorporated.
Between February 6 and March 4, 1998, DLJ again contacted
certain interested parties and held follow-up discussions to assess the
likelihood of interest in a transaction at an offer price in the $14 range
proposed by ACC. As part of these contacts, interested parties were asked
whether they might be able to make an offer for the Company at a price at or
above $14 per share. The results of these contacts indicated to DLJ and
PriCellular's management that no other party was willing to pursue a
transaction at or above the offer price of $14 per share.
Beginning February 26, 1998, representatives of the respective
legal counsels of ACC, PriCellular and the Principal Stockholders proceeded to
finalize the Merger Agreement, the Voting Agreement and related documents,
including commitment letters related to the financing of the Merger and the
transactions contemplated thereby. On March 4, 1998, ACC advised PriCellular
that it had arranged the equity and debt financing required for ACC's
acquisition proposal and was in a position to make a formal offer, subject to
resolution of certain outstanding contractual issues relating to the Merger
Agreement and Voting Agreement.
A meeting of PriCellular's Board of Directors was convened to
discuss the proposed transaction with ACC on the afternoon of March 5, 1998 in
New York City. Prior to such meeting, the Board was provided with the form of
the negotiated Merger Agreement and Voting Agreement and various evaluation
materials regarding the terms of the transaction. All members of the Board,
except for Mr. Robert Price and Mr. Brion Applegate, participated either in
person or by conference call, and, in addition, representatives of DLJ,
Gleacher NatWest Inc. ("Gleacher NatWest") and SBC Warburg Dillon Read Inc.
("SBC Warburg Dillon Read") attended the meeting. It was noted at such
meeting that Mr. Robert Price, the Chairman of the Board and a stockholder of
PriCellular, had chosen not to attend the meeting, but that prior to the
meeting he had spoken with certain members of the Board and the Company's
financial advisors. It was further noted at such meeting that Mr. Price
wished to convey to the Board his opposition to the Proposed Transaction based
on the price offered per share, which he believed was low, and his concern
about ACC's ability to raise the required financing. It was further noted at
the meeting that Mr. Robert Price, in his capacity as Chairman of the Board
at the meeting on February 6, 1998, had been supportive of the Proposed
Transaction at $14 per share and that at such time he believed $14 per share
was a fair price. Mr. Price did not give a specific reason as to why he had
changed his mind since the meeting on February 6, 1998, although he indicated
that he believed $14 per share was a low price for the Company, that this
might not be the best time to sell the Company in light of the cellular
industry's growth potential and that at $14 per share he might consider
acquiring the Company himself. It was further noted that since the fall of
1997 Mr. Robert Price had at various times supported and opposed a sale of
PriCellular.
Mr. Steven Price also informed the Board that Mr. Applegate was
an interested party in the transaction in light of his role with ACC and was
therefore not participating in any deliberations with respect to the proposed
transaction. Mr. Steven Price then updated the Board on the status of
negotiations with ACC and described the general background of the proposed
transaction. The Board also received a detailed presentation from DLJ
regarding the sale process of PriCellular, the potential strategic and
financial buyers contacted by DLJ, the indications of interest, if any,
received from such parties, and the financial and economic terms of the
proposed offer from ACC.
PriCellular's outside legal counsel then reviewed at length
with the Board the terms and conditions of the proposed Merger Agreement and
Voting Agreement. Particular attention was given to the conditions to closing,
including the financing condition, the transaction protection features, the
termination provisions in both the Merger Agreement and Voting Agreement, and
the fees and expenses payable to ACC and the conditions precedent to such
payment.
Mr. Steven Price then informed the Board that he was
considering entering into a consulting arrangement with ACC upon the closing
of the Merger and described for the Board the employee severance arrangements
contemplated by the Merger Agreement. See " --Interests of Certain Person in
the Merger."
Representatives of PriCellular's legal counsel also advised the
Board of its fiduciary duties under Delaware law with respect to consideration
of unsolicited acquisition proposals. Such counsel noted that the
"no-solicitation" and termination provisions in the Merger Agreement
provisions had been negotiated by PriCellular's representatives to allow the
Board to fulfill its fiduciary duties in the event an unsolicited third party
offer was received.
The engagement of DLJ, Gleacher NatWest and SBC Warburg Dillon
Read as PriCellular's financial advisors was then formally approved by the
Board.
The Board then received a presentation from representatives of
Gleacher NatWest regarding the structure of the debt financing proposed by
Merrill Lynch Capital Corporation, TD Securities USA and Toronto Dominion
(Texas), Inc. and the terms and conditions of such financing. Gleacher
NatWest advised the Board that although the proposed capital structure was
highly leveraged, it was sustainable and well within the range of other
comparable leveraged buyouts. Following the presentation, the Board asked for
Gleacher NatWest's views as to the risks associated with the leveraged
financing and, in particular, whether the financing posed any risk to the
shareholders that the transaction would not be consummated. Gleacher NatWest
responded by indicating that the risks were those customary for leveraged
transactions and that Gleacher NatWest believed the risk of non-consummation
to be low given the experience and reputation of the two banks arranging the
financing and their strong record of performance in prior similar
transactions. The Board was further advised that it was a condition to
PriCellular's obligation to consummate the Merger that the Board receive a
solvency opinion from an independent advisor as to the solvency of PriCellular
after giving effect to the Merger.
SBC Warburg Dillon Read then delivered to the Board the firm's
oral opinion (which was subsequently confirmed in writing) that, as of such
date, the consideration to be received by PriCellular's stockholders in the
Merger is fair to such holders from a financial point of view. SBC Warburg
Dillon Read then gave a detailed presentation to the Board regarding the
firm's analysis of the financial and economic terms of the transaction.
Following SBC Warburg Dillon Read's presentation, the Board
asked whether Gleacher NatWest concurred with SBC Warburg Dillon Read's
analysis of the transaction and conclusions. Gleacher NatWest advised the
Board that it had performed a similar valuation analysis of PriCellular and
the Proposed Transaction, and that based on such review, Gleacher NatWest was
also of the opinion that, as of such date, the consideration to be received by
PriCellular's shareholders in the Merger is fair to such holders from a
financial point of view.
At the conclusion of the meeting, the members of the Board
present at such meeting unanimously agreed that the proposed Merger
represented an attractive offer for PriCellular's shareholders. The Board then
directed PriCellular's management and advisors to negotiate certain
modifications to some of the provisions of the Merger Agreement and Voting
Agreement with representatives of ACC with a view to reaching final agreement.
The Board also instructed management and its advisors that approval of the
transaction was subject to review by the Board of the final transaction terms.
After more discussion, the Board was requested to remain available to review
any final changes to the transaction documents and, if it were their judgment
to do so, approve and adopt the Merger Agreement and the transactions
contemplated thereby.
Following the Board meeting, representatives of PriCellular,
its Principal Stockholders and ACC and their respective legal counsel and
financial advisors met continuously and negotiated the provisions of the Merger
Agreement, the Voting Agreement, the financial commitment letters and other
related documents.
At approximately noon on March 6, 1998, after PriCellular's and
ACC's counsel had substantially finalized the form of the proposed Merger
Agreement and the Voting Agreement, the Board (other than Messrs. Robert Price
and Brion Applegate) reconvened by telephone, was updated on developments
since the prior afternoon, received the written opinions of Gleacher NatWest
and SBC Warburg Dillon Read to the effect that, as of such date, the proposed
consideration to be received by the stockholders in the Merger was fair to
such holders from a financial point of view, determined that the Merger is
fair to and in the best interests of PriCellular and its stockholders and, by
a unanimous vote of those present and voting, approved and adopted the Merger
Agreement and the Voting Agreement and the transactions contemplated thereby,
subject to final resolution by PriCellular's management of certain contractual
issues, and authorized the execution and delivery of such agreements, subject
to final resolution of such contractual issues. Of the three directors that
are not employees of PriCellular, Messrs. Anderson and Sperling voted in favor
of the Merger, and Mr. Applegate did not participate in the Board's vote; as a
result, the Merger was approved by a majority of directors who are not
PriCellular employees. Later that day, the parties entered into the Merger
Agreement, the Voting Agreement and related documents.
Recommendation of the PriCellular Board; Reasons for the Merger
At its meetings on March 5 and March 6, 1998, the members of
the Board of Directors of PriCellular present at such meetings unanimously
determined that the Merger Agreement and the Voting Agreement, taken together,
are fair to and in the best interests of PriCellular and its stockholders.
The following members of the Board were present, either in person or by
conference call, at the Board meetings on March 5, 1998 and March 6, 1998: Mr.
Scott Anderson, Ms. Kim Pressman, Mr. Steven Price and Mr. Scott Sperling. Two
members of the Board were not present at the Board's meetings on March 5 and
March 6, 1998: Mr. Brion Applegate, who was not invited to the Board meetings
because of his affiliation which ACC, and Mr. Robert Price, who chose not to
attend the Board meetings but conveyed to the Board that he opposed the Merger
because he believed the $14 per share price was too low and that ACC would be
unable to raise the required financing.
The Board of Directors received oral and written opinions from
Gleacher NatWest and SBC Warburg Dillon Read to the effect that, as of the
dates of such opinions and based upon and subject to certain matters stated
therein, the proposed cash consideration to be received by the stockholders of
PriCellular is fair to such holders from a financial point of view. The
Board's decision to enter into the Merger Agreement and the Voting Agreement
was based in part on the fact that PriCellular's management and financial
advisors had engaged in a thorough process of soliciting interest from
numerous potential strategic and financial buyers over approximately a four
month period and ACC's offer was in excess of all other indications of
interest received by PriCellular, the belief that the financial commitments
contemplated by the Merger Agreement enhanced the certainty of completing the
transaction, and the view of the Board that the terms of the Merger Agreement
and the Voting Agreement entered into with the Principal Stockholders of
PriCellular were reasonable and would not deter competing bids that were
materially better to the stockholders. After review and evaluation of all
information provided to the Board for its consideration, consideration of the
advice provided by the Board's financial and legal advisors, and final
discussion and deliberation, the Board concluded that the Merger was fair to,
and in the best interests of, PriCellular and its stockholders. See
"--Background of the Merger."
The decision of the Board to approve and adopt the Merger
Agreement and Voting Agreement was the result of a considered and deliberate
process to seek the greatest possible value for PriCellular's stockholders.
In its deliberations, the Board consulted with PriCellular's legal and
financial advisors and considered a number of factors including, without
limitation, the following principal factors that were material to the Board's
decision:
1. The Board's knowledge of the business, operations, properties,
assets, financial condition, operating results and prospects
of PriCellular;
2. The financial and comparative analyses performed by DLJ,
Gleacher NatWest and SBC Warburg Dillon Read and reviewed with
the Board, and the opinions of Gleacher NatWest and SBC
Warburg Dillon Read that, as of March 6, 1998, the
consideration to be received by the stockholders of
PriCellular in the Merger is fair to such stockholders from a
financial point of view. See "--Opinions of the Financial
Advisors to the PriCellular Board" for a discussion of the
factors considered in rendering the opinions. Such opinions,
which are subject to limitations, qualifications and
assumptions, are attached as Appendix C and D hereto, and
should be read in their entirety;
3. The terms and conditions of the Merger Agreement and the
Voting Agreement, including the fact that the consideration to
be received by the stockholders of PriCellular in the Merger
will consist of 100% cash and the fact that the holders of
Class B Common Stock and Series A Preferred Stock will receive
the same consideration offered the holders of shares of Class
A Common Stock. The Board considered in particular the
provisions of the Merger Agreement which permit PriCellular to
consider other acquisition proposals, the termination
provisions of the Merger Agreement and the Voting Agreement,
the fees and expense reimbursements payable to ACC (which
could require payments of up to approximately $59 million in
the aggregate and which provisions were negotiated at arm's
length between the parties), and the conditions precedent to
the payment of such fees. The Board sought to balance the
interests of ACC, which the Board believed had made an
attractive acquisition offer for PriCellular, in limiting
PriCellular's right to consider other offers, against
PriCellular's ability to obtain a better price for
PriCellular's stockholders. The Board was careful to
negotiate provisions in the Merger Agreement that would allow
it to fulfill its fiduciary duties in the event an unsolicited
offer from a third party was received. While the Merger
Agreement prohibits PriCellular from soliciting third-party
offers, it does not prohibit PriCellular from considering
unsolicited third-party offers, negotiating with such third
parties or furnishing such third parties with information
about PriCellular. Also, the Board negotiated provisions in
the Merger Agreement that would result in the termination
thereof in the event an offer more favorable from a financial
point of view than the ACC offer is received from a
third-party. In the event that any of the following is
satisfied: (i) PriCellular enters into a definitive agreement
with respect to another offer, (ii) any person or group (other
than ACC or the Principal Stockholders) acquires PriCellular
stock representing 50.1% of the voting power of PriCellular or
50.1% of its assets, (iii) either the Board withdraws or
modifies its recommendation to stockholders or PriCellular's
stockholders fail to vote to approve the Merger Agreement, or
(iv) the Board recommends another offer to PriCellular's
stockholders, PriCellular is required to pay ACC a termination
fee of $24,000,000 (which fee decreases to $19,000,000 if any
of the foregoing events occurs after May 15, 1998 and at such
time ACC shall not have consummated a high yield financing or
obtained certain waivers from its lenders). Expense
reimbursement is capped at $8,000,000 (plus an additional
amount of up to $27,000,000 if ACC consummates the high yield
financing) and is payable only if the Merger Agreement is
terminated for the following reasons: (i) a termination by ACC
in the event of a breach of the Merger Agreement by
PriCellular, (ii) a termination because either the Board
withdraws or modifies its recommendation to stockholders or
PriCellular's stockholders fail to vote to approve the Merger
Agreement, (iii) a termination because PriCellular enters into
a definitive agreement with respect to another offer or the
Board recommends another offer to the stockholders and (iv) a
termination because another person or group (other than ACC or
the Principal Stockholders) acquires PriCellular stock
representing 50.1% of the voting power of PriCellular or 50.1%
of its assets. Based on advice from its legal and financial
advisors, the Board concluded that the aggregate amount of
such fees and expense reimbursements would not preclude a
third-party from making an offer that was materially more
favorable to PriCellular's stockholders;
4. The fact that PriCellular and DLJ had contacted prospective
acquirors during the period from November 1997 to February
1998 and that none of the potential strategic and financial
buyers solicited, except for one, was willing to make an offer
above $12 per share, and the Board's belief that (i) the party
that indicated interest at an offer price of $13 per share was
not reasonably likely to consummate a transaction at that
price and (ii) the Merger represented the most attractive
proposal that resulted from a considered and deliberate
process to maximize shareholder value;
5. The historical market prices and trading history of
PriCellular Common Stock (which prices had ranged from $7.44
per share to $13.00 per share during the twelve month period
ended March 6, 1998, the last trading day prior to the
announcement of the signing of the Merger Agreement), and the
fact that the $14 per share cash price represented a 34%
premium over the Company's stock price at the beginning of
1998 and a 17% premium over the Company's closing stock price
on March 3, 1998;
6. The fact that the Principal Stockholders, as the holders of a
majority of the voting power of PriCellular, were willing to
agree to vote their shares and to act by written consent to
approve the Merger;
7. The conditions to closing included in the Merger Agreement and
the financing commitment letters obtained by ACC, including
the financing contingency;
8. The Board's belief that the financing commitment letters,
the terms of which were reviewed and negotiated by
PriCellular's representatives, enhanced the certainty of
completing the transaction, and the fact that Merrill Lynch
and Toronto Dominion are significant participants in the
capital markets with experience and success in closing similar
transactions; and
9. The Board's belief that, based on the beliefs of ACC
contained in the Agreement and the required advice of an
independent advisor, the Surviving Corporation would be
solvent, would not be left with unreasonably small capital,
would not have incurred debts beyond its reasonable ability to
pay them as they mature and would not find its capital
impaired.
The foregoing discussion of the information and factors
considered and given weight by the Board is not intended to be exhaustive. In
view of the variety of factors considered in connection with its evaluation of
the Merger, the Board did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the Board may
have given different weights to different factors.
Opinions of the Financial Advisors to the PriCellular Board
As described above, PriCellular initially retained DLJ to act
as its financial advisor and to assist the Company in its evaluation of
strategic opportunities, and authorized DLJ to approach potential buyers on its
behalf. In that capacity DLJ contacted various potential acquirors between
November 1997 and February 1998, including ACC. However, during the course of
negotiations between the Company and ACC, ACC indicated that it was interested
in receiving a financing proposal from DLJ in connection with the Proposed
Transaction. This development was immediately disclosed to PriCellular, which
consented to DLJ making a financing proposal to ACC. Thereafter, in order to
eliminate any appearance of a conflict of interest, PriCellular contacted SBC
Warburg Dillon Read to obtain an independent view on the fairness of the
proposed offer price of $14.00 per share and to engage SBC Warburg Dillon Read
to deliver a fairness opinion in the event the Board was asked to approve the
Proposed Transaction. Subsequent to its contact with SBC Warburg Dillon Read,
PriCellular engaged Gleacher Natwest to contact certain potential purchasers
of PriCellular, to act as an independent financial advisor to assist
PriCellular in negotiating the final terms of the Merger Agreement and to
provide a second fairness opinion. Each of DLJ, Gleacher NatWest and SBC
Warburg Dillon Read was retained by the Company to advise and act on behalf of
the Board of Directors as a whole. No financial advisor or other
representative was retained to act on behalf of any portion of the Board or
shareholders unaffiliated with the Company or ACC.
Opinion of Gleacher NatWest Inc.
PriCellular retained Gleacher NatWest Inc. to act as
PriCellular's financial advisor in connection with the Merger and related
matters based upon its qualifications, expertise and reputation. At the
meeting of the PriCellular Board of Directors on March 5, 1998, Gleacher
NatWest delivered an oral opinion (subsequently confirmed by a written opinion
dated as of March 6, 1998) to the PriCellular Board of Directors to the effect
that, as of such dates, the Merger Consideration offered by ACC to
PriCellular's stockholders is fair from a financial point of view to
PriCellular's stockholders, other than ACC and its affiliates.
THE FULL TEXT OF GLEACHER NATWEST'S OPINION, WHICH SETS FORTH,
AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED,
AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX C TO THIS
INFORMATION STATEMENT. PRICELLULAR STOCKHOLDERS ARE URGED TO READ THE
GLEACHER NATWEST OPINION CAREFULLY AND IN ITS ENTIRETY. THE SUMMARY OF THE
OPINION OF GLEACHER NATWEST SET FORTH IN THIS INFORMATION STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
GLEACHER NATWEST'S OPINION IS ADDRESSED TO THE PRICELLULAR
BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
PRICELLULAR CAPITAL STOCK REGARDING THE TERMS OF THE MERGER.
In connection with rendering its opinion, Gleacher NatWest,
among other things: (i) reviewed the Merger Agreement, including the schedules
thereto and the other documents and information referred to therein; (ii)
reviewed publicly-available information concerning the Company, including the
annual reports to stockholders and annual reports on Form 10-K of the Company
for the fiscal years ended December 31, 1994, 1995 and 1996, and the quarterly
reports on Form 10-Q for the fiscal quarters ended March 31, June 30 and
September 30, 1997; (iii) reviewed the Company's draft annual report on Form
10-K for the fiscal year ended December 31, 1997; (iv) discussed the past and
current operations, financial condition and prospects of PriCellular with the
management of PriCellular; (v) reviewed certain internal financial information
and other data relating to the business and prospects of the Company,
including budgets for fiscal year 1998 prepared by the management of the
Company, that were provided to it by the Company; (vi) reviewed certain
financial forecasts provided to it by the Company which were prepared by
unaffiliated financial analysts, which forecasts the Company has represented
to Gleacher NatWest are consistent with the best judgments of the Company's
management as to the future financial performance of the Company and are the
best currently available forecasts with respect to such future financial
performance of the Company; (vii) reviewed the current and historically
reported market prices, valuation parameters, and reported trading activity of
the Shares; (viii) compared the financial performance of PriCellular and the
reported market prices, valuation parameters and trading activity of the
Shares with that of other publicly traded companies that it deemed comparable
and their securities; (ix) compared the financial terms of the Merger with the
financial terms of recent acquisitions of companies that it deemed comparable
based upon publicly available information; (x) reviewed with representatives
of Donaldson, Lufkin & Jenrette ("DLJ**"), financial advisor to the Company,
the scope and substance of the discussions held with potential acquirors of
the Company since November 1997, the process by which offers were solicited
and the comments provided by such potential acquirors; and (xi) reviewed such
other information and performed such other studies, analyses, inquiries and
investigations as it deemed appropriate.
In rendering its opinion, Gleacher NatWest assumed and relied
upon, without assuming responsibility for independent verification, the
accuracy and completeness of the information reviewed by it. With respect to
the financial projections provided to it, Gleacher NatWest assumed that they
have been reasonably prepared and reflect the best currently available
estimates and judgments of the management of PriCellular as to the future
financial performance of PriCellular. Gleacher NatWest also assumed based
upon the information which had been provided to it and without assuming
responsibility for independent verification thereof that no material
undisclosed or contingent liability exists with respect to PriCellular.
Gleacher NatWest's opinion is based necessarily on the economic, market, and
other conditions as in effect on the date of its opinion, and the information
made available to it.
The following is a summary of the analyses presented by
Gleacher NatWest to the PriCellular Board of Directors on March 5, 1998 in
connection with rendering its opinion.
Transaction Summary. Gleacher NatWest reviewed the principal
terms of the Merger, noting that upon consummation of the Merger, each share
of Class A Common Stock, par value $.01 per share, and Class B Common Stock,
par value $.01 per share, of PriCellular (collectively, the "Common Shares")
would be converted into the right to receive $14.00 per Common Share in cash
(the "Merger Consideration").
Comparable Companies Analysis. Gleacher NatWest reviewed and
compared certain financial, operating and market trading information of
PriCellular to selected cellular phone service companies whose operating
characteristics and/or industry focus Gleacher NatWest believed resemble those
of PriCellular. The cellular phone service companies analyzed by Gleacher
NatWest included: 360 Communications Company, Centennial Cellular
Corporation, United States Cellular Corporation, Vanguard Cellular Systems,
Inc. and Western Wireless Corporation (collectively, the "Selected Cellular
Companies").
With respect to the Selected Cellular Companies, Gleacher
NatWest considered, among other things, multiples of Enterprise Value (defined
as the price per share multiplied by the sum of the number of shares
outstanding and the number of options outstanding plus the liquidation values
of any preferred stock, short term debt, long term debt and the value of
minority interests less cash and equivalents and proceeds from exercisable
options) to (i) actual calendar year 1997 earnings before interest, taxes,
depreciation and amortization ("EBITDA"); (ii) estimated calendar year 1998
EBITDA (based on Wall Street financial analysts' estimates); and (iii) net
POPs ("POPs"). This analysis indicated that the Selected Cellular Companies
traded in the following ranges for the following multiples: (i) Enterprise
Value to actual calendar year 1997 EBITDA: 9.3x to 13.8x (with a median of
10.3x and a mean of 10.9x); (ii) Enterprise Value to estimated calendar year
1998 EBITDA: 6.4x to 11.1x (with a median of 8.5x and a mean of 8.7x); and
(iii) Enterprise Value to POPs: $124 per POP to $216 per POP (with a median
of $168 per POP and a mean of $172 per POP).
Gleacher NatWest noted that the $14.00 per Common Share cash
consideration for PriCellular stock implied multiples for PriCellular as
follows: (i) Enterprise Value to actual calendar year 1997 EBITDA of 18.3x;
(ii) Enterprise Value to estimated calendar year 1998 EBITDA of 13.8x; and
(iii) Enterprise Value to POPs of $263 per POP.
Comparable Transaction Analysis. Using publicly available
information, Gleacher NatWest reviewed and analyzed certain financial and
operating information relating to seven selected transactions in the cellular
phone service industry ("Selected Cellular Transactions").
The Selected Cellular Transactions analyzed by Gleacher NatWest
are as follows: AirTouch Communication's pending acquisition of U.S. West
Media Group; Blackstone Capital Partners' acquisition of CommNet Cellular;
Price Communications Corporation's acquisition of Palmer Wireless Inc.; Western
Wireless Corporation's acquisition of Triad Cellular Corporation; Century
Telephone Enterprises acquisition of Pacific Telecom Cellular; 360
Communications Company's acquisition of Independent Cellular Network; and
AirTouch Communications' acquisition of Cellular Communications Inc.
With respect to the Selected Cellular Transactions, Gleacher
NatWest considered, among other things, the Enterprise Value offered as a
multiple of (i) last twelve months ("LTM") EBITDA; (ii) the then forward
EBITDA (based on Wall Street financial analysts' estimates near the
announcement of the transaction) and (iii) net POPs. The analysis of the
multiples offered in the Selected Cellular Transactions indicated that: (i)
Enterprise Value to LTM EBITDA ranged from 10.1x to 20.8x (with a median of
13.9x and a mean of 14.7x); (ii) Enterprise Value to the then forward EBITDA
ranged from 8.0x to 14.0x (with a median of 11.4x and a mean of 11.0x); and
(iii) Enterprise Value to POPs ranged from $123 per POP to $338 per POP (with a
median of $201 per POP and a mean of $212 per POP).
Gleacher NatWest again noted that the $14.00 per Common Share
cash consideration for PriCellular stock implied multiples for PriCellular as
follows: (i) Enterprise Value to LTM EBITDA of 18.3x; (ii) Enterprise Value
to estimated calendar year 1998 EBITDA of 13.8x; and (iii) Enterprise Value to
POPs of $263 per POP.
No company or transaction used in the comparable company and
comparable transaction analyses is identical to PriCellular or the Merger.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of PriCellular and other factors that could affect
the public trading value of the companies to which they are being compared.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using comparable transaction data or comparable
company data.
Discounted Cash Flow Analysis. Gleacher NatWest performed a
discounted cash flow analysis to calculate the present value per share of
PriCellular using financial forecasts for PriCellular through 2002 that were
based on certain financial forecasts provided to it by the Company which were
prepared by unaffiliated financial analysts, which forecasts the Company has
represented to Gleacher NatWest are consistent with the best judgments of the
Company's management as to the future financial performance of the Company and
are the best currently available forecasts with respect to such future
financial performance of the Company. Gleacher NatWest utilized discount
rates ranging from 11% to 13% and EBITDA terminal value multiples ranging from
8.0x to 10.0x which were applied to forecasted EBITDA for the year 2002. This
analysis showed a range of present values from $11.89 to $17.69 per share for
PriCellular. This analysis does not purport to be indicative of actual values
or expected values of the shares of PriCellular common stock before or after
the Merger.
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to a partial analysis or summary description.
Gleacher NatWest believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all analyses,
would create an incomplete view of the process underlying its opinion and the
presentation to the Board of Directors. Gleacher NatWest has not indicated
that any of the analyses which it performed had a greater significance from
any other. In addition, Gleacher NatWest may have deemed various assumptions
more or less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to
be Gleacher NatWest's view of the actual value of PriCellular.
In performing its analyses, Gleacher NatWest made numerous
assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
PriCellular. The analyses performed by Gleacher NatWest are not necessarily
indicative of actual values, which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as a part
of Gleacher NatWest's analysis of the fairness of the Merger Consideration to
the Stockholders from a financial point of view and were provided to the Board
of Directors in connection with the delivery of Gleacher NatWest's opinion.
The analyses do not purport to be appraisals or necessarily reflect the prices
at which businesses or securities might actually be sold, which are inherently
subject to uncertainty. In addition, as described above, Gleacher NatWest's
opinion and presentation to the Board of Directors was one of many factors
taken into consideration by the Board of Directors in making its determination
to approve the Merger. Consequently, the Gleacher NatWest analyses described
above should not be viewed as determinative of the Board of Directors or
PriCellular management's opinion with respect to the value of PriCellular.
Gleacher NatWest is an internationally recognized investment
banking and advisory firm that regularly engages in the valuation of
businesses and their securities in connection with mergers and acquisitions.
In the past, Gleacher NatWest and its affiliates have provided
financial advisory services to PriCellular. Pursuant to an engagement letter
dated March 5, 1998, PriCellular agreed to pay Gleacher NatWest a cash fee of
$3,000,000, payable upon completion of the acquisition, for all advisory
services including the completion of a fairness opinion. In addition,
PriCellular has agreed, among other things, to reimburse Gleacher NatWest for
all reasonable out-of-pocket expenses incurred in connection with the services
provided by Gleacher NatWest, and to indemnify and hold harmless Gleacher
NatWest and certain related parties from and against certain liabilities and
expenses, including certain liabilities under the federal securities laws, in
connection with its engagement.
Opinion of SBC Warburg Dillon Read Inc.
On March 5, 1998, SBC Warburg Dillon Read delivered an oral
opinion (subsequently confirmed by a written opinion dated as of March 6,
1998) to the Board of Directors to the effect that, as of such dates, and
based upon and subject to the assumptions made, matters considered and limits
of review set forth in such opinion, the consideration to be received by the
stockholders of the Company (other than ACC and its direct and indirect
shareholders) in the Merger was fair to such stockholders from a financial
point of view.
A COPY OF SBC WARBURG DILLON READ'S OPINION, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE
OF REVIEW UNDERTAKEN BY SBC WARBURG DILLON READ, IS ATTACHED AS APPENDIX D TO
THIS INFORMATION STATEMENT. STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN
ITS ENTIRETY. SBC WARBURG DILLON READ'S OPINION WAS AT THE REQUEST OF AND FOR
THE USE AND BENEFIT OF THE BOARD OF DIRECTORS AND WAS DIRECTED ONLY TO THE
FAIRNESS OF THE PROPOSED CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF
THE COMPANY (OTHER THAN ACC AND ITS DIRECT AND INDIRECT SHAREHOLDERS) FROM A
FINANCIAL POINT OF VIEW. THE SUMMARY OF SBC WARBURG DILLON READ'S OPINION SET
FORTH IN THIS INFORMATION STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, SBC Warburg Dillon Read, among
other things, (i) reviewed certain publicly available business and historical
financial information relating to the Company; (i) reviewed certain internal
financial information and other data relating to the business and prospects of
the Company, including budgets prepared by the management of the Company, that
were provided to it by the Company and are not publicly available; (i) since
the Company had not prepared any long-term forecasts, reviewed financial
forecasts provided by the Company which were prepared by unaffiliated
financial analysts; (i) conducted discussions with members of the senior
management of the Company; (i) reviewed the historical market prices and
trading activity of the Common Stock; (i) reviewed publicly available
financial and stock market data with respect to certain other publicly traded
companies that it believed to be generally comparable to the Company; (i)
compared the financial terms of the Merger with the financial terms of certain
other transactions that it believed to be relevant; (i) reviewed the Merger
Agreement; and (i) conducted such other financial studies, analyses and
investigations, and considered such other information as it deemed necessary
or appropriate.
In preparing its opinion, SBC Warburg Dillon Read relied on the
accuracy and completeness of all information supplied or otherwise made
available to it by the Company, and SBC Warburg Dillon Read did not
independently verify such information or undertake an independent evaluation
or appraisal of any of the assets or liabilities (contingent or otherwise) of
the Company. SBC Warburg Dillon Read assumed no responsibility for and
expressed no opinion with respect to the financial forecasts furnished by the
Company or the assumptions on which they were based. SBC Warburg Dillon
Read's opinion was necessarily based upon economic, monetary, market,
legislative and other conditions as in effect on, and the information made
available to SBC Warburg Dillon Read as of, the date of its opinion. In
rendering its opinion, SBC Warburg Dillon Read was not requested to, and did
not, solicit any third party acquisition interest in the Company. It did,
however, take into account the efforts of Donaldson, Lufkin & Jenrette
Securities Corporation, which was engaged by the Company to solicit potential
acquirors. SBC Warburg Dillon Read's opinion did not address the merits of
the underlying decision by the Company to engage in the Merger.
The following is a summary of the material financial and
comparative analyses performed by SBC Warburg Dillon Read in arriving at its
opinion delivered to the Board of Directors on March 6, 1998.
Transaction Value Multiple Analysis. SBC Warburg Dillon Read
reviewed the value of the PriCellular transaction (the "PC Transaction Value",
defined as the equity value plus the liquidation value of preferred stock, the
principal amount of debt and minority interests less cash, marketable
securities, proceeds from the exercise of options and warrants and the value
of non-cellular operating assets) as a multiple of the Company's EBITDA
("EBITDA" defined as earnings before interest, taxes, depreciation and
amortization) for 1997 (pro forma for the acquisition of Tennessee 4-RSA, "Pro
Forma 1997 EBITDA"), and for 1998, based on the Company's most recent budget
("Budget 1998 EBITDA") and based on the average of recently published EBITDA
estimates for the Company by selected research analysts ("Analyst Estimated
1998 EBITDA"). SBC Warburg Dillon Read also reviewed the ratio of the PC
Transaction Value to the Company's net POPs (the "per POP Value"). SBC
Warburg Dillon Read noted that, based on the Company's balance sheet data as
of December 31, 1997, the PC Transaction Value represents an 18.3x multiple of
Pro Forma 1997 EBITDA, 11.5x Budget 1998 EBITDA and 13.7x Analyst Estimated
1998 EBITDA. SBC Warburg Dillon Read also noted that the PC Transaction Value
implies a per POP Value of approximately $264.
Stock Price Analysis. SBC Warburg Dillon Read reviewed the per
share daily closing market price movement and the daily trading volume of the
Company's Common Stock for the period beginning January 2, 1996 and ending
March 4, 1998 and compared the price movement of the Company's Common Stock to
an index composed of the following publicly traded cellular companies:
Centennial Cellular Corp., 360 Communications Company, United States Cellular
Corporation, Vanguard Cellular Systems, Inc. and Rural Cellular Corporation
(collectively, the "Cellular Index"). This analysis showed that the Company's
Common Stock outperformed the Cellular Index, particularly in the period after
September 1997. The companies in the Cellular Index were selected because
they are cellular companies in lines of business similar to those of the
Company.
SBC Warburg Dillon Read noted that the trading range for the
Company's Common Stock ranged from approximately $7 per share to approximately
$13 per share during the period reviewed. SBC Warburg Dillon Read also
reviewed the relationship of the $14 per share offer price to various
historical daily and weekly closing price averages for the Company's Common
Stock.
Comparable Company Trading Multiples Analysis. Using 1997
reported EBITDA and estimates for 1998 EBITDA, SBC Warburg Dillon Read
reviewed the enterprise value (the "Enterprise Value", defined as the equity
market value based on the closing stock price on March 4, 1998, plus the
liquidation value of preferred stock, the principal amount of debt and
minority interest less cash and marketable securities) as a multiple of 1997
and 1998 EBITDA of each of the companies contained in the Cellular Index. SBC
Warburg Dillon Read also reviewed the ratio of Enterprise Value to net POPs of
each of the companies contained in the Cellular Index.
SBC Warburg Dillon Read compared these trading multiples to the
trading multiples of the Company on the same date, as well as the implied
multiples of the PC Transaction Value. SBC Warburg Dillon Read noted that the
1997 EBITDA trading multiples for the companies in the Cellular Index ranged
from 10.1x to 18.0x, with an average of 12.0x and a median of 10.3x, and that
the 1998 EBITDA trading multiples for the companies in the Cellular Index
ranged from 6.8x to 9.8x, with an average of 8.5x and a median of 8.3x. The
per POP values ranged from $128 to $201, with an average of $162 and a median
of $160.
SBC Warburg Dillon Read noted that the Company's EBITDA trading
multiples of 17.2x 1997 Pro Forma EBITDA, 10.8x Budget 1998 EBITDA and 12.9x
Analyst Estimated 1998 EBITDA, and the Company's $248 per POP trading value
compared favorably to the EBITDA trading multiples of the companies in the
Cellular Index on the same date . SBC Warburg Dillon Read also noted that the
EBITDA multiples and per POP value of the PC Transaction Value were above the
highest EBITDA trading multiple and per POP trading value of the companies in
the Cellular Index.
Comparable Acquisitions Analysis. Using publicly available
information, SBC Warburg Dillon Read reviewed nine transactions announced
since April 1996 that have closed or are still pending involving the
acquisition of cellular companies (the "Comparable Acquisitions"). The
Comparable Acquisitions (and announcement date for each such transaction) were
AirTouch Communications/Cellular Communications, Inc. (April 1996), 360
Communications Company/Independent Cellular Network, Inc. (April 1996), Century
Telephone Enterprises, Inc./Pacific Telecom Inc. (April 1997), Western
Wireless Company/Triad Cellular Corporation (April 1997), Price
Communications/Palmer Wireless, Inc. (May 1997), Blackstone Capital
Partners/CommNet Cellular Inc. (May 1997), PriCellular Corporation/Tennessee
4-RSA (November 1997), AirTouch Communications/US West Media Group (January
1998) and Rural Cellular Corporation/Atlantic Cellular Company, L.P. (February
1998).
With respect to each of the Comparable Acquisitions, SBC
Warburg Dillon Read calculated the transaction value (the "Transaction Value",
defined as the purchase price for the equity of the acquired company plus the
liquidation value of preferred stock, the principal amount of debt and
minority interests less cash, marketable securities, proceeds from the
exercise of options and warrants and the value of non-cellular operating
assets) as a multiple of the then estimated EBITDA of each acquired company,
as well as the per POP value implied by the Transaction Value. SBC Warburg
Dillon Read also compared the principal operating and demographic statistics
of the companies acquired in the transactions reviewed, and compared them to
those of the Company. For the Comparable Acquisitions, the EBITDA multiples
ranged from 8.9x to 13.9x, with an average of 11.3x, and the per POP values
ranged from $124 to $321, with an average of $216.
SBC Warburg Dillon Read noted that the EBITDA multiples and per
POP values reflected in the PC Transaction Value compared favorably to those
of the Comparable Acquisitions.
Discounted Cash Flow Analysis. SBC Warburg Dillon Read
performed a discounted cash flow ("DCF") analysis for the Company using
projections for the years 1998 through 2002. Since PriCellular management,
as a matter of course, does not prepare any long-term forecasts, SBC Warburg
Dillon Read performed a DCF analysis by relying on the average of forecasts
recently prepared by certain unaffiliated financial analysts (the "Consensus
Analyst Forecast"); the Company expressed its opinion to SBC Warburg Dillon
Read that those forecasts were the best currently available forecasts with
respect to the future financial performance of the Company. The DCF was
calculated assuming discount rates ranging from 11% to 13%, and was comprised
of the sum of the net present value of (i) the projected unlevered free cash
flow for the years 1998 through 2002 and (ii) the year 2002 terminal value,
based upon a range of multiples of 8x to 10x EBITDA.
Utilizing this methodology, SBC Warburg Dillon Read derived
estimated per share valuations for the Company's Common Stock ranging from
approximately $12 to $18 per share. SBC Warburg Dillon Read noted that the
Consensus Analyst Forecast assumed increasing EBITDA margins during the
projection period from approximately 40% in 1998 to over 51% in 2002. SBC
Warburg Dillon Read analyzed the impact on value of assuming that EBITDA
margins were to improve only to approximately 44% by 2002, representing the
mid-point between actual EBITDA margins for the Company in 1997 and the
Consensus Analyst Forecast EBITDA margin of over 51% in 2002. Based on this
analysis, SBC Warburg Dillon Read derived estimated per share valuations for
the Company's Common Stock ranging from approximately $9 to $14 per share.
The summary set forth above does not purport to be a complete
description of the analyses performed and factors considered by SBC Warburg
Dillon Read, although it is a summary of the material financial and
comparative analyses performed by SBC Warburg Dillon Read in arriving at its
opinion. Arriving at a fairness opinion is a complex process not necessarily
susceptible to partial analysis or summary description. SBC Warburg Dillon
Read believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it,
without considering all such factors and analyses, could create a misleading
view of the processes underlying its opinion. SBC Warburg Dillon Read did not
assign relative weights to any of its analyses in preparing its opinion. The
matters considered by SBC Warburg Dillon Read in its analyses were based on
numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the Company's control and involve the
application of complex methodologies and educated judgment. Any estimates
incorporated in the analyses performed by SBC Warburg Dillon Read are not
necessarily indicative of actual past or future results or values, which may
be significantly more or less favorable than such estimates. Estimated values
do not purport to be appraisals and do not necessarily reflect the prices at
which businesses or companies may be sold in the future, and such estimates
are inherently subject to uncertainty. No public company utilized as a
comparison is identical to the Company, and none of the Comparable
Acquisitions or other business combinations utilized as a comparison is
identical to the proposed Merger. Accordingly, an analysis of publicly traded
comparable companies and comparable business combinations is not mathematical;
rather it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the comparable companies and
other factors that could affect the public trading value of the comparable
companies or company to which they are being compared.
SBC Warburg Dillon Read is an internationally recognized
investment banking firm and is continually engaged in the valuation of
businesses and their securities and in rendering opinions in connection with
mergers, acquisitions, corporate transactions and other purposes. The Company
retained SBC Warburg Dillon Read based on its qualifications, expertise and
reputation in providing advice to companies with respect to transactions
similar to the Merger.
Pursuant to a letter agreement dated February 27, 1998, the
Company agreed to pay to SBC Warburg Dillon Read a fee of $500,000, which was
paid following the delivery of its opinion. In addition, the Company agreed
to reimburse SBC Warburg Dillon Read for the expenses reasonably incurred by
it in performing its services (including the reasonable fees and disbursements
of its legal counsel) and to indemnify SBC Warburg Dillon Read and certain
related parties from and against certain liabilities arising out of its
engagement.
SBC Warburg Dillon Read and its predecessors have provided
investment banking services to the Company in the past. In the ordinary
course of business, SBC Warburg Dillon Read and its affiliates may actively
trade or hold the equity securities of the Company for their own accounts and
the accounts of their customers and, accordingly, may at any time hold a long
or short position in such securities.
Purpose and Structure of the Transaction; Reasons of ACC, Spectrum and
Applegate for the Merger; Fairness of the Transaction
The purpose of the Merger is for ACC to acquire the entire
equity interest of PriCellular. ACC is pursuing the Merger at this time as a
result of the Board's determination in November 1997 to authorize DLJ to
identify and contact logical buyers for PriCellular. In December 1997, after
DLJ had made initial contact with certain prospective buyers, Mr. Applegate
informed DLJ and PriCellular that an affiliate of Spectrum and a management
team were interested in exploring the possibility of making a bid for
PriCellular. See "THE MERGER--Background of the Merger".
PriCellular operates one of the largest independent rural
cellular telephone systems in the United States. ACC believes that the
acquisition of PriCellular is an attractive investment opportunity because it
will enable ACC and its management team to operate those systems. ACC's
management team has extensive experience in various communications businesses
and ACC believes that the future business prospects of PriCellular are
favorable under ACC's management.
ACC did not consider any form of transaction other than a cash
merger. Due to the need to obtain regulatory approval to transfer the
Company's cellular and other licenses, ACC did not believe that there would
have been any timing advantage in structuring the transaction as a tender
offer followed by a merger.
Following the Merger, the stockholders of ACC will own 100% of
the outstanding capital stock of PriCellular. The stockholders of ACC will be
the sole beneficiaries of any future earnings and growth of PriCellular after
the Merger (until shares of capital stock, if any, are issued to other
stockholders) and will have the ability to benefit from any corporate
opportunities that may be pursued by PriCellular in the future. Spectrum
Equity Investors II, L.P., an affiliate of Spectrum and Mr. Applegate, will
own 14.3% of the outstanding capital stock of ACC immediately following the
Merger. At the Merger, the stockholders of PriCellular will cease to have any
ownership interests in, or rights as, stockholders of PriCellular. Following
the Merger, the holders of capital stock of PriCellular (and holders of
securities exercisable for or convertible into capital stock of PriCellular)
prior to the Merger will not benefit from any increase in value of PriCellular
or any payment of dividends on the common stock of PriCellular and will not
bear the risk of any decrease in the value of PriCellular.
Each of ACC, Spectrum and Mr. Applegate has concluded that the
Merger is fair to the stockholders of PriCellular based on the following
factors:
1. The recommendation of and approvals by the Board of Directors
of PriCellular described under "THE MERGER--Recommendation of
the PriCellular Board; Reasons for the Merger";
2. The receipt by the Board of Directors of PriCellular of the
opinions of Gleacher NatWest and SBC Warburg Dillon Read that
the consideration to be received by the stockholders of
PriCellular in the Merger is fair to such stockholders from a
financial point of view, based on and subject to the
assumptions and qualifications set forth in such opinions;
3. The fact that the principal terms of the Merger were
established through arm's-length negotiation with the
PriCellular Board and its legal and financial advisors;
4. The fact that during the negotiation of the Merger
Agreement, the interests of the PriCellular stockholders were
represented by the PriCellular Board (not including Mr.
Applegate) and its legal and financial advisors and the
interests of ACC were represented by its legal advisors; and
5. The fact that holders of a majority of the outstanding shares
of PriCellular agreed to vote their shares in favor of the
Merger.
In addition to the other factors considered by ACC, Spectrum
and Mr. Applegate in concluding that the Merger is fair to the PriCellular
stockholders, ACC, Spectrum and Mr. Applegate adopted the conclusion and
analysis of the PriCellular Board set forth under the heading "THE
MERGER--Recommendation of the PriCellular Board; Reasons for the Merger"
above, that the Merger is fair to and in the best interests of the PriCellular
stockholders. ACC, Spectrum and Mr. Applegate did not attach relative weights
to the specific factors considered in reaching their conclusions as to the
fairness of the Merger, although they considered the arm's-length negotiations
between the parties, the receipt by the PriCellular Board of the opinions of
Gleacher NatWest and SBC Warburg Dillon Read and the recommendation of the
PriCellular Board to be the most significant factors.
Merger Consideration
At the Effective Time, (i) each issued and outstanding share of
PriCellular Common Stock (other than shares held by PriCellular as treasury
stock or owned by ACC or any of ACC's subsidiaries, with respect to which no
payment will be made) will be converted into the right to receive $14.00 in
cash from ACC and (ii) each issued and outstanding share of PriCellular Series
A Preferred Stock (other than shares held by PriCellular as treasury stock or
owned by ACC or any of ACC's subsidiaries, with respect to which no payment
will be made) will be converted into the right to receive the product of
$14.00 and the number of shares of PriCellular Class A Common Stock into which
each such share of Series A Preferred Stock is convertible at such time in
connection with a change of control (the "Merger Consideration").
Effective Time of the Merger
The Merger will become effective upon the filing of the
certificate of merger with the Secretary of State of the State of Delaware or
at such later time as is specified in the certificate of merger in accordance
with Delaware Law. Subject to certain limitations, the Merger Agreement may be
terminated by either party if, among other reasons, the Merger has not been
consummated on or before the earliest to occur of (i) the termination of the
Bridge Loan Commitment (as defined in the Merger Agreement) or the Credit
Agreement Commitment (as defined in the Merger Agreement) if the High Yield
Financing (as defined in the Merger Agreement) shall not have been consummated
prior thereto, (ii) if the High Yield Financing shall have been consummated,
the proceeds thereof ceasing to be held in escrow and (iii) March 6, 1999.
See "THE MERGER AGREEMENT--Conditions to the Consummation of the Merger" and
"--Termination."
Surrender of and Payment for Shares
At the Effective Time, holders of PriCellular Shares (other
than those who have perfected their appraisal rights in accordance with the
Delaware General Corporation Law) will be entitled to receive the Merger
Consideration described above.
As soon as practicable following the Effective Time, the
Exchange Agent (as defined in the Merger Agreement) will send a letter of
transmittal to each holder of PriCellular Shares. The letter of transmittal
will contain instructions with respect to the surrender of certificates
representing Shares of PriCellular in exchange for cash. WE REQUEST THAT YOU
NOT SURRENDER YOUR CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE SUCH
TRANSMITTAL LETTER AND INSTRUCTIONS. LETTERS OF TRANSMITTAL WILL BE MAILED
AFTER THE EFFECTIVE TIME OF THE MERGER.
As soon as practicable after the Effective Time, each holder of
an outstanding certificate or certificates at such time which prior thereto
represented PriCellular Shares shall, upon surrender to the Exchange Agent of
such certificate or certificates and acceptance thereof by the Exchange Agent,
be entitled to the amount of cash into which the number of PriCellular Shares
previously represented by such certificate or certificates surrendered shall
have been converted pursuant to the Merger Agreement. The Exchange Agent will
accept such certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices.
After the Effective Time, there will be no further transfer on
the records of PriCellular or its transfer agent of certificates representing
PriCellular Shares that have been converted pursuant to the Merger Agreement
into the right to receive cash, and if such certificates are presented to
PriCellular for transfer, they will be canceled against delivery of cash.
Until surrendered as contemplated by the Merger Agreement, each certificate
representing PriCellular Shares will be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the
consideration contemplated by the Merger Agreement. No interest will be paid
or will accrue on any cash payable as consideration in the Merger.
Certain Effects of the Merger
At the Effective Time, ACC will merge with and into
PriCellular, as a result of which all Shares of PriCellular outstanding
immediately prior to the Merger will be canceled. The Class A Shares will no
longer be publicly traded and the stockholders of ACC will become the
stockholders of the Surviving Corporation. Following the Merger, persons who
were stockholders of PriCellular immediately prior to the Merger will no
longer have an opportunity to continue their interests in PriCellular as an
ongoing corporation and therefore will not share in its future earnings and
potential growth. The stockholders of PriCellular (other than those who have
perfected their appraisal rights in accordance with the Delaware General
Corporation Law) will have the right to receive upon the consummation of the
Merger the Merger Consideration described above.
Trading in the Class A Shares on the American Stock Exchange
(the "ASE") will cease immediately following the Effective Time. At the
Effective Time, the Class A Shares will be delisted from the ASE.
Registration of the Class A Shares under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") also will be terminated, as will the ongoing
disclosure requirements thereunder.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, PriCellular has agreed to
carry on its business and that of its subsidiaries prior to the Effective Time
in the ordinary and usual course of business consistent with past practice.
See "THE MERGER AGREEMENT--Certain Pre-Closing Covenants."
Conduct of Business After the Merger
ACC currently expects that following the Merger, the business
and operations of PriCellular will be continued by ACC substantially as they
are currently being conducted. ACC will continue to evaluate the business and
operations of the Surviving Corporation following the Merger and will make
such changes as are deemed appropriate. See "MANAGEMENT OF ACC."
Except for the Merger, ACC has no present plans or proposals
that would result in an extraordinary corporate transaction involving the
Surviving Corporation, such as a merger, reorganization or liquidation, or in
any material changes in the Surviving Corporation's corporate structure or
business, nor does ACC have any present intention to sell any material portion
of the Surviving Corporation's business or assets.
Conditions to the Consummation of the Merger
The obligations of PriCellular and ACC to consummate the Merger
are subject to various conditions, including, without limitation, obtaining
requisite stockholder approval, obtaining the required approvals from the FCC,
and the absence of any injunction or other legal restraint or prohibition
preventing the consummation of the Merger. See "--Regulatory Approvals" and
"THE MERGER AGREEMENT--Conditions to the Consummation of the Merger."
Accounting Treatment of the Merger
The Merger will be accounted for under the "purchase" method of
accounting in accordance with generally accepted accounting principles.
Therefore, the aggregate consideration paid by ACC in connection with the
Merger will be allocated to PriCellular's assets and liabilities based on
their fair market values, with any excess being treated as goodwill. The
assets and liabilities and results of operations of PriCellular will be
consolidated into the assets and liabilities and results of operations of ACC
subsequent to the Effective Time.
Certain Federal Income Tax Consequences
The receipt of cash in the Merger will be a taxable transaction
for federal income tax purposes under the Internal Revenue Code of 1986, as
amended (the "Code"), and is likely to be a taxable transaction under
applicable state, local or foreign income tax laws. Generally, for federal
income tax purposes, a stockholder will recognize gain or loss equal to the
difference between the amount of cash received by the stockholder in the
Merger and its aggregate tax basis in the relevant Shares. Gain or loss will
be calculated separately for each block of Shares surrendered in the Merger.
If Shares are held by a stockholder as capital assets, gain or
loss recognized by the stockholder will be capital gain or loss, which will be
long-term capital gain or loss if the stockholder's holding period for the
Shares exceeds one year. Under present law, long-term capital gains
recognized by an individual stockholder will generally be taxed at a stated
maximum federal marginal tax rate of 28% (or, in the case of Shares held by an
individual stockholder for more than 18 months, 20%). The deductibility of
capital losses is subject to certain limitations.
Unless an exemption applies, the Exchange Agent will be
required to withhold 31% of any cash payments to which a stockholder or other
payee is entitled pursuant to the Merger, unless the stockholder or other payee
provides his or her tax identification number (social security number or
employer identification number) and certifies that such number is correct.
Each stockholder and, if applicable, each other payee is required to complete
and sign the Form W-9 that will be included as part of the transmittal letter
sent to stockholders of PriCellular to avoid backup withholding, unless an
applicable exception exists and is proved in a manner satisfactory to ACC and
the Exchange Agent.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO
SHARES RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR
OTHERWISE AS COMPENSATION OR WITH RESPECT TO HOLDERS OF SHARES THAT ARE
SUBJECT TO SPECIAL TAX TREATMENT UNDER THE CODE, SUCH AS NON-U.S. PERSONS,
LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, AND FINANCIAL
INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF SHARES IN LIGHT OF INDIVIDUAL
CIRCUMSTANCES, INCLUDING HOLDERS HOLDING SHARES AS PART OF A STRADDLE, A
CONVERSION TRANSACTION, A HEDGING TRANSACTION OR OTHER SIMILAR TRANSACTION.
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF
ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE MERGER.
The foregoing discussion is based upon the provisions of the
Code and applicable Treasury regulations thereunder, as in effect as of the
date of this information statement. There can be no assurance that future
legislative, administrative or judicial changes or interpretations will not
affect the accuracy of the statements or conclusions set forth herein. Any
such change could apply retroactively and could affect the accuracy of such
discussion.
No information is provided herein with respect to the tax
consequences, if any, of the Merger under applicable foreign, state or local
income tax or other laws.
Each stockholder of PriCellular is urged to consult such
stockholder's own tax advisor as to the specific tax consequences to such
stockholder of the Merger under U.S. federal, state, local or any other
applicable tax laws.
Regulatory Approvals
Federal Communications Commission. PriCellular and ACC are
required to obtain approval from the Federal Communications Commission (the
"FCC") of the transfer of control of various FCC licenses, permits and other
authorizations held by PriCellular and its subsidiaries (the "FCC Licenses").
These include numerous cellular and microwave licenses used in connection with
the businesses of such subsidiaries. It is a condition to the consummation of
the Merger that such approval is obtained, in the form of a final order from
the FCC (with the exception of certain microwave licenses). On March 11,
1998, the companies filed the required applications with the FCC. The FCC
granted its initial approval on May 15, 1998. The initial approval will
become a final order, sufficient for consummating the Merger, on June 24,
1998, in the absence of reconsideration or review by the FCC. Such
reconsideration or review is not anticipated.
State Regulatory Agencies. PriCellular and ACC are also
required to file notices with various state public utility commissions or
other regulatory agencies in connection with the Merger. However, the Merger
will not require the approval of any such state agencies. The companies will
submit all such notices as required, either prior to or after the Effective
Time of the Merger.
HSR Act and Antitrust. PriCellular and ACC are not required to
observe the notification and waiting period requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), in connection with the Merger.
Injunctions. The obligations of PriCellular and ACC to
consummate the Merger are subject to the condition that there be no provision
of any applicable law or regulation, nor any judgment, order, decree or
injunction, by any court or governmental or regulatory authority of competent
jurisdiction, including any state governmental or regulatory authorities, that
shall prohibit or restrain the consummation of the Merger or any other
transactions pursuant to the Merger Agreement.
Interests of Certain Persons in the Merger
General. Certain officers and directors and stockholders of
PriCellular may have interests in the Merger, as described herein, that are
different from, or in addition to, the interests of stockholders of PriCellular
generally. The Board of Directors is aware of these interests described below
and considered them in addition to the other matters described under "THE
MERGER --Recommendation of the PriCellular Board; Reasons for the Merger."
Steven Price. Mr. Steven Price, the President of PriCellular,
is both a Director and a principal stockholder of the Company. Although Mr.
Steven Price will not be an employee, director or shareholder of the Surviving
Corporation, he is expected to enter into a Consulting and Noncompetition
Agreement with ACC at the time of the closing of the Merger. The terms of any
such arrangement have not been finalized, but the parties anticipate that for
a period of three years after the Effective Time Mr. Steven Price will (i)
serve as a consultant to ACC and (ii) agree not to compete in the personal
communications services business in the Company's current markets. Pursuant
to such consulting arrangements, Mr. Steven Price will receive annual
compensation that is significantly less than the cash compensation paid to him
by the Company in 1997, but will not otherwise be entitled to any equity
interest in ACC, or to participate in any benefit plans or to receive other
benefits generally made available to employees of the Surviving Corporation.
Mr. Steven Price is also party to the Voting Agreement among ACC and the
Principal Stockholders and owns employee stock options. See "THE VOTING
AGREEMENT" and "SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF
PRICELLULAR."
Brion Applegate. Mr. Brion Applegate, a Director of
PriCellular, is a general partner of the general partner of Spectrum Equity
Investors, L.P., which is a stockholder of PriCellular and an affiliate of one
of the founding stockholders of ACC. As described more fully in "THE MERGER
- --Background of the Merger," Mr. Applegate, on behalf of an affiliate of
Spectrum, was an active participant in the investor group that made the ACC
acquisition proposal relating to the Merger. As a result, Mr. Applegate
played a significant role in negotiating the terms of the proposed Merger with
representatives of PriCellular. An affiliate of Spectrum will also be a
stockholder of the Surviving Corporation and will be able to designate two
directors to its board. Mr. Applegate has been designated to ACC's board of
directors and, until the Merger, will serve as an officer of ACC.
During its deliberations concerning the Proposed Transaction,
the Board was reminded of and considered the potential impact of Mr.
Applegate's relationships with PriCellular and its officers and directors upon
the negotiations of the proposed transaction. The Board determined that such
relationships would not alter its evaluation of the transaction or its ability
to act in the best interests of PriCellular's stockholders. The Board's
conclusion in this regard was based upon its knowledge of the professionalism
and experience of the individuals involved, the integrity of the sales process
conducted by DLJ and the fact that the terms of the Merger were negotiated
between the parties at arms-length in consultation with their respective
advisors. In addition, to ensure a disinterested process, the Board
considered and discussed all acquisition proposals, including ACC's offer, and
deliberated the merits of the proposed transaction without Mr. Applegate being
present.
Robert Price. Mr. Robert Price, founder and Chairman of
PriCellular, has at various times supported and opposed the Merger in his
capacity as both a Director and a shareholder of PriCellular. At the time the
Board and certain principal shareholders of PriCellular approved the Merger on
March 6, 1998, Mr. Price stated that he opposed the Merger because he
believed the $14 per share price was too low and that ACC would be unable to
raise the required financing. Since March 6, 1998, Mr. Robert Price has
continued to believe that $14 per share is a low price for PriCellular's
stock, but he has not taken any action that will delay or disrupt the
consummation of the Merger.
Scott M. Sperling. Mr. Sperling, a Director of PriCellular, is
a Managing Director of The Thomas H. Lee Company, which is one of the
Principal Stockholders of PriCellular and a party to the Voting Agreement. See
"THE VOTING AGREEMENT."
AT&T Wireless Services, Inc. AWS, one of the Principal
Stockholders of PriCellular, is party to an operating agreement with
PriCellular. AWS and PriCellular have negotiated a new operating agreement
which will take effect once the Merger is consummated and pursuant to which
AWS will continue its commercial relationship with the Surviving Corporation.
AWS is also a party to the Voting Agreement. See "THE VOTING AGREEMENT."
Bonus Pools. Pursuant to the Merger Agreement, PriCellular
will allocate and make available $4 million from its cash reserves for
distribution to officers and employees at the Effective Time of the Merger (the
"Employee Funds"). The Employee Funds will be distributed to such officers
and employees (other than Mr. Steven Price) of PriCellular and in such amounts
as shall be determined by the President of PriCellular.
Options. At or immediately prior to the Effective Time, each
outstanding employee stock option to purchase Class A Shares (each, an
"Option"), whether or not vested or exercisable, will be canceled, and in lieu
thereof, each holder of such Option will receive, with respect to each Option,
a cash payment in an amount equal to the economic value of such Option. See
"THE MERGER AGREEMENT --Treatment of Options." For additional information
regarding the Options held by officers and directors, see "SECURITY OWNERSHIP
OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF PRICELLULAR."
Indemnification of Directors and Officers Pursuant to the
Merger Agreement. Pursuant to the Merger Agreement, the Surviving Corporation
will indemnify all present and former officers, directors and employees of
PriCellular and its subsidiaries from and after the Effective Time. The
Surviving Corporation will also maintain for at least six years directors' and
officers' liability insurance and fiduciary liability insurance policies
containing terms which are not less advantageous to the officers and directors
than such policies currently maintained by PriCellular. See "THE MERGER
AGREEMENT --Indemnification."
Indemnification of Principal Stockholders Pursuant to the
Voting Agreement. Pursuant to the Voting Agreement, ACC and PriCellular each
agreed to indemnify the Principal Stockholders in certain circumstances. ACC
agreed to indemnify and hold harmless each Principal Stockholder for any and
all losses, claims, damages and liabilities related to the execution and
performance of the Voting Agreement or any actions taken pursuant thereto
(except to the extent that such losses result from the breach of any
representation or warranty of such Principal Stockholder). PriCellular's
indemnity covers losses arising not only from the Voting Agreement, but also
from the Merger Agreement, the Merger, the Consent and Waiver between
PriCellular and AWS, and the transactions contemplated by all of those
agreements. In addition, PriCellular agreed to indemnify not only each
Principal Stockholder, but also each Principal Stockholder's directors,
officers, employees, affiliates, successors and assigns. However, PriCellular
will not be liable for any losses that are determined to have resulted from
the bad faith of any indemnified party, or for losses that ACC has already
paid pursuant to its indemnity. See "THE VOTING AGREEMENT --Indemnification."
Appraisal Rights
Each stockholder of PriCellular has the right to dissent from
the Merger, and if the Merger is consummated, to receive "fair value" for his
or her Shares in cash by complying with the provisions of Delaware law,
including Section 262 of the Delaware General Corporation Law ("Section 262").
In particular, the dissenting stockholder must deliver to PriCellular, within
20 days of the mailing of this Information Statement, written notice of his or
her intent to demand payment for his or her Shares if the Merger is effected.
The full text of Section 262 is attached as Appendix E hereto. Any
stockholder who desires to exercise his or her appraisal rights, or wishes to
preserve his or her right to do so, is urged to review Appendix E carefully
and consult with his or her legal advisors, because failure to comply with the
procedures specified in Section 262 timely and properly will result in the
loss of appraisal rights. See "APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS"
for a further discussion of such rights.
Merger Financing
ACC is expected to enter into certain debt financing
arrangements aggregating approximately $1.3 billion, consisting of $1.0
billion of senior secured credit facilities (the "Credit Facilities") and $285
million of senior note financing (the "Senior Note Financing"). It is
expected that approximately $200 million of the proceeds of the Senior Note
Financing, together with a large portion of the proceeds of the Credit
Facilities and the proceeds of the Equity Financing (as defined below), will
be used to finance the payment of the aggregate Merger Consideration, repay
certain existing indebtedness of PriCellular, consummate a tender offer (and/or
defeasance) for all Existing Notes (as defined below) of PriCellular Wireless
Corporation ("Wireless") and pay fees and expenses incurred in connection with
the Merger. In addition, the Credit Facilities would be used to provide for
the Surviving Corporation's working capital requirements at and subsequent to
the Effective Time. ACC plans to repay the borrowings under the foregoing
financing arrangements out of its cash flow from operations, which will
consist primarily of dividends from its subsidiaries.
On March 6, 1998, ACC received a commitment letter from Toronto
Dominion (Texas), Inc., TD Securities USA and Merrill Lynch Capital
Corporation (together, the "Lenders") to provide the Credit Facilities. The
commitment is subject to customary conditions, including the absence of any
material adverse change in the financial markets, the absence of any material
adverse change in the condition, business or results of operations of
PriCellular or ACC, and the negotiation, execution and delivery of definitive
documentation.
The Credit Facilities. The Credit Facilities are expected to
consist of a senior secured revolving credit facility (the "Revolving Credit
Facility"), which will provide for revolving loans (the "Revolving Credit
Loans") in an aggregate principal amount of up to the lender's revolving
credit commitment (the "Revolving Credit Commitment"), which will initially be
$150 million, and senior secured term loan facilities (the "Term Loans") in
three tranches in an aggregate principal amount of up to $850 million. The
Revolving Credit Commitment will be reduced quarterly beginning in the third
year after the closing and the Revolving Credit Facility will mature eight and
one-half years after the Effective Date. The Term Loans will consist of three
tranches and will amortize over eight and one-half years for Tranche A loans,
nine years for Tranche B loans, and nine and one-half years for Tranche C
loans.
Borrowings and commitments under the Credit Facilities will be
subject to mandatory prepayment and reduction in an amount equal to (a) the
net proceeds of asset dispositions (including insurance proceeds resulting
from casualty to assets), subject to Wireless' ability to reinvest such
proceeds under certain circumstances, (b) 75% of excess cash flow (reduced to
50% with respect to any fiscal year if Wireless' Leverage Ratio (defined as
the ratio of total debt to annualized operating cash flow) is less than
8.0:1.0), (c) 100% of the net proceeds of the issuance or incurrence of debt,
and (d) 50% of the net proceeds of any issuance of equity securities.
Voluntary prepayment of the loans will be permitted in whole or in part with
prior notice and without premium or penalty (other than funding losses),
subject to limitations as to minimum amounts.
Borrowings under the Credit Facilities will bear interest at a
rate per annum of, at Wireless' option, either (a) a base rate (defined as the
higher of (i) Toronto Dominion's announced corporate base rate and (ii) the
federal funds rate, plus 0.50%) plus the Applicable Margin (as defined) or (b)
a LIBOR rate plus the Applicable Margin. The maximum Applicable Margin for
the Tranche A loans and the Revolving Credit Loans will be 1.50% for base rate
loans and 2.50% for LIBOR loans, for the Tranche B loans will be 1.75% for
base rate loans and 2.75% for LIBOR loans, and for the Tranche C loans will be
2.00% for base rate loans and 3.00% for LIBOR loans. Based upon Wireless'
leverage ratio, the Applicable Margin for Tranche A loans and Revolving Credit
Loans may be reduced by up to 1.375%, and for Tranche B loans and Tranche C
loans may be reduced by 0.25%. The default rate under the Credit Facilities
will be 2.00% above the otherwise applicable rate.
The obligations under the Credit Facilities will be secured by
substantially all of the assets of ACC and its direct and indirect existing
and future subsidiaries, including the capital stock of these subsidiaries, but
excluding the assets of unrestricted subsidiaries. Such obligations will also
be guaranteed by Wireless' direct and indirect existing and future
subsidiaries. In addition, ACC will guarantee the Credit Facilities and will
pledge the capital stock of Wireless to the Lenders as security under the
Credit Facilities.
Senior Note Financing. On May 13, 1998 ACC obtained the Senior
Note Financing by issuing $285 million aggregate principal amount of 10 1/2%
unsecured senior notes due 2008 (the "Senior Notes"). Approximately $85
million of the net proceeds from the Senior Notes were used to purchase a
portfolio of government securities sufficient to fund the first six scheduled
payments of interest on the Senior Notes. The remaining $200 million is
expected to be used as provided above. Pursuant to a registration rights
agreement relating to the Senior Notes by and among ACC and the initial
purchasers of the Senior Notes, ACC has agreed to (i) file within 60 days, and
cause to become effective within 120 days, after the date of the closing of
the Merger, a registration statement with respect to an offer to exchange the
Senior Notes (the "Exchange Offer") for notes of ACC with terms identical in
all material respects to the Notes and (ii) cause the Exchange Offer to be
consummated within 150 days after the closing of the Merger. After the
earlier to occur of the consummation of the Exchange Offer and the 120th
calendar day following the date of the Merger, ACC will, to the extent
permitted by the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which ACC would have been required to
file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange
Act if ACC were subject to such provisions, such documents to be filed with the
Commission on or prior to the date by which ACC would have been required so to
file such documents if ACC were subject to such provisions of the Exchange Act.
Equity Financing. Pursuant to terms of a stock purchase
agreement between ACC and the equity investors party thereto (the "Equity
Investors"), the Equity Investors have committed to purchase for cash from ACC
an aggregate amount of $350 million in equity. To date, the Equity Investors
have contributed an aggregate amount of $35 million to ACC through the
purchase of common stock and preferred stock of ACC. It is expected that
prior to or at the time of consummation of the Merger, the Equity Investors
will purchase from ACC additional preferred stock in an aggregate amount of
$315 million.
The following is a list of the Equity Investors who own 5% or
more of the equity of ACC. The aggregate holdings of these investors
represents 80% of the outstanding equity ownership of ACC.
<TABLE>
<CAPTION>
Investors Commitment Percentage
- --------- ---------- ----------
<S> <C> <C>
Providence Equity Partners, L.P................ $50 million 14.3%
Spectrum Equity Investors II, L.P.............. $50 million 14.3%
Affiliates of Sandler Capital Management....... $45 million 12.9%
Tandem Wireless Investments, L.P............... $40 million 11.4%
Triumph Partners III and Triumph III Investors. $30 million 8.6%
First Union Capital Investors.................. $25 million 7.1%
HarbourVest Partners V......................... $20 million 5.7%
Trident Capital Management II and affiliates... $20 million 5.7%
</TABLE>
Note Tender; Consent Solicitation
ACC has commenced a tender offer and consent solicitation (the
"Note Tender") for all of Wireless' 14% Senior Subordinated Discount Notes due
2001, 12 1/4% Senior Subordinated Discount Notes due 2003, and 10 3/4% Senior
Notes due 2004 (collectively, the "Existing Notes"). If the Note Tender is
consummated for a majority of the Existing Notes, the consents obtained
thereby will eliminate most of the negative covenants in the Existing Notes.
If the Note Tender is not consummated for a majority of the Existing Notes, it
is expected that the remaining Existing Notes will be covenant defeased
pursuant to an irrevocable trust to eliminate the negative covenants. The
scheduled closing date for the Note Tender will be on or about the Effective
Time and ACC will purchase all Existing Notes validly tendered thereunder.
After the Merger and prior to the consummation of the Note Tender, ACC will
assign all of its rights and obligations under the Note Tender to Wireless.
As of May 19, 1998, holders of approximately 99.5% of the Existing Notes
(based on principal amount) had tendered their Existing Notes pursuant to the
Note Tender and delivered their consents to amend the Existing Notes.
Wireless will pay approximately $69 million to the holders of the Existing
Notes in excess of the principal amount of the Existing Notes, including
consent fees. ACC expects to acquire or covenant defease all of PriCellular's
10 3/4% Senior Convertible Discount Notes due 2004 (to the extent not converted
into Class A Shares of PriCellular).
Risks of Insolvency on Former Stockholders of PriCellular
ACC is a newly formed corporation that has not carried on, and
prior to the Merger is not expected to carry on, any activities other than
those incident to its formation and the Merger. As of the date hereof, ACC's
only assets are $35 million in equity capital and the net proceeds from the
issuance of the Senior Notes (approximately $273 million), less underwriting
fees and other expenses related to the Merger and the related financings. As
described above, in connection with the Merger ACC is expected to borrow
approximately $1.0 billion under the Credit Facilities and the Equity
Investors are expected to purchase an additional $315 million in ACC preferred
stock. All of the proceeds received by ACC from the foregoing debt and equity
financings will be used to pay the Merger Consideration, repay certain
existing indebtedness of PriCellular, purchase (or defease) the Existing
Notes, pay fees and expenses in connection with the Merger and provide the
Surviving Corporation with working capital.
Various laws enacted for the protection of creditors may apply
to the Surviving Corporation's incurrence of indebtedness and other
obligations in connection with the Merger, including the Credit Facilities and
the Senior Subordinated Financing, as contemplated by ACC. If a court were to
find in a lawsuit by an unpaid creditor or representative of creditors of the
Surviving Corporation that the Surviving Corporation did not receive fair
consideration or reasonably equivalent value for incurring such indebtedness
or obligation and, at the time of such incurrence, the Surviving Corporation
(i) was insolvent; (ii) was rendered insolvent by reason of such incurrence;
(iii) was engaged in a business or transaction for which the assets remaining
in the Surviving Corporation constituted unreasonably small capital; or (iv)
intended to incur or believed it would incur obligations beyond its ability to
pay such obligations as they mature, such court, subject to applicable
statutes of limitation, could determine to void the distribution of the Merger
Consideration to holders of Shares and require that such holders return the
Merger Consideration (or equivalent amounts) to PriCellular (which will be the
Surviving Corporation) or to a fund for the benefit of creditors (including,
under certain circumstances, the lenders providing the Merger financing to
ACC).
The measure of insolvency for purposes of the foregoing will
vary depending on the law of the jurisdiction which is being applied.
Generally, however, a company would be considered insolvent at a particular
time if the sum of its debts was then greater than all of its property at a
fair valuation or if the present fair saleable value of its assets was then
less than the amount that would be required to pay its probable liabilities on
its existing debts as they became absolute and matured. Based on the beliefs
of ACC contained in the Merger Agreement, and the condition that the Board of
PriCellular receive the opinion of an independent financial advisor regarding
the solvency of the Surviving Corporation prior to consummation of the Merger
(the "Solvency Opinion"), the Board of PriCellular believes that, after giving
effect to indebtedness incurred in connection with the Merger and the other
related financings, the Surviving Corporation will not be rendered insolvent,
will not be left with unreasonably small capital, would not have incurred
debts beyond its reasonable ability to pay them as they mature and would not
find its capital impaired. There can be no assurance, however, as to what
standard a court would apply in making such determinations.
As discussed above, the condition that the PriCellular Board
receive the Solvency Opinion prior to consummation of the Merger could be
waived by the Board, although the Board does not intend to waive this
condition.
PriCellular and ACC have engaged Valuation Research Corporation
("Valuation Research"), a nationally-recognized independent financial advisor,
to provide the Solvency Opinion. Valuation Research has extensive experience
providing financial advisory services, having delivered over 400 solvency and
board of directors opinions. The decision to retain Valuation Research was
made jointly by PriCellular, ACC and certain of ACC's lenders. In the past two
years, Valuation Research has not had any material relationship with
PriCellular (and its affiliates) or ACC (and its affiliates), and no such
relationship is contemplated. A copy of the Solvency Opinion delivered by
Valuation Research will be made available for inspection and copying at
PriCellular's executive offices to any interested stockholder of PriCellular,
once it has been delivered to the Board of PriCellular.
See "THE MERGER AGREEMENT--Conditions to the Consummation of
the Merger--Conditions to the Obligations of PriCellular."
Expenses of the Transaction
The following is an estimate of the costs and expenses incurred
or expected to be incurred in connection with the Merger (in thousands):
<TABLE>
<S> <C>
SEC Filing Fee(1) $ 162
Investment Banking Fees and Expenses(2) 9,500
Bank Fees and Expenses(3) 22,000
Underwriting Fees(3) 8,550
Financing Costs and Accrued Interest(3) 4,200
Legal Fees and Expenses(4) 3,000
Accounting Fees and Expenses(4) 750
Printing and Mailing(4) 750
FCC Application(5) 15
Miscellaneous 1,000
-------
Total(6) $45,727
</TABLE>
- -----------
(1) Paid by PriCellular.
(2) Fees and expenses of DLJ, Gleacher NatWest and SBC Warburg Dillon Read are
to be paid by PriCellular. See "THE MERGER--Opinions of the Financial
Advisors to the PriCellular Board."
(3) Paid by ACC.
(4) Includes fees and expenses for counsel and accountants for, and printing and
mailing costs incurred by, PriCellular and fees and expenses of counsel and
accountants for, and printing costs incurred by, ACC.
(5) Fee shared by PriCellular and ACC.
(6) The above chart does not include an aggregate of $69 million estimated to be
paid to the holders of Existing Notes in connection with the Note Tender and
Consent Solicitation. See "THE MERGER--Note Tender; Consent Solicitation."
Under the Merger Agreement, all costs and expenses incurred by
PriCellular and ACC will be paid by the party that has incurred such costs and
expenses, whether or not the Merger is consummated, except that PriCellular has
agreed to reimburse ACC for certain costs and expenses if the Merger Agreement
is terminated in certain circumstances. See "THE MERGER AGREEMENT -- Expenses
and Fees."
THE MERGER AGREEMENT
The following summarizes the material provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Information
Statement and incorporated by reference herein. This summary is qualified in
its entirety by reference to the Merger Agreement.
The Merger
Subject to the terms and conditions of the Merger Agreement,
ACC will merge with and into PriCellular on the date and at the time (the
"Effective Time") that the certificate of merger is accepted for filing by the
Secretary of State of the State of Delaware (or at such later time as is
specified in the certificate of merger). See "- Effective Time of the
Merger." The separate corporate existence of ACC will then cease, and
PriCellular will be the Surviving Corporation (the "Surviving Corporation").
See "--The Surviving Corporation."
Conversion of PriCellular Common Stock and Series A Preferred Stock
in the Merger
At the Effective Time, (i) each issued and outstanding share of
PriCellular Common Stock (other than shares held by PriCellular as treasury
stock or owned by ACC or any of ACC's subsidiaries, with respect to which no
payment will be made) will be converted into the right to receive $14.00 in
cash from ACC and (ii) each issued and outstanding share of PriCellular Series
A Preferred Stock (other than shares held by PriCellular as treasury stock or
owned by ACC or any of ACC's subsidiaries, with respect to which no payment
will be made) will be converted into the right to receive the product of
$14.00 and the number of shares of PriCellular Class A Common Stock into which
each such share of Series A Preferred Stock is then convertible in connection
with a change of control (the "Merger Consideration").
Treatment of Options
At or immediately prior to the Effective Time, each outstanding
employee stock option to purchase PriCellular Class A Shares (each, an
"Option") issued pursuant to PriCellular's 1994 stock option plan, whether or
not vested or exercisable, will be canceled, and in lieu thereof, each holder
of such Option will receive after the Effective Time, with respect to each
Option, a cash payment in an amount determined by multiplying (i) the excess,
if any, of $14.00 per PriCellular Class A Share over the applicable exercise
price of such Option by (ii) the number of PriCellular Class A Shares such
holder could have purchased (assuming full vesting of all Options) had such
holder exercised such Option in full immediately prior to the Effective Time.
Surrender of and Payment for Shares
Promptly after the Effective Time, the exchange agent selected
by ACC (the "Exchange Agent") will mail to each holder of Shares at the
Effective Time a letter of transmittal (which will specify that the delivery
will be effected, and risk of loss and title will pass, only upon proper
delivery of the certificates representing Shares (the "Certificates") to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates for payment. No interest will be paid or accrued on the Merger
Consideration payable upon the surrender of certificates. WE REQUEST THAT YOU
NOT SURRENDER YOUR CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE SUCH
TRANSMITTAL LETTER AND INSTRUCTIONS. LETTERS OF TRANSMITTAL WILL BE MAILED
AFTER THE EFFECTIVE TIME OF THE MERGER.
If payment is to be made to a person other than the person in
whose name the Certificate surrendered is registered, it will be a condition
of payment that the Certificate so surrendered be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
payment pay any transfer or other taxes required as a result of such payment
to a person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is inapplicable.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO
PAYMENT TO CERTAIN STOCKHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED
PURSUANT TO THE MERGER, EACH SUCH STOCKHOLDER MUST PROVIDE THE EXCHANGE AGENT
WITH SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER OR SOCIAL
SECURITY NUMBER OR CERTIFY THAT SUCH STOCKHOLDER IS NOT SUBJECT TO BACKUP
FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 IN THE
LETTER OF TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH RESPECT TO A
STOCKHOLDER, THE EXCHANGE AGENT IS REQUIRED TO WITHHOLD 31% OF ANY PAYMENTS
MADE TO SUCH STOCKHOLDER. SEE INSTRUCTIONS TO THE LETTER OF TRANSMITTAL.
After the Effective Time, there will be no further registration
or transfers of Shares. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they will be canceled and exchanged
for the Merger Consideration in accordance with the procedures set forth in
the Merger Agreement.
Any portion of the Merger Consideration made available to the
Exchange Agent that remains unclaimed by the holders of Shares six months
after the Effective Time will be returned to the Surviving Corporation on
demand, and any such holder who has not exchanged his Shares for the Merger
Consideration prior to that time will thereafter look only to the Surviving
Corporation for payment of the Merger Consideration in respect of his Shares.
Any amounts remaining unclaimed by holders of Shares two years after the
Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any governmental
entity) will, to the extent permitted by applicable law, become the property of
the Surviving Corporation free and clear of any claims or interest of any
person previously entitled thereto.
Any portion of the Merger Consideration made available to the
Exchange Agent to pay for Shares for which appraisal rights have been
perfected will be returned to the Surviving Corporation, upon demand.
Dissenting Shares
Shares outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger or consented thereto
in writing and who has demanded appraisal for such Shares in accordance with
Delaware Law shall not be converted into a right to receive the Merger
Consideration, unless such holder fails to perfect or withdraws or otherwise
loses his right to appraisal. If after the Effective Time such holder fails
to perfect or withdraws or loses his right to appraisal, such Shares shall be
treated as if they had been converted as of the Effective Time into a right to
receive the Merger Consideration. PriCellular will give ACC prompt notice of
any demands received by PriCellular for appraisal of Shares, and ACC will have
the right to participate in all negotiations and proceedings with respect to
such demands. PriCellular will not, except with the prior written consent of
ACC, make any payment with respect to, or settle or offer to settle, any such
demands. See "APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS."
Effective Time of the Merger
Promptly following, but no later than the second business day
after, satisfaction or waiver of the conditions to the Merger, the Merger will
be consummated and become effective at the time at which the certificate of
merger to be filed pursuant to Delaware Law is accepted for filing by the
Secretary of State of the State of Delaware or such later date and time as may
be specified in such certificate of merger. There can be no assurances that
the conditions to the Merger will be satisfied (or waived) and that the Merger
will occur. See "--Conditions to the Consummation of the Merger."
The Surviving Corporation
The Merger Agreement provides that the certificate of
incorporation of ACC in effect at the Effective Time will be the certificate
of incorporation of the Surviving Corporation until amended in accordance with
applicable law, except that the name of the Surviving Corporation will be
changed to "American Cellular Corporation". The bylaws of ACC in effect at
the Effective Time will be the bylaws of the Surviving Corporation until
amended in accordance with applicable law. The directors and officers of ACC
at the Effective Time will become the directors and officers of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified in accordance with applicable law.
Representations and Warranties
The Merger Agreement contains various customary representations
and warranties of the parties thereto. The Merger Agreement includes
representations and warranties by PriCellular as to (a) the corporate
organization, standing and similar corporate matters of PriCellular and its
subsidiaries; (b) the authorization, execution, delivery, performance and
enforceability of the Merger Agreement; (c) governmental approvals and
authorizations required for the consummation of the transactions contemplated
by the Merger Agreement; (d) the non-contravention of any agreement, law or
charter or by-law provision; (e) its capitalization; (f) documents filed by
PriCellular and Wireless with the Commission and the accuracy of the
information contained therein; (g) the accuracy of financial statements of
PriCellular and Wireless; (h) the accuracy of information supplied by
PriCellular in connection with this Information Statement; (i) the absence of
certain changes or events since the date of PriCellular's most recent audited
financial statements filed with the Commission, including material adverse
changes with respect to PriCellular, and the absence of material undisclosed
liabilities; (j) pending or threatened material litigation; (k) filing of tax
returns and payment of taxes; (l) benefit plans and other matters relating to
the Employee Retirement Income Security Act of 1974, as amended, and
employment and labor matters; (m) finders' fees and expenses; (n) FCC and
other governmental matters; (o) PriCellular's possession of all governmental
permits and licenses necessary for PriCellular or any of its subsidiaries to
conduct their respective businesses and PriCellular's compliance with
applicable laws; (p) certain contracts of PriCellular; (q) properties and
assets of PriCellular and its subsidiaries; (r) compliance with environmental
laws; (s) certain transactions with affiliates of PriCellular and (t) receipt
of an opinion of PriCellular's financial advisors.
The Merger Agreement also includes representations and
warranties by ACC as to (a) the corporate organization, standing and similar
corporate powers of ACC; (b) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement; (c) possession of all
governmental approvals and authorizations required for the consummation of the
transactions contemplated by the Merger Agreement; (d) the non-contravention
of any agreement, law or charter or by-law provision; (e) the accuracy of
information supplied by ACC in connection with this Information Statement; (f)
finders' fees and expenses; (g) financing commitments in connection with the
Merger; (h) qualification of ACC under applicable law to own and operate the
assets and business of PriCellular; and (i) ACC's capitalization.
Certain Pre-Closing Covenants
PriCellular has agreed that, among other things, prior to the
Effective Time or earlier termination of the Merger Agreement, except as
permitted by the Merger Agreement or pursuant to existing obligations disclosed
in the Merger Agreement or as otherwise agreed by ACC in writing, PriCellular
will, and will cause each of its subsidiaries to, conduct its business in the
ordinary course consistent with past practice, use its best efforts to seek to
preserve intact its current business organizations and relationships with
third parties, maintain its rights and franchises, keep available the service
of its current officers and employees and keep its properties and assets in as
good repair and condition as at present (ordinary wear and tear excepted).
PriCellular has agreed that, unless ACC agrees in writing or except as
otherwise permitted pursuant to the Merger Agreement or pursuant to existing
obligations disclosed in the Merger Agreement, prior to the Effective Time
neither PriCellular nor any of its subsidiaries will:
(a) adopt or propose any change in its certificate of
incorporation or bylaws;
(b) merge or consolidate with any other person or acquire a
material amount of assets or business of any other person or make any capital
expenditures other than as contemplated by PriCellular's 1998 budget
previously delivered to ACC;
(c) sell, lease, license or otherwise dispose of any assets or
property except (i) pursuant to existing contracts or commitments and (ii) in
the ordinary course consistent with past practice;
(d) (i) take or agree or commit to take any action that would
make any representation and warranty of PriCellular under the Merger Agreement
inaccurate in any respect at, or as of any time prior to, the Effective Time
or (ii) omit or agree or commit to omit to take any action necessary to
prevent any such representation or warranty from being inaccurate in any
respect at any such time; or
(e) agree or commit to do any of the foregoing.
No Solicitation of Transactions
Under the Merger Agreement, PriCellular has agreed that, until
the termination of the Merger Agreement, PriCellular and its subsidiaries and
their respective officers, directors, employees, representatives (including
any investment banker, attorney or accountant) and other agents will not,
directly or indirectly, (i) take any action to solicit, initiate or encourage
any Acquisition Proposal (as defined below) or (ii) subject to the fiduciary
duties of the PriCellular Board under applicable law as advised by Davis Polk
& Wardwell, counsel to PriCellular, engage in discussions or negotiations
with, or disclose any nonpublic information relating to PriCellular or any of
its subsidiaries or afford access to the properties, books or records of
PriCellular or any of its subsidiaries to, any person that may be considering
making, or has made, an Acquisition Proposal. PriCellular has agreed to
promptly notify ACC after receipt of any Acquisition Proposal or any
indication that any person is considering making an Acquisition Proposal or
any request for nonpublic information relating to PriCellular or any of its
subsidiaries or for access to the properties, books or records of PriCellular
or any of its subsidiaries by any person that may be considering making, or
has made, an Acquisition Proposal, which notification shall include the
identity of the offeror and the terms and conditions of any Acquisition
Proposal (but only to the extent the PriCellular Board may disclose such
information without breaching its fiduciary duties as advised by counsel and
as determined in good faith and without violating any of the conditions of
such Acquisition Proposal), and will keep ACC fully informed (subject to such
fiduciary duties) on a current basis of the status and details of any such
Acquisition Proposal, indication or request.
As used in the Merger Agreement, "Acquisition Proposal" means
any offer or proposal for, or any indication of interest in, a merger or other
business combination involving PriCellular or any of its subsidiaries or the
direct or indirect acquisition of any equity interest in, or a substantial
portion of the assets of, PriCellular or any of its subsidiaries, other than
the transactions contemplated by the Merger Agreement, or a tender offer or
exchange offer for at least 20% of the outstanding Shares or any other
extraordinary transaction the consummation of which would or could reasonably
be expected to impede, interfere with, prevent or materially delay the Merger.
Indemnification and Insurance
Pursuant to the terms of the Merger Agreement, ACC agrees that
the certificate of incorporation and bylaws of the Surviving Corporation will
contain the indemnification provisions set forth in PriCellular's certificate
of incorporation and bylaws on the date of the Merger Agreement, which
provisions will not be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would adversely affect
the rights thereunder of persons who at any time prior to the Effective Time
were identified as prospective indemnified parties under the certificate of
incorporation or bylaws of PriCellular in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
transactions contemplated by the Merger Agreement), unless such modification
is required by applicable law.
From and after the Effective Time, the Surviving Corporation
will indemnify, defend and hold harmless the present and former officers,
directors and employees of PriCellular and its subsidiaries (collectively, the
"Indemnified Parties") against all losses, expenses (including reasonable fees
and expenses of counsel), claims, damages, liabilities or amounts that are
paid in settlement of, with the approval of ACC and the Surviving Corporation
(which approval shall not be unreasonably withheld), or otherwise in
connection with, any claim, action, suit, proceeding or investigation (a
"Claim"), based in whole or in part on, or arising in whole or in part out of,
any actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions and financing contemplated by
the Merger Agreement), in each case to the fullest extent permitted under
Delaware Law (and shall pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the fullest extent
permitted under Delaware Law, upon receipt from the Indemnified Party to whom
expenses are advanced of the undertaking to repay such advances contemplated
by Section 145(e) of Delaware Law).
Without limiting the foregoing, in the event any Claim is
brought against any Indemnified Party (whether arising before or after the
Effective Time) after the Effective Time, (i) the Indemnified Parties may
retain its regularly engaged independent legal counsel as of the date of the
Merger Agreement, or other independent legal counsel satisfactory to them and
reasonably acceptable to ACC, (ii) the Surviving Corporation shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received and (iii) the Surviving
Corporation will use its reasonable efforts to assist in the vigorous defense
of any such matter, provided that the Surviving Corporation shall not be
liable for any settlement of any Claim effected without its written consent,
which consent shall not be unreasonably withheld. The Indemnified Parties as
a group may retain one law firm (in addition to local counsel) to represent
them with respect to each such matter unless there is, under applicable
standards of professional conduct (as reasonably determined by counsel to such
Indemnified Parties) a conflict on any significant issue between the position
of any two or more of such Indemnified Parties, in which event, an additional
counsel as may be required may be retained by such Indemnified Parties.
In addition, ACC will cause to be maintained in effect for not
less than six years after the Effective Time the current policies of
directors' and officers' liability insurance and fiduciary liability insurance
maintained by PriCellular with respect to matters occurring prior to the
Effective Time, provided that (i) ACC may substitute therefor policies with
reputable and financially sound carriers having at least the same coverage and
amounts thereof and containing terms and conditions which are no less
advantageous to the Indemnified Parties and (ii) ACC will not be required to
pay an annual premium for such insurance in excess of three hundred percent of
the last annual premium paid prior to the date of the Merger Agreement, but in
such case shall purchase as much coverage as possible for such amount.
High Yield Financing
The Merger Agreement provides that, as promptly as practicable
following the date of the Merger Agreement, ACC will use its commercially
reasonable efforts to raise gross cash proceeds of $200 million from an
offering of its unsecured senior subordinated debt securities (the "High Yield
Financing") upon such terms and conditions as may be specified in certain
financing agreements between ACC and its lenders. ACC further agrees that it
will not amend (other than to extend the termination date thereof), waive,
discharge or terminate any material provision of any of such financing
agreements without the prior written consent of PriCellular, which consent
will not be unreasonably withheld or delayed. In the event that any portion
of the financing required for consummation of the Merger becomes unavailable,
regardless of the reason therefor, ACC will use its commercially reasonable
efforts to obtain alternative financing on substantially comparable or more
favorable terms from other sources. See "THE MERGER -- Merger Financing --
Senior Note Financing."
Equity Financing
In accordance with the terms of the Merger Agreement, the
Equity Investors have contributed $35 million to ACC in the form of equity
capital. See "THE MERGER -- Merger Financing -- Equity Financing."
Cooperation and Reasonable Best Efforts
Pursuant to the Merger Agreement, and subject to certain
conditions and limitations described therein, the parties have agreed to
cooperate with each other and to use their respective best efforts to take
certain specified and other actions, including cooperation in the arrangement
of debt financing for the transactions contemplated by the Merger Agreement
and cooperation in connection with ACC's consummation of the tender offers for
debt securities of Wireless, so that the transactions contemplated by the
Merger Agreement may be consummated.
ACC also agreed that upon satisfaction of the conditions set
forth in the Merger Agreement (other than the Financing Condition referred to
under "--Conditions to the Consummation of the Merger --Conditions to the
Obligations of ACC") and the conditions precedent to any extension of credit
under the financing agreements relating to the Bridge Loan Commitment and the
Credit Facilities Commitment (other than those conditions which are within
ACC's control to cause to be satisfied at such time), it will promptly, but in
no event later than the second business day after satisfaction of the
conditions referred to in clause (i) and (ii) above, borrow such amounts under
the financing agreements as are required for ACC to consummate the Merger and
all transactions contemplated by the Merger Agreement.
FCC Application
PriCellular and ACC have agreed to prepare all FCC applications
and such other documents as may be required to obtain FCC consent with respect
to the transfer of control of PriCellular to ACC as expeditiously as possible.
Each party has also agreed to pay one-half of any FCC fee payable in
connection with the filing or granting of approval of the FCC application.
HSR Act Matters
PriCellular and ACC have agreed to take all reasonable actions
and use their best efforts to have declared effective or approved all
documents and notifications with any such governmental agencies as may be
required (if any) under the HSR Act or other Federal antitrust laws for the
consummation of the Merger and the other transactions contemplated by the
Merger Agreement.
Warrants
Prior to the Effective Time, PriCellular and ACC will deliver
to the holder of all outstanding warrants to purchase Class B Shares (the
"Warrants") the written instrument required to be delivered pursuant to the
terms of the warrant agreement between such holder and PriCellular. After the
Effective Time, at the request of the holder of the Warrants, PriCellular will
exchange the Warrants for an amount in cash equal to the product of (i) the
number of PriCellular Class B Shares into which the Warrants to be exchanged
are exercisable and (ii) the difference between $14.00 and the exercise price
in respect of each such share for which such Warrant is exercisable on the day
the holder of the Warrants requests an exchange pursuant to the Merger
Agreement.
Convertible Discount Notes
Prior to the Effective Time, PriCellular and ACC will execute
and deliver to the Bank of Montreal Trust Company (the "Trustee") the
supplemental indenture (and any necessary officer's certificates) relating to
the 10 3/4% Senior Subordinated Convertible Discount Notes due 2004 (the
"Convertible Discount Notes") as required under the terms of the Indenture
dated as of August 21, 1995 between PriCellular and the Trustee. In addition,
prior to the Effective Time, PriCellular and ACC will mail to each holder of
the Convertible Discount Notes a notice of the execution of such supplemental
indenture.
Conditions to the Consummation of the Merger
Conditions to Each Party's Obligations to Effect the Merger.
The respective obligations of PriCellular and ACC to effect the Merger are
subject to the satisfaction of the following conditions: (a) the Merger
Agreement shall have been adopted by the stockholders of PriCellular in
accordance with Delaware Law; (b) any applicable waiting period under the HSR
Act relating to the Merger shall have expired; (c) no provision of any
applicable law or regulation and no judgment, order, decree or injunction
shall prohibit or restrain the consummation of the Merger or any other
transactions pursuant to the Merger Agreement; (d) all consents, waivers,
approvals, authorizations or permits by or from, and all actions by or in
respect of or filings with any governmental body, agency, official, or
authority required to permit the execution, delivery and performance of the
Merger Agreement, and the consummation of the Merger and the other
transactions contemplated by the Merger Agreement, including any FCC transfer
approvals, shall have been obtained; and (e) all consents, waivers, approvals
and authorizations required to be obtained from, and all filings or notices
required to be made by ACC and PriCellular prior to consummation of the
transactions contemplated by the Merger Agreement shall have been obtained
from or made with, the FCC, and each such FCC transfer approval shall have
become a final order, except that (i) ACC may waive the requirement that each
of the FCC transfer approvals shall have become a final order and (ii) in the
case of the transfer of microwave licenses only, ACC will deem either initial
FCC approvals or special temporary authority to transfer the microwave
licenses to satisfy this condition.
Conditions to the Obligations of ACC. The obligation of ACC to
effect the Merger is further subject to the satisfaction or waiver of the
following additional conditions: (a) PriCellular shall have performed in all
material respects all of its obligations required to be performed by it at or
prior to the Effective Time, the representations and warranties of PriCellular
contained therein and in any certificate or other writing delivered by
PriCellular pursuant thereto shall be true in all material respects at and as
of the Effective Time (provided that any representation or warranty that is
qualified by a materiality standard will not be further qualified) as if made
at and as of such time (provided that representations made as of a specific
date will be required to be true as of such date only) and ACC shall have
received a certificate signed by an executive officer of PriCellular to the
foregoing effect; (b) no court, arbitrator or governmental body, agency or
official shall have issued any order, and there shall not be any statute, rule
or regulation, restraining or prohibiting the consummation of the Merger or
the effective operation of the business of PriCellular and its subsidiaries
after the Effective Time; (c) ACC shall have received all documents it may
reasonably request relating to the existence of PriCellular and its
subsidiaries and the authority of PriCellular for the Merger Agreement, all in
form and substance reasonably satisfactory to ACC; (d) ACC shall have obtained
the debt financing set forth in the financing agreements on the terms set
forth therein, unless the failure to obtain such financing was the result of a
willful failure by ACC to perform any covenant or condition contained therein
or the inaccuracy of any representation or warranty arising out of the bad
faith or willful misconduct of ACC (the "Financing Condition"); (e) since the
date of the Merger Agreement, there shall not have occurred any change, event,
occurrence, development or circumstance which, individually or in the
aggregate, has had, or would reasonably be expected to have, a Material
Adverse Effect on PriCellular; and (f) the AT&T consent and waiver agreement
shall be in full force and effect in accordance with its terms.
Conditions to the Obligations of PriCellular. The obligation
of PriCellular to effect the Merger is further subject to the satisfaction or
waiver of the following additional conditions: (a) ACC shall have performed in
all material respects all of its obligations under the Merger Agreement
required to be performed by it at or prior to the Effective Time, the
representations and warranties of ACC contained therein and in any certificate
or other writing delivered by it pursuant to the Merger Agreement shall be
true in all material respects at and as of the Effective Time (provided that
any representation or warranty that is qualified by a materiality standard
will not be further qualified) as if made at and as of such time (provided
that representations made as of a specific date shall be required to be true
as of such date only) and PriCellular shall have received a certificate signed
by an executive officer of ACC to the foregoing effect; (b) PriCellular shall
have received all documents it may reasonably request relating to the
existence of ACC and the authority of ACC for the Merger Agreement, all in
form and substance reasonably satisfactory to PriCellular; (c) ACC shall have
entered into a consulting agreement with the President of PriCellular in form
and substance reasonably satisfactory to the President and ACC; and (d) the
PriCellular Board shall have received advice, reasonably satisfactory to the
Board, from an independent advisor confirming the belief of ACC that upon the
consummation of the transactions contemplated by the Merger Agreement, (i) the
Surviving Corporation will not become insolvent, (ii) will not be left with
unreasonably small capital, (iii) will not have incurred debts beyond its
ability to pay such debts as they mature, and (iv) the capital of PriCellular
will not become impaired.
Termination
The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any
approval of the Merger Agreement by the stockholders of PriCellular):
(a) by mutual written consent of PriCellular and ACC;
(b) by either PriCellular or ACC if the Merger has not been
consummated by the earliest to occur of (i) the termination of the Bridge Loan
Commitment or the Credit Agreement Commitment if the High Yield Financing
shall not have been consummated prior thereto, (ii) if the High Yield
Financing shall have been consummated, the proceeds thereof ceasing to be held
in escrow and (iii) March 6, 1999;
(c) by either PriCellular or ACC, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining ACC or
PriCellular from consummating the Merger is entered and such judgment,
injunction, order or decree shall become final and nonappealable;
(d) by PriCellular, upon payment to ACC of the amounts referred
to under the heading "--Expenses and Fees", if prior to or after the
PriCellular stockholders approve the Merger and the Merger Agreement, the
Directors of PriCellular, in good faith based upon the advice of independent
legal counsel, shall have withdrawn or modified in a manner adverse to ACC
their approval or recommendation of the Merger Agreement, or shall have
resolved to do so, in order to permit PriCellular to execute a definitive
agreement in connection with an Acquisition Proposal, provided that
PriCellular has complied with its obligations set forth under the heading
"--No Solicitation of Transactions."
(e) by ACC upon the occurrence of any Trigger Event (as defined
below);
(f) by PriCellular or ACC if the approval of the stockholders
of PriCellular required for the consummation of the Merger shall not have been
obtained at a duly held meeting of shareholders to vote on the Merger, or any
adjournment thereof;
(g) by ACC or PriCellular upon a material breach on the part of
the other of any covenant or agreement herein or if any representation or
warranty of the other party shall not be true in any material respect
(provided that any representation or warranty that is qualified by a
materiality standard shall not be further qualified hereby) and, if such
breach is capable of being cured, shall not have been cured within 20 business
days following receipt by the breaching party of written notice of such breach
from the other party; or
(h) by PriCellular if equity capital in an amount equal to at
least $25 million shall not have been contributed to ACC within 30 days after
the date of the Merger Agreement.
As used in the Merger Agreement, "Trigger Event" means any of
the following events: (a) PriCellular shall have entered into a definitive
agreement with respect to any Acquisition Proposal; (b) any person or group
(as defined in Section 13(d)(3) of the Exchange Act) (other than ACC or any of
its affiliates or any shareholders of PriCellular that have executed voting
agreements with ACC) shall have become the beneficial owner (as defined in
Rule 13d-3 promulgated under the Exchange Act) of outstanding Shares
representing at least 50.1% of the total voting power of PriCellular or shall
have acquired, directly or indirectly, at least 50.1% of the assets of
PriCellular; (c) the PriCellular Board shall have withdrawn or materially
modified its approval or recommendation of the Merger or shall have resolved
to do so; (d) the PriCellular Board shall have recommended an Acquisition
Proposal to the stockholders of PriCellular; or (e) the approval of the
stockholders of PriCellular required for the consummation of the Merger shall
not have been obtained at a duly held meeting of the stockholders to vote on
the Merger, or any adjournment thereof.
The party desiring to terminate the Merger Agreement will give
written notice of such termination to the other party in accordance with the
terms thereof. If the Merger Agreement is terminated, such Agreement will
become void and of no effect with no liability on the part of any party hereto.
Expenses and Fees
Pursuant to the Merger Agreement, PriCellular agrees to pay ACC
a fee in the amount of $24,000,000 (unless a Trigger Event occurs after May
15, 1998 and at such time ACC shall not have either (i) consummated the High
Yield Financing, the proceeds of which shall continue to be held in escrow or
(ii) obtained the irrevocable waiver by the Initial Lenders of the conditions
set forth in Sections 3(c), Section 4 (paragraph 2) and in the attached term
sheet under the caption entitled "Conditions to Effectiveness and to Interim
Loan", the references to the accuracy of representations and warranties of
Target in the first paragraph thereof and subparagraphs (l) and (r) of the
Bridge Loan Commitment in which case, $19,000,000) within three business days
after the termination of the Merger Agreement as a result of the occurrence of
a Trigger Event.
In addition, if the Merger Agreement is terminated by
PriCellular as provided under clause (d) or (f) under the heading
"--Termination" or by ACC as provided under clauses (e), (f) or (g) under the
heading "--Termination", PriCellular agrees to reimburse ACC (i) for all
out-of-pocket expenses reasonably incurred in connection with the Merger
Agreement of up to $8,000,000 plus (ii) if ACC shall have consummated the High
Yield Financing, for all out-of-pocket expenses reasonably incurred in
connection with the High Yield Financing, including interest, underwriting
discounts, debt tender payments and fees, expenses and other costs of
consummating and unwinding the High Yield Financing of up to $27,000,000.
Except as set forth above, all costs and expenses incurred in
connection with the Merger Agreement shall be paid by the party incurring such
cost or expense.
Amendment and Waiver
The Merger Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by PriCellular and ACC, or in the case of
a waiver, by the party against whom the waiver is to be effective; provided
that after the adoption of the Merger Agreement by the stockholders of
PriCellular, no such amendment or waiver will, without the further approval of
such stockholders, alter or change (i) the amount or kind of consideration to
be received in exchange for any shares of capital stock of PriCellular or (ii)
any of the terms or conditions of the Merger Agreement if such alteration or
change would adversely affect the holders of any shares of capital stock of
PriCellular.
THE VOTING AGREEMENT
The following summarizes the material provisions of the Voting
Agreement, a copy of which appears as Appendix B to this Information Statement
and is incorporated herein by reference. This summary is qualified in its
entirety by reference to the Voting Agreement.
In connection with the execution of the Merger Agreement, AT&T
Wireless Services, Inc., The Thomas H. Lee Company (through its affiliates
Thomas H. Lee Equity Fund III, L.P. and THL-CCI Investors Limited
Partnership), Steven Price and Eileen Farbman (collectively, the "Principal
Stockholders") entered into a Voting Agreement with ACC. Pursuant to the
agreement, the Principal Stockholders, the beneficial owners of approximately
39% of the outstanding Common Stock and Series A Preferred Stock of
PriCellular (or 56% of the fully diluted voting power of PriCellular), agreed
to vote their shares in favor of the approval and adoption of the Merger
Agreement. Because the Principal Stockholders have approved the Merger by
written consent, consummation of the Merger does not require approval by a
majority of PriCellular stockholders who are not affiliated with the Company
or ACC. Except for certain provisions thereto, the Voting Agreement terminates
upon termination of the Merger Agreement.
Voting
Pursuant to the Voting Agreement, each Principal Stockholder
has agreed to vote all of the shares of PriCellular Common Stock or Series A
Preferred Stock owned by such Principal Stockholder in favor of the approval
and adoption of the Merger Agreement and the Merger and the other transactions
contemplated thereby at any meeting of the stockholders of PriCellular, and at
any adjournment thereof, at which such Merger Agreement and the Merger, or
such other transactions or actions, are submitted for the consideration and
vote of the stockholders of PriCellular. Each of the Principal Stockholders
has also agreed that it will vote all of the shares of PriCellular Common
Stock or Series A Preferred Stock owned by such Principal Stockholder against
any (w) Acquisition Proposal (as defined in the Merger Agreement), (x)
reorganization, recapitalization, liquidation or winding up of PriCellular or
any other extraordinary transaction involving PriCellular, or (y) corporate
action the consummation of which would frustrate the purposes, or be
inconsistent with the other agreements of such Principal Stockholder pursuant
to the Voting Agreement.
The Voting Agreement further provides that the Principal
Stockholders may vote for transactions permitted by the Merger Agreement and
will not be bound by the voting provisions of the Voting Agreement if the
Merger Agreement has been terminated. In addition, the obligations of AT&T
Wireless, Inc. pursuant to the voting provisions of the Voting Agreement will
terminate if the Board of Directors of PriCellular shall have withdrawn or
materially modified its approval or recommendation of the Merger or shall have
resolved to do so.
Transfer Restrictions
Pursuant to the Voting Agreement, each Principal Stockholder
has agreed that it will not, without the prior written consent of ACC,
directly or indirectly, (i) grant any proxies or enter into any voting trust
or other agreement or arrangement with respect to the voting of any shares of
PriCellular Common Stock or Series A Preferred Stock owned by such Principal
Stockholder or (ii) sell, assign, transfer, encumber or otherwise dispose of,
or enter into any contract, option or other arrangement or understanding with
respect to the direct or indirect sale, assignment, transfer, encumbrance or
other disposition of, any such shares during the term of the Voting Agreement,
including, without limitation, dispositions of such shares through dividends or
liquidation or other distributions of such shares to any stockholders or
partners of such Principal Stockholder.
Notwithstanding the foregoing, the Voting Agreement provides
that each of AT&T Wireless Services, Inc., Steven Price and Eileen Farbman (in
each case on behalf of themselves or their respective children) may sell up to
150,000 shares of Common Stock of PriCellular each in open market transactions
upon not less than two business days written notice to ACC. After receiving
any such written notice, ACC may elect to purchase such shares directly from
AT&T Wireless Services, Inc., Steven Price or Eileen Farbman at a price equal
to the closing price for the shares on the American Stock Exchange on the day
immediately preceding the day on which such individuals propose to sell such
shares.
No Solicitation
Each Principal Stockholder has agreed that until the
termination of the Voting Agreement, such Principal Stockholder will not,
directly or indirectly, (i) take any action to solicit, initiate or encourage
any Acquisition Proposal or (ii) subject to any fiduciary duties of such
Principal Stockholder as an officer, director or Principal Stockholder of
PriCellular under applicable law as advised by PriCellular's counsel, engage
in discussions or negotiations with, or disclose any nonpublic information
relating to PriCellular or any subsidiary or afford access to the properties,
books or records of PriCellular or any subsidiary to, any person that such
Principal Stockholder knows or has reason to know may be considering making,
or has made, an Acquisition Proposal or has agreed to endorse an Acquisition
Proposal. Such Principal Stockholder will promptly notify ACC after receipt
of an Acquisition Proposal or any indication that any person is considering
making an Acquisition Proposal or any request for nonpublic information
relating to PriCellular or any subsidiary or for access to the properties,
books or records of PriCellular or any of its subsidiaries by any person that
may be considering making, or has made, an Acquisition Proposal, which
notification shall include the identity of the offeror and the terms and
conditions of any Acquisition Proposal (but only to the extent such Principal
Stockholder may disclose such information without breaching its fiduciary
duties as advised by counsel and as determined in good faith and without
violating any of the conditions of such Acquisition Proposal), and will keep
ACC fully informed of the status and details (subject to such fiduciary
duties) of any such Acquisition Proposal, indication or request.
Appraisal Rights
Each of the Principal Stockholders has agreed not to exercise
any rights (including, without limitation, under Section 262 of the General
Corporation Law of the State of Delaware) to demand appraisal of any shares
of PriCellular Common Stock and Series A Preferred Stock owned by such
Principal Stockholder with respect to the Merger.
Redemption Rights and Amendment to Charter
Pursuant to the Voting Agreement, each Principal Stockholder
who is a holder of any Series A Preferred Stock has agreed not to exercise its
right (if any), under Section 5(b) of the Certificate of Designation of the
Series A Preferred Stock, to require PriCellular to redeem any or all of its
Series A Preferred Stock, to the extent that the right to do so arises solely
from board of director or Principal Stockholder approval of the Merger, the
execution by PriCellular of the Merger Agreement, the execution of the Voting
Agreement or the consummation of the Merger.
In addition, each Principal Stockholder has agreed to vote all
of the shares of PriCellular Common Stock or Series A Preferred Stock owned by
such Principal Stockholder in favor of the approval and adoption of an
amendment to the Certificate of Designation of the Series A Preferred Stock.
Such amendment would provide that the holders of the Series A Preferred Stock
will have no rights under Section 5(b) of the Certificate of Designation of
the Series A Preferred Stock, to the extent that such rights would have
otherwise arisen solely from board of director or Principal Stockholder
approval of the Merger, the execution by PriCellular of the Merger Agreement,
the execution of the Voting Agreement or the consummation of the Merger.
Acquisition Proposals
Each Principal Stockholder has agreed that in the event that
after the later of (x) the 25th day following the date of the Voting Agreement
and (y) the contribution of $25,000,000 of equity capital to ACC as
contemplated by the Merger Agreement, the Merger Agreement is terminated
pursuant to Section 9.01(d), (e) or (f) thereto (or by ACC pursuant to Section
9.01(g) thereto if there is an Acquisition Proposal pending at such time of
termination) and such Principal Stockholder shall thereafter but prior to the
first anniversary of the termination date of the Merger Agreement sell or
otherwise transfer or dispose of by operation of law (by merger or otherwise)
any shares of PriCellular stock owned by such Principal Stockholder when an
Acquisition Proposal is pending, such Principal Stockholder will promptly pay
to ACC an amount equal to the excess, if any, of (i) the aggregate
consideration received by such Principal Stockholder pursuant to such transfer
over (ii) the product of (x) $14.00 and (y) the sum of the number of shares of
Class A Common Stock and Class B Common Stock so transferred and the number of
shares of Class A Common Stock issuable upon conversion of any shares of
Series A Preferred Stock so transferred.
The Voting Agreement further provides that the provision
described above will not apply if the Merger Agreement is terminated on or
after the date that is ten weeks from the date of the Voting Agreement and at
such time ACC shall not have either (i) consummated the High Yield Financing
(as defined in the Merger Agreement) the proceeds of which shall continue to
be held in escrow or (ii) obtained the irrevocable waiver of the Initial
Lenders (as defined in the Merger Agreement) of the conditions set forth in
Sections 3(c), Section 4 (paragraph 2) and under the caption entitled
"Conditions to Effectiveness and to Interim Loan" the references to the
accuracy of representations and warranties of the Target in the first
paragraph thereof and subparagraphs (l) and (r) of the Bridge Loan Commitment
(as defined in the Merger Agreement).
Indemnification
Pursuant to the Voting Agreement, ACC has agreed to indemnify
and hold harmless each Principal Stockholder from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) related to the execution and
performance of the Voting Agreement or any actions taken pursuant thereto
except insofar as such losses, claims, damages or liabilities result from the
breach of any representation or warranty of such Principal Stockholder
contained therein.
PriCellular has also agreed to indemnify, defend and hold
harmless each Principal Stockholder and its directors, officers, employees,
affiliates, successors and assigns (collectively the "Indemnified Party") from
and against all actions, causes of actions, suits, claims, complaints,
demands, litigations, proceedings, losses, liabilities, damages, deficiencies,
judgments, assessments, fines (including, without limitation, interest,
penalties, taxes, fees and reasonable expenses and disbursements of attorneys,
experts, personnel and consultants, reasonably incurred in connection with the
defense or investigation thereof, including, without limitation, allocated
costs of in-house counsel, experts, personnel and consultants) (collectively,
"Losses") based upon, relating to, arising out of or otherwise in respect of
the Merger Agreement, the Merger, the Consent and Waiver between PriCellular
and AT&T Wireless Services, Inc., the Voting Agreement and the transactions
contemplated by those agreements. Notwithstanding the foregoing, PriCellular
will not be responsible for Losses that are finally judicially determined to
have resulted from the bad faith of the Indemnified Party and Losses that ACC
has indemnified the Indemnified Party for pursuant to the Voting Agreement but
only to the extent that the Indemnified Party has actually been paid. Upon
the making of any payment pursuant to Section 5.02(b) of the Voting Agreement
with respect to any claim that ACC has indemnified such indemnified person for
pursuant to Section 5.02(a) of the Voting Agreement, PriCellular will be
subrogated to the rights of such indemnified person against ACC with respect
thereto.
The Voting Agreement also provides that in case any proceeding
is instituted involving any Principal Stockholder in respect of which
indemnity may be sought pursuant to the Voting Agreement, such Principal
Stockholder will promptly notify ACC or PriCellular, as the case may be, in
writing and ACC or PriCellular, as the case may be, upon request of such
Principal Stockholder, will retain counsel reasonably satisfactory to such
Principal Stockholder to represent such Principal Stockholder in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. The Principal Stockholders as a group may retain one law
firm (in addition to local counsel) to represent them with respect to any
action or proceeding involving one or more Principal Stockholders. In any
such proceeding, an individual Principal Stockholder will have the right to
retain its own counsel, but the fees and expenses of such counsel will be at
the expense of such Principal Stockholder. Neither ACC nor PriCellular will
be liable for any settlement of any proceeding effected without its written
consent (which consent will not be unreasonably withheld or delayed), but if
settled with such consent, or if there be a final judgment for the plaintiff,
ACC or PriCellular, as the case may be, has agreed to indemnify such Principal
Stockholder from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing, if ACC or PriCellular
materially breaches its obligations pursuant to Section 5.02 of the Voting
Agreement (which breach shall have continued for 90 days after written notice
thereof), such indemnifying party will be liable for any such settlement
effected without its written consent. No Principal Stockholder will be
entitled to indemnification in respect of claims that are determined by the
final judgment of court to arise from such Principal Stockholder's willful
misconduct.
Certain Representations and Warranties
The Voting Agreement contains customary representations and
warranties as to each Principal Stockholder, including, among other things,
that such Principal Stockholder (i) owns beneficially all of the shares of
PriCellular Common Stock or Series A Preferred Stock which are subject to the
Voting Agreement, (ii) has the full and unrestricted legal power, authority
and right to enter into, execute and deliver the Voting Agreement without the
consent or approval of any other person and (iii) the Voting Agreement is the
valid and binding agreement of the Principal Stockholder.
Termination
The Voting Agreement, other than the provisions relating to
Acquisition Proposals and Indemnification described above, will terminate upon
the termination of the Merger Agreement.
OTHER AGREEMENTS
Spectrum Letter
In connection with the execution of the Merger Agreement,
Spectrum delivered a letter to PriCellular whereby Spectrum agreed to be bound
by the provisions of the Voting Agreement relating to redemption rights of the
Series A Preferred Stock and the amendment of the Certificate of Designation
of the Series A Preferred Stock, but only with respect to the shares of
PriCellular Series A Preferred Stock owned by Spectrum. See "THE VOTING
AGREEMENT -- Redemption Rights and Amendment to Charter."
AT&T Consent and Waiver
Concurrently with the execution of the Merger Agreement, AT&T
Wireless Services, Inc. ("AWS"), a Principal Shareholder of PriCellular,
entered into a Consent and Waiver agreement with PriCellular. Pursuant to the
Consent and Waiver agreement, AWS agreed to waive certain rights (including
veto rights with respect to any merger between PriCellular and any other
corporation) arising under a stockholders' agreement among PriCellular, AWS
and the other shareholders of PriCellular party thereto in connection with the
Merger. The Consent and Waiver agreement will only be effective if (i)
pursuant to the Merger all outstanding shares of Class A Common Stock and
Class B Common Stock of PriCellular are converted into the right to receive an
amount in cash equal to not less than $14.00 per share; (ii) there is no
material change to the Merger Agreement; and (iii) the beneficial owners of
ACC's securities at the closing of the Merger are Spectrum, ACC's management
and other financial institutions or investment entities.
MANAGEMENT OF PRICELLULAR
Directors and Executive Officers
The following sets forth certain biographical information, the
present occupation and business experience for the past five years of each
person who is a director or executive officer of PriCellular. The business
address for each of the directors and officers below is the address of the
executive offices of PriCellular Corporation. See "THE COMPANIES."
Name Position
- ---------------------- ------------------------------------------------
Robert Price.......... Director and Chairman
Steven Price.......... President, Chief Executive Officer and Director
Stuart Rosenstein..... Chief Financial Officer and
Executive Vice President
Kim Pressman.......... Executive Vice President, Secretary and Director
Scott Anderson........ Director
Brion Applegate....... Director
Scott Sperling........ Director
Robert Price. Mr. Robert Price has been a Director and Chairman
of PriCellular since 1990. He served as President and Assistant Treasurer of
PriCellular from 1990 through May 1997. Robert Price is also a Director and
President of Price Communications Corporation and TLM Corporation. Robert Price
is the father of Steven Price.
Steven Price. Mr. Steven Price has been the Chief Executive
Officer and President of the PriCellular since May 1997. He has served as
Chief Operating Officer and Executive Vice President of the PriCellular since
April 1997, and as a Director since September 1996. Mr. Price has also been
the Chief Executive Officer and President of PriCellular Wireless Corporation,
PriCellular's principal operating subsidiary, since April 1997. From December
1994 to April 1997, he was a Senior Vice President of the Company. Prior
thereto, he was Director of Business Development of PriCellular since April
1993.
Stuart B. Rosenstein. Mr. Rosenstein has been an Executive Vice
President of PriCellular since April 1997 and Chief Financial Officer and
Assistant Secretary since December 1993. Mr. Rosenstein has also served as
Treasurer of PriCellular since December 1994. From September 1996 to April
1997, he was a Senior Vice President of PriCellular. From 1990 to December
1993, he was the PriCellular's Controller.
Kim I. Pressman. Ms. Pressman has been an Executive Vice
President of PriCellular since April 1997, and a Director and Secretary since
1990. Ms. Pressman served as a Vice President of PriCellular from 1990 to
April 1997, and as the Treasurer from 1990 until December 1994. Ms. Pressman
is a certified public accountant and is a graduate of Indiana University and
holds an M.B.A. from New York University.
Scott I. Anderson. Mr. Anderson has been a Director of the
Company since April 1997. Mr. Anderson served as Senior Vice
President-Acquisitions and Development of AT&T Wireless Services, Inc.,
formerly McCaw Cellular Communications, Inc. ("AWS") from 1991 to March 1997.
Previously, Mr. Anderson served on PriCellular's Board of Directors from April
1995 to August 1996 as AWS's nominee pursuant to a stockholders agreement.
Mr. Anderson served as an advisor to the Board of Directors from August 1996 to
April 1997.
Brion B. Applegate. Mr. Applegate has been a Director of
PriCellular since June 1994. Mr. Applegate co-founded Spectrum in 1993.
Prior to forming Spectrum, he was a General Partner of Burr, Egan, Deleage &
Co. from 1982 to 1993. Mr. Applegate is also a director of Nassau
Broadcasting Partners, L.P., Apex Site Management, L.P., and Tut Systems, Inc.
Scott M. Sperling. Scott M. Sperling has been a Director of
PriCellular since February 1996. Mr. Sperling is a Managing Director of The
Thomas H. Lee Company and a General Partner of its affiliated equity funds.
Prior to this position, he served for ten years as the Managing Partner of the
Aeneas Group Inc., the affiliate of the Harvard Management Company,
responsible for all private capital market investments, including venture
capital, company buyouts and real estate.
MANAGEMENT OF ACC
Directors and Executive Officers
The following sets forth certain biographical information, the
present occupation and business experience for the past five years of each
person expected to be a director or executive officer of the Surviving
Corporation following consummation of the Merger (none of whom are officers or
directors of PriCellular other than Brion Applegate, who has been a Director of
PriCellular since June 1994). The business address for each of the directors
and officers below is the address of the executive offices of ACC. See "THE
COMPANIES."
Name Position
- ------------------------------- ------------------------------------
Brian McTernan................. President and Director
John Fujii (1)................. Chief Executive Officer and Director
James J. Walter, Jr............ Vice President of Finance
Brion Applegate (1, 3)......... Director
Glenn M. Creamer (1, 3)........ Director
Jeffrey M. Lane (2)............ Director
Michael J. Marocco (3)......... Director
Kevin J. Maroni (2)............ Director
Mark A. Pelson (2)............. Director
- ------------
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Compensation Committee of the Board of Directors.
Brian McTernan. Mr. McTernan has been a principal of MLC
Industries, Inc. ("MLC") since 1986. From 1988 to 1994 he served as an officer
for various subsidiaries of Crowley Cellular Telecommunications LP ("Crowley").
From 1994 to 1995 he was the President of Mid-South Cellular LP ("Mid-South").
From 1994 to 1998 he was President and Chief Operating Officer of ACME Paging
L.P.
John Fujii. Mr. Fujii has been a principal of MLC since 1986.
From 1988 to 1994 he served as an officer for various subsidiaries of Crowley.
From 1994 to 1995 he was the Vice President and Secretary of Mid-South. From
1994 to 1998 he was Vice President and Secretary to ACME Paging L.P.
James. J. Walter, Jr. Mr. Walter joined MLC as Vice President
and Controller in 1989.
Brion B. Applegate. Mr. Applegate co-founded Spectrum in 1993,
and has been a Director of PriCellular since June 1994. Prior to forming
Spectrum, he was a General Partner of Burr, Egan, Deleage & Co. from 1982 to
1993. Mr. Applegate is also a director of Nassau Broadcasting Partners, L.P.,
Apex Site Management, L.P., and Tut Systems, Inc.
Glenn M. Creamer. Mr. Creamer has been a Managing Director of
Providence Equity Partners since its inception in 1996. Mr. Creamer is also a
general partner of Providence Ventures L.P., which was formed in 1991. Mr.
Creamer is also a Vice President of Narrangansett Capital, Inc., which he
joined in 1988. Mr. Creamer is a director of Carrier1 L.L.C., Celpage, Inc.,
Epoch Networks, Inc., and Wireless One Network, L.P.
Jeffrey M. Lane. Mr. Lane has been a Managing Director of
Triumph Capital Group, Inc. since 1994. From 1990 to 1994 he was a Managing
Director of Pacific Corporate Group. Mr. Lane serves as a director of S&R
Precision Company LLC.
Michael J. Marocco. Mr. Marocco has been a General Partner of
Sandler Capital Management since 1989. Prior to joining Sandler Capital, he
was a Vice President of Investment Banking at Morgan Stanley specializing in
media and communications companies. He serves as a director for numerous
companies involved in cable television, broadcasting, advertising and
interactive television.
Kevin J. Maroni. Mr. Maroni joined Spectrum at its inception
in 1993. Prior to joining Spectrum, he was Manager of Finance and Development
at Time Warner Telecommunications. Before joining Time Warner, Mr. Maroni was
a consultant and analyst with the Harvard Management Company.
Mark A. Pelson. Mr. Pelson is a Vice President of Providence
Equity Partners. Prior to 1996, Mr. Pelson was a co-founder and director of
TeleCorp, Inc., a wireless telecommunications company, and from 1989 to 1995
he served in various management positions with AT&T, most recently as a
general manager of strategic planning and mergers and acquisitions. Mr.
Pelson is a director of Carrier1 L.L.C. and Madison River Telephone Company,
Inc.
MARKET PRICE OF AND DIVIDENDS ON
PRICELLULAR COMMON STOCK
The PriCellular Class A Shares are listed on the American Stock
Exchange under the symbol "PC." The stock is also traded on the Chicago Stock
Exchange under the symbol "PC.M" and on the Pacific Stock Exchange under the
symbol "PC.P." The table below sets forth for the periods indicated the high and
low sale prices per share of the Class A Shares as reported on the American
Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
PriCellular Class A
Shares
-----------------------
High Low
----- -----
<S> <C> <C>
1996
First Quarter........................... 10.70 7.20
Second Quarter.......................... 11.60 9.40
Third Quarter........................... 11.90 7.40
Fourth Quarter.......................... 12.75 10.63
1997
First Quarter........................... 11.38 8.00
Second Quarter.......................... 9.25 7.31
Third Quarter........................... 10.25 7.50
Fourth Quarter.......................... 12.13 9.13
1998
First Quarter........................... 13.63 10.25
Second Quarter (through May 27, 1998)... 13.50 12.44
</TABLE>
The above prices were adjusted for the 5 for 4 stock splits in
October 1996 and March 1996.
On March 6, 1998, the last full day of trading prior to the
public announcement of the execution of the Merger Agreement, the closing sale
price of the Class A Shares as reported on the American Stock Exchange
Composite Tape was $13 per share.
The closing sale price for the Class A Shares as reported on
the American Stock Exchange Composite Tape was $13.50 per share on May 27,
1998. On May 27, 1998, PriCellular estimates there were approximately 4,000
holders of Class A Shares. There is no established public trading market for
PriCellular's Class B Shares or Series A Preferred Stock. On May 20, 1998,
there were 15 holders of record of Class B Shares, three holders of record of
Series A Preferred Stock and one holder of record of the Company's outstanding
10 3/4% Senior Subordinated Convertible Discount Notes due 2004, which are
convertible into Class A Shares. Since its incorporation, PriCellular has not
paid cash dividends on the Class A Shares or Class B Shares.
PURCHASES OF PRICELLULAR COMMON STOCK BY PRICELLULAR AND ACC
The following table sets forth, for all purchases by
PriCellular of its own Class A Shares and Class B Shares since the first
quarter of 1996, (i) the number of shares purchased, (ii) the range of prices
paid and (iii) the average price paid during each quarterly period. There
have been no purchases of PriCellular stock by ACC, Spectrum, Mr. Applegate or
any of their affiliates during such period.
<TABLE>
<CAPTION>
Average Price Paid Per
Common Share
----------------------
<S> <C>
1996
First Quarter (1)........................ 7.20
Second Quarter........................... --
Third Quarter............................ --
Fourth Quarter (2)....................... 11.48
1997
First Quarter (3)........................ 7.89
Second Quarter........................... --
Third Quarter (4)........................ 9.00
Fourth Quarter (5)....................... 10.00
1998
First Quarter ........................... --
Second Quarter (through May 27, 1998).... --
</TABLE>
- ------------
(1) Consists of 50,000 Class A Shares purchased at $9.00 per share (or 62,500
shares purchased at $7.20 per share as adjusted for common stock splits in
1996).
(2) Consists of 87,100 Class A Shares purchased at $11.48 per share.
(3) Consists of 1,948,052 Class A Shares purchased at $7.87 per share, 2,000
Class A Shares purchased at $11.125 per share, and 7,700 Class A Shares
purchased at $10.089 per share.
(4) Consists of 3,994,945 Class B Shares purchased at $9.00 per share, and
56,275 warrants to purchase Class B Shares that were redeemed at a net cash
expenditure of $3.83 per warrant ($9.00 current market price less the
exercise price of $5.17 per share).
(5) Consists of 200,000 Class A Shares purchased at $10.00 per share.
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS OF PRICELLULAR
The following table provides information with respect to the
beneficial ownership of PriCellular's Common Stock by (i) each person known by
PriCellular to be the beneficial owner of more than 5% of any class of
PriCellular voting securities, (ii) each director, PriCellular's President and
Chief Executive Officer and the four most highly compensated other executive
officers and (iii) all directors and executive officers as a group. Except as
otherwise indicated, the address of each holder is the same as PriCellular.
Except as discussed in the notes hereto, each holder has sole voting and
investment power with respect to all shares of stock listed as owned by such
person. All information is provided as of December 31, 1997 unless otherwise
indicated. Except as discussed below, no director or executive officer of ACC
or Spectrum owns any capital stock of PriCellular. In addition, none of
PriCellular, ACC or Spectrum, or any their executive officers or directors, has
engaged in any transaction in PriCellular stock during the 60 days prior to the
filing of this Information Statement.
<TABLE>
<CAPTION>
Beneficial Ownership of
Class A and B Common Stock(1)
---------------------------------------------------------
Percentage of Percentage of
Combined Combined
Name of Beneficial Owner Shares Classes Voting
- ------------------------ ---------- ------------- -------------
<S> <C> <C> <C>
Directors and Officers
Robert Price(2).......................................... 6,725,788 12.36% 27.75%
Stuart B. Rosenstein(3).................................. 269,465 0.5 0.16
Kim I. Pressman(4)....................................... 71,144 0.13 0.06
Steven Price(5).......................................... 3,472,371 6.38 16.5
Brion B. Applegate(6).................................... 2,780,452 5.11 11.26
Scott M. Sperling(7)..................................... 7,244,640 13.31 3.83
All directors and officers as a group (6 persons)........ 20,563,860 37.78 59.56
Other 5% Stockholders
AT&T Wireless Services, Inc.(8).......................... 6,537,544 12.01 15.96
(formerly McCaw)
5400 Carillon Point
Kirkland, WA 98033
The Thomas H. Lee Company(9)............................. 7,244,640 13.31 3.83
75 State Street
Boston, MA 02109
Putnam Investments, Inc.(10)............................. 5,736,289 10.54 3.03
One Post Office Square
Boston, MA 02109
Eileen Farbman(11)....................................... 3,714,644 6.82 19.58
c/o Suite 3200
45 Rockefeller Plaza
NY, NY 10020
Janus Capital Corp.(12).................................. 3,914,449 7.19 2.07
100 Fillmore Street
Denver, CO 80206
Spectrum Equity Investors, L.P.(13)...................... 2,780,452 5.11 11.26
One International Place, 29th Floor
Boston, MA 02110
The Public School Employees' Retirement System(14)....... 3,622,320 6.65 1.92
5 North 5th Street, Box 125
Harrisburg, PA 17108
Price Communications Corporation(15)..................... 3,124,334 5.74 10.32
Suite 3200
45 Rockefeller Plaza
NY, NY 10020
Leo Farbman(16).......................................... 1,523,436 2.8 8.06
c/o Suite 3200
45 Rockefeller Plaza
NY, NY 10020
Alexandra Farbman(17).................................... 1,523,436 2.8 8.06
c/o Suite 3200
45 Rockefeller Plaza
NY, NY 10020
College Retirement Equities Fund(18)..................... 2,130,650 3.91 1.13
730 Third Avenue
NY, NY 10017
</TABLE>
- -----------
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition
of any security. A person is deemed as of any date to have "beneficial
ownership" of any security that such person has a right to acquire within
60 days after such date. Any security that any person named above has the
right to acquire within 60 days is deemed to be outstanding for purposes of
calculating the ownership percentage of such person, but is not deemed to
be outstanding for purposes of calculating the ownership percentage of any
other person.
(2) Consists of 1,580,139 shares of Class B Common Stock and 106,588 shares of
Class A Common Stock owned directly by Robert Price, 14,000 shares of Class
A Common Stock held by Robert Price and Eileen Farbman, as joint tenants
(see also footnote 11), 1,304,750 shares of Class A Common Stock held by
Price Communications and warrants to purchase 1,819,584 shares of Class B
Common Stock held by Price Communications that are currently exercisable
(see also footnote 15) and 50,000 shares of Class A Common Stock and 50,000
shares Class B Common Stock held by Mr. Price as custodian for certain of
his grandchildren.
(3) Consists of 3,906 shares of Class B Common Stock owned directly by Mr.
Rosenstein and options to purchase 265,559 shares of Class A Common Stock
granted pursuant to the Company's 1994 Stock Option Plan that are currently
exercisable. Does not include options to purchase 95,495 shares of Class A
Common Stock granted pursuant to the Company's 1994 Stock Option Plan that
are not exercisable within 60 days.
(4) Consists of 3,906 shares of Class B Common Stock owned directly by Ms.
Pressman and options to purchase 67,238 shares of Class A Common Stock
granted pursuant to the Company's 1994 Stock Option Plan that are currently
exercisable. Does not include options to purchase 66,716 shares of Class A
Common Stock granted pursuant to the Company's 1994 Stock Option Plan that
are not exercisable within 60 days. Includes 25,000 options to purchase
shares of Class A Common Stock that are currently exercisable held in
custody for her children.
(5) Consists of 3,080,537 shares of Class B Common Stock owned directly by
Steven Price, 30,038 shares of Class A Common Stock owned directly by
Steven Price and options to purchase 250,976 shares of Class A Common Stock
granted pursuant to the Company's 1994 Stock Option Plan that are currently
exercisable. Includes 110,820 options to purchase shares of Class A Common
Stock held in custody for his daughter. Does not include options to
purchase 48,828 shares of Class A Common Stock granted pursuant to the
Company's 1994 Stock Option Plan that are not exercisable within 60 days.
(6) All of such shares are owned by Spectrum (see footnote 13). Pursuant to
the definition of beneficial ownership in footnote 1, Brion Applegate may
be deemed to have beneficial ownership of such shares as the general
partner of the partnership which is the general partner of Spectrum.
(7) All of such shares are owned by The Thomas H. Lee Company and attributed to
Scott M. Sperling, a Managing Director of The Thomas H. Lee Company,
pursuant to the definition of beneficial ownership provided in footnote 1.
(8) Consists of 2,625,781 shares of Class B Common Stock and 3,911,763 shares
of Class A Common Stock.
(9) Consists of 7,244,640 shares of Class A Common Stock currently issuable
(subject to adjustments) upon conversion of 54,728 shares of the Company's
Series A Preferred Stock held by Thomas H. Lee Equity Fund III L.P. and
5,272 shares of Series A Preferred Stock held by THL-CCI Investors Limited
Partnership.
(10) Consists of 4,589,804 shares of Class A Common Stock issuable upon
conversion of the Company's outstanding 10 3/4% Senior Subordinated
Convertible Discount Notes due 2004 and 1,146,485 shares of Class A Common
Stock. Information with respect to the shares of Class A Common Stock held
is based on a Schedule 13G dated February 8, 1995, which reflects the
collective beneficial ownership of Marsh & McLennan Companies, Inc., Putnam
Investments, Inc. and its two wholly owned registered investment advisers
(Putnam Investment Management, Inc. and The Putnam Advisory Company, Inc.)
and the Putnam New Opportunities Fund (the "Fund") (collectively, the
"Putnam Entities"). According to the Schedule 13G, none of the Putnam
Entities have the sole power to vote or dispose of any such shares of Class
A Common Stock nor (except the Fund with respect to 506,250 of such shares)
the shared power to vote any of such shares and all of the Putnam Entities
have the shared power to dispose of such shares.
(11) Consists of 652,772 shares of Class B Common Stock and 1,000 shares of
Class A Common Stock owned directly by Ms. Farbman, 14,000 shares of Class
A Common Stock held by Robert Price and Eileen Farbman, as joint tenants
(see also footnote 2), 761,718 shares of Class B Common Stock held by
Eileen Farbman and Leo Farbman, as joint tenants, 761,718 shares of Class B
Common Stock held by Eileen Farbman and Alexandra Farbman, as joint tenants
and 761,718 shares of Class B Common Stock held by Eileen Farbman as
custodian for Leo Farbman UGTMA until age 21 and 761,718 shares of Class B
Common Stock held by Eileen Farbman as custodian for Alexandra Farbman
UGTMA until age 21 (see also footnotes 16 and 17). Eileen Farbman is the
daughter of Robert Price.
(12) Consists of 3,914,449 shares of Class A Common Stock. Information with
respect to the shares of Class A Common Stock held is based on a Schedule
13G dated February 13, 1998, which reflects the collective beneficial
ownership of Janus Capital Corporation, Janus Enterprise Fund, and Thomas
H. Bailey, President of Janus Capital (collectively, the "Janus Reporting
Persons"). According to the Schedule 13G, none of the Janus Reporting
Persons has either the sole power to vote or to dispose of any such shares,
and all of the Janus Reporting Persons have the shared power to vote and
dispose of all such shares (except that Janus Enterprise Fund has shared
power to vote and dispose of 1,077,025 shares only).
(13) Consists of 724,464 shares of Class A Common Stock currently issuable upon
conversion of 6,000 shares of the Series A Preferred Stock and 2,055,988
shares of Class B Common Stock. Information with respect to the shares of
Class B Common Stock and Series A Preferred Stock held is based on a
Schedule 13D dated March 16, 1998 filed by Spectrum, Spectrum Equity
Associates, L.P. ("SEA"), Spectrum Equity Investors II, L.P., Spectrum
Equity Associates II, L.P. and certain individual general partners of those
partnerships including Brion Applegate (collectively, the "Spectrum
Reporting Persons"). According to the 13D, none of the Spectrum Reporting
Persons has either the sole power to vote or to dispose of any such shares;
SEA, by virtue of being the general partner of Spectrum, and William
Collatos and Brion Applegate, by virtue of being the general partners of
SEA, may be deemed to have the shared power to vote and dispose of all of
such shares. The above Schedule 13D was also filed by various entities and
individuals associated with Sandler Capital Management (the "Sandler
Reporting Persons"), who may be deemed to be a group with the Spectrum
Reporting Persons. According to the Schedule 13D, the Sandler Reporting
Persons own in the aggregate 1,162,140 Class A Shares. According to the
Schedule 13D, neither the Sandler Reporting Persons nor the Spectrum
Reporting Persons affirm the existence of such a group.
(14) Consists of 3,622,320 shares of Class A Common Stock currently issuable
upon conversion of 30,000 shares of the Series A Preferred Stock.
(15) Consists of 1,304,750 shares of Class A Common Stock currently outstanding
and 1,819,584 shares of Class B Common Stock issuable pursuant to warrants
that are currently exercisable. See also footnote 2. The per share price
at which shares may be purchased pursuant to the warrants is $5.01 subject
to adjustment.
(16) Consists of 761,718 shares of Class B Common Stock held by Eileen Farbman
and Leo Farbman, as joint tenants and 761,718 shares of Class B Common
Stock held by Eileen Farbman as custodian for Leo Farbman UGTMA until age
21 (see also footnote 11). Leo Farbman is the son of Eileen Farbman and
grandson of Robert Price.
(17) Consists of 761,718 shares of Class B Common Stock held by Eileen Farbman
and Alexandra Farbman, as joint tenants and 761,718 shares of Class B
Common Stock held by Eileen Farbman as custodian for Alexandra Farbman
UGTMA until age 21 (see also footnote 11). Alexandra Farbman is the
daughter of Eileen Farbman and granddaughter of Robert Price.
(18) Consists of 2,130,650 shares of Class A Common Stock. Information with
respect to shares of Class A Common Stock held is based on a Schedule 13G
dated February 2, 1998, which reflects the collective beneficial ownership
of College Retirement Equities Fund ("CREF") and its Investment adviser,
TIAA-CREF Investment Management, LLC ("TIAA-CREF"). According to the
Schedule 13G, CREF has sole power to vote all of such shares, and shares
with TIAA-CREF the power to dispose of all of such shares.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Holders of PriCellular Class A Shares, Class B Shares and
Series A Preferred Stock are entitled to appraisal rights under Section 262
("Section 262") of the Delaware General Corporation Law ("DGCL"), provided
that they comply with the conditions established by Section 262. Section 262
is reprinted in its entirety as Appendix E to this Information Statement. The
following discussion does not purport to be a complete statement of the law
relating to appraisal rights and is qualified in its entirety by reference to
Appendix E. This discussion and Appendix E should be reviewed carefully by
any holder who wishes to exercise statutory appraisal rights or who wishes to
preserve the right to do so, as failure to comply with the procedures set
forth herein or therein may result in the loss of appraisal rights.
Stockholders of record who desire to exercise their appraisal rights must: (i)
hold PriCellular Shares on the date of making a demand for appraisal; (ii)
continuously hold such PriCellular Shares through the Effective Time; (iii)
deliver a properly executed written demand for appraisal to PriCellular within
20 days after the date of mailing of this Information Statement; (iv) file any
necessary petition in the Delaware Court of Chancery (the "Delaware Court"),
as more fully described below, within 120 days after the Effective Time; and
(v) otherwise satisfy all of the conditions described more fully below and in
Appendix E.
A record holder of PriCellular Shares who makes the demand
described below with respect to such shares, who continuously is the record
holder of such shares through the Effective Time, who otherwise complies with
the statutory requirements of Section 262 and who neither votes in favor of
the Merger nor consents thereto in writing will be entitled, if the Merger is
consummated, to receive payment of the fair value of his shares of PriCellular
Shares as appraised by the Delaware Court. All references in Section 262 and
in this summary of appraisal rights to a "stockholder" or "holders of shares
of PriCellular Stock" are to the record holder or holders of shares of
PriCellular Shares.
Under Section 262, where a proposed merger is approved by
written consent of stockholders, the corporation must notify each of its
stockholders that appraisal rights are available, and must include in such
notice a copy of Section 262. THIS INFORMATION STATEMENT CONSTITUTES SUCH
NOTICE TO STOCKHOLDERS OF PRICELLULAR.
Any holder of PriCellular Shares who desires to exercise his or
her right to dissent from the Merger must deliver to the Company a written
demand for appraisal of his or her shares within 20 days after the date of
mailing of this notice of appraisal right. Such written demand must reasonably
inform the Company of the identity of the stockholder of record and of such
stockholder's intention to demand appraisal of the PriCellular Shares held by
such stockholder.
A demand for appraisal must be executed by or on behalf of the
stockholder of record, fully and correctly, as such stockholder's name appears
on the certificate or certificates representing the shares of PriCellular
Shares. A person having a beneficial interest in PriCellular Shares that are
held of record in the name of another person, such as a broker, fiduciary or
other nominee, must act promptly to cause the record holder to follow the
steps summarized herein properly and in a timely manner to perfect any
appraisal rights. If the PriCellular Shares are owned of record by a person
other than the beneficial owner, including a broker, fiduciary (such as a
trustee, guardian or custodian) or other nominee, such demand must be executed
by or for the record owner. If the PriCellular Shares are owned of record by
more than one person, as in a joint tenancy or tenancy in common, such demand
must be executed by or for all such joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner. A record owner, such as a
broker, fiduciary or other nominee, who holds PriCellular Shares as a nominee
for others, may exercise appraisal rights with respect to the shares held for
all or less than all beneficial owners of shares as to which such person is the
record owner. In such case, the written demand must set forth the number of
shares covered by such demand. Where the number of shares is not expressly
stated, the demand will be presumed to cover all PriCellular Shares
outstanding in the name of such record owner. A stockholder who elects to
exercise appraisal rights should mail or deliver his or her written demand to:
PriCellular Corporation, 711 Westchester Avenue, White Plains, NY 10604
Attention: Corporate Secretary. The written demand for appraisal should
specify the stockholder's name and mailing address, the number of PriCellular
Shares owned, and that the stockholder is thereby demanding appraisal of his
or her shares.
Prior to or within ten days after the Effective Time of the
Merger, the Surviving Corporation must provide notice of the Effective Time to
all stockholders who have complied with Section 262. Within 120 days after the
Effective Time, either the Surviving Corporation or any stockholder who has
complied with the required conditions of Section 262 may file a petition in
the Delaware Court, with a copy served on the Surviving Corporation in the
case of a petition filed by a stockholder, demanding a determination of the
fair value of the shares of all dissenting stockholders. The Surviving
Corporation does not currently intend to file an appraisal petition and
stockholders seeking to exercise appraisal rights should not assume that the
Surviving Corporation will file such a petition or that the Surviving
Corporation will initiate any negotiations with respect to the fair value of
such shares. Accordingly, stockholders who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in
Section 262. Within 120 days after the Effective Time, any stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of PriCellular Shares not voted
in favor of the Merger and with respect to which demands for appraisal were
received by the Company and the number of holders of such shares. Such
statement must be mailed within 10 days after the written request therefor has
been received by the Surviving Corporation or within 10 days after expiration
of the time for delivery of demands for appraisal under Section 262, whichever
is later.
If a petition for an appraisal is timely filed, at the hearing
on such petition, the Delaware Court will determine which stockholders are
entitled to appraisal rights and will appraise the PriCellular Shares owned by
such stockholders, determining the fair value of such shares exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. In determining fair value, the Delaware Court
is to take into account all relevant factors. In Weinberger v. UOP, Inc., the
Delaware Supreme Court discussed the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of
value by any techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered, and that, "fair price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
stated that in making this determination of fair value the court must consider
market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which are known or which can be ascertained as
of the date of the merger and which throw any light on future prospects of the
merged corporation. In Weinberger, the Delaware Supreme Court stated that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." Section 262, however, provides that fair
value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Stockholders considering seeking appraisal should recognize
that the fair value of their shares as determined under Section 262 could be
more than, the same as or less than the Merger Consideration to be received if
they do not seek appraisal of their shares. The cost of the appraisal
proceeding may be determined by the Delaware Court and taxed against the
parties as the Delaware Court deems equitable in the circumstances. Upon
application of a dissenting stockholder of the Company, the Delaware Court may
order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including without
limitation, reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all shares of stock entitled to
appraisal.
Any holder of PriCellular Shares who has duly demanded
appraisal in compliance with Section 262 will not, after the Effective Time,
be entitled to vote for any purpose any shares subject to such demand or to
receive payment of dividends or other distributions on such shares, except for
dividends or distributions payable to stockholders of record at a date prior
to the Effective Time.
At any time within 60 days after the Effective Time, any
stockholder will have the right to withdraw such demand for appraisal and to
accept the terms offered in the Merger; after this period, the stockholder may
withdraw such demand for appraisal only with the consent of the Surviving
Corporation. If no petition for appraisal is filed with the Delaware Court
within 120 days after the Effective Time, stockholders' rights to appraisal
will cease, and all holders of PriCellular Shares will be entitled to receive
the Merger Consideration. Inasmuch as the Surviving Corporation has no
obligation to file such a petition, and has no present intention to do so, any
holder of PriCellular Shares who desires such a petition to be filed is
advised to file it on a timely basis.
Failure to take any required step in connection with the
exercise of appraisal rights may result in termination of such rights. In view
of the complexity of these provisions of the DGCL, stockholders who are
considering exercising their rights under Section 262 should consult with
their legal advisors.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of PriCellular and its
subsidiaries as of December 31, 1997 and for the year then ended, which are
part of the Annual Report on Form 10-K/A attached as Appendix F hereto, have
been audited by Ernst & Young L.L.P., independent accountants.
WHERE YOU CAN FIND MORE INFORMATION
PriCellular files annual, quarterly and special reports, proxy
statements and other information with the Commission. You may read and copy
any reports, proxy statements or other information that PriCellular files with
the Commission at the Commission's public reference facilities at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional offices at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611, and at 7
World Trade Center, 13th Floor, New York, New York 10048. Any interested
party may obtain copies of such material at prescribed rates from the
Reference Section of the Commission at its principal office in Washington,
D.C. These Commission filings are also available to the public from
commercial document retrieval services and at the Internet web site maintained
by the Commission at "http://www.sec.gov". In addition, reports, proxy
statements and other information should also be available for inspection at
the offices of the American Stock Exchange, Inc., 22 Thames Street, 5th Floor,
New York, New York, 10006.
All documents filed by PriCellular pursuant to Section 13(a)
13(c), 14 or 15(d) of the Exchange Act after the date of this Information
Statement and prior to the date on which the Merger is consummated shall be
deemed to be incorporated by reference in this Information Statement and to be
a part hereof from the respective dates of filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Information Statement to the extent that a statement
contained in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Information Statement.
ACC has supplied all information contained in this Information
Statement relating to ACC, and PriCellular has supplied all information
contained or incorporated by reference in this Information Statement relating
to PriCellular and to any of the Principal Stockholders.
If you are a stockholder, we may have sent you some of the
documents incorporated by reference, but you can obtain any of them through
the Company, the Commission or the Commission's Internet web site as described
above. Documents incorporated by reference are available from the Company
without charge, excluding all exhibits, except that if the companies have
specifically incorporated by reference an exhibit in this Information
Statement, the exhibit will also be available without charge. Stockholders
may obtain documents incorporated by reference in this Information Statement
by requesting them in writing or by telephone from PriCellular at the
following address:
PriCellular Corporation
711 Westchester Avenue
White Plains, New York 10604
Tel: (914) 422-0800
Attn: Corporate Secretary's Department
You should rely only on the information contained or incorporated
by reference in this Information Statement. We have not authorized anyone to
provide you with information that is different from what is contained in this
Information Statement. This Information Statement is dated May 28, 1998. You
should not assume that the information contained in this Information Statement
is accurate as of any date other than that date. The mailing of this
Information Statement to stockholders does not create any implication to the
contrary.
INDEX OF DEFINED TERMS
TERM PAGE
ACC..........................................................................1
Acquisition Proposal........................................................41
Analyst Estimated 1998 EBITDA...............................................24
Appraisal Rights of Dissenting Stockholders..................................2
ASE.........................................................................29
AWS..........................................................................6
Beneficial Ownership........................................................56
Budget 1998 EBITDA..........................................................24
Cellular Index..............................................................24
Certificates................................................................38
Claim.......................................................................41
Class A Shares...............................................................1
Class B Shares...............................................................1
Code........................................................................30
Commission...................................................................1
Common Shares...............................................................21
Common Stock.................................................................1
Company......................................................................1
Comparable Acquisitions.....................................................25
Consensus Analyst Forecast..................................................25
Convertible Discount Notes..................................................43
Credit Agreement Commitment.................................................33
Credit Facilities...........................................................33
DCF.........................................................................25
Delaware Court..............................................................58
DGCL........................................................................58
DLJ.........................................................................13
EBITDA......................................................................21
Effective Time..............................................................37
Employee Funds..............................................................32
Enterprise Value............................................................24
Equity Investors............................................................34
Exchange Act................................................................29
Exchange Agent..............................................................38
Exchange Offer..............................................................34
Existing Notes..............................................................35
FCC.........................................................................31
FCC Licenses................................................................31
Financing Condition.........................................................44
Gleacher NatWest.............................................................6
High Yield Financing........................................................42
HSR Act.....................................................................31
Indemnified Parties.........................................................41
Indemnified Party...........................................................49
Lenders.....................................................................33
Losses......................................................................49
LTM.........................................................................22
Merger.......................................................................1
Merger Agreement............................................................12
Merger Consideration.........................................................1
Note Tender.................................................................35
Option......................................................................32
PC Transaction Value........................................................24
Per POP Value...............................................................24
POPs........................................................................21
PriCellular..................................................................1
PriCellular Shares...........................................................1
Principal Stockholders.......................................................2
Pro Forma 1997 EBITDA.......................................................24
Proposed Transaction........................................................14
Revolving Credit Commitment.................................................33
Revolving Credit Facility...................................................33
Revolving Credit Loans......................................................33
SBC Warburg Dillon Read......................................................6
Section 262.................................................................33
Selected Cellular Companies.................................................21
Selected Cellular Transactions..............................................21
Senior Note Financing.......................................................33
Series A Preferred Stock.....................................................1
Shares.......................................................................1
Solvency Opinion............................................................36
Spectrum.....................................................................2
Stockholder.................................................................59
Subordinated Notes..........................................................34
Surviving Corporation.......................................................12
Systems......................................................................9
Term Loans..................................................................33
Transaction Value...........................................................25
Trigger Event...............................................................45
Trustee.....................................................................43
Valuation Research..........................................................36
Voting Agreement.............................................................6
Warrants....................................................................43
Wireless....................................................................33
APPENDIX A
AGREEMENT AND PLAN OF MERGER
dated as of
March 6, 1998
between
PRICELLULAR CORPORATION
and
AMERICAN CELLULAR CORPORATION
as amended by
Amendment No. 1 thereto
dated as of
May 27, 1998
TABLE OF CONTENTS (1)
-------------------
Page
----
ARTICLE 1
The Merger
Section 1.01. The Merger..................................................A-1
Section 1.02. Conversion of Shares........................................A-1
Section 1.03. Surrender and Payment.......................................A-2
Section 1.04. Dissenting Shares...........................................A-3
Section 1.05. Stock Options...............................................A-3
- ----------
(1)The Table of Contents is not a part of this Agreement.
ARTICLE 2
The Surviving Corporation
Section 2.01. Certificate of Incorporation................................A-3
Section 2.02. Bylaws......................................................A-3
Section 2.03. Directors and Officers......................................A-3
ARTICLE 3
Representations and Warranties of the Company
Section 3.01. Corporate Existence and Power...............................A-4
Section 3.02. Corporate Authorization.....................................A-4
Section 3.03. Governmental Authorization..................................A-4
Section 3.04. Non-contravention...........................................A-4
Section 3.05. Capitalization..............................................A-5
Section 3.06. Subsidiaries................................................A-6
Section 3.07. SEC Filings.................................................A-6
Section 3.08. Financial Statements........................................A-7
Section 3.09. Disclosure Documents........................................A-7
Section 3.10. Absence of Certain Changes..................................A-7
Section 3.11. No Undisclosed Material Liabilities.........................A-8
Section 3.12. Litigation..................................................A-8
Section 3.13. Taxes.......................................................A-9
Section 3.14. ERISA and Labor Matters.....................................A-9
Section 3.15. Finders' Fees..............................................A-11
Section 3.16. FCC Matters and Governmental Matters.......................A-11
Section 3.17. Licenses and Permits; Compliance with Laws.................A-12
Section 3.18. Contracts..................................................A-13
Section 3.19. Properties; Assets.........................................A-13
Section 3.20. Environmental Matters......................................A-13
Section 3.21. Related Party Transactions.................................A-14
Section 3.22. Opinion of Financial Advisor...............................A-14
ARTICLE 4
Representations and Warranties of Buyer
Section 4.01. Corporate Existence and Power..............................A-14
Section 4.02. Corporate Authorization....................................A-14
Section 4.03. Governmental Authorization.................................A-15
Section 4.04. Non-contravention..........................................A-15
Section 4.05. Disclosure Documents.......................................A-15
Section 4.06. Finders' Fees..............................................A-15
Section 4.07. Financing..................................................A-15
Section 4.08. Qualification of Buyer.....................................A-16
Section 4.09. Capitalization.............................................A-16
ARTICLE 5
Covenants of the Company
Section 5.01. Conduct of the Company.....................................A-16
Section 5.02. Stockholder Meeting; Proxy Material........................A-17
Section 5.03. Access to Information......................................A-17
Section 5.04. Other Offers...............................................A-18
Section 5.05. Notices of Certain Events..................................A-18
Section 5.06. Solvency Advice............................................A-18
ARTICLE 6
Covenants of Buyer
Section 6.01. Confidentiality............................................A-18
Section 6.02. Voting of Shares...........................................A-19
Section 6.03. Indemnification; Directors' and Officers' Insurance........A-19
Section 6.04. Name Change................................................A-20
Section 6.05. High Yield Financing.......................................A-20
Section 6.06. Equity Financing...........................................A-20
ARTICLE 7
Covenants of Buyer and the Company
Section 7.01. Best Efforts...............................................A-20
Section 7.02. Certain Filings............................................A-21
Section 7.03. Public Announcements.......................................A-21
Section 7.04. Further Assurances.........................................A-21
Section 7.05. FCC Application............................................A-21
Section 7.06. HSR Act Matters............................................A-22
Section 7.07. Warrants; Convertible Notes................................A-22
ARTICLE 8
Conditions to the Merger
Section 8.01. Conditions to the Obligations of Each Party................A-22
Section 8.02. Conditions to the Obligations of Buyer.....................A-23
Section 8.03. Conditions to the Obligations of the Company...............A-24
ARTICLE 9
Termination
Section 9.01. Termination................................................A-24
Section 9.02. Effect of Termination......................................A-25
ARTICLE 10
Miscellaneous
Section 10.01. Notices...................................................A-25
Section 10.02. Survival of Representations and Warranties and Agreements.A-26
Section 10.03. Amendments; No Waivers....................................A-26
Section 10.04. Expenses..................................................A-26
Section 10.05. Successors and Assigns....................................A-27
Section 10.06. Governing Law.............................................A-27
Section 10.07. Counterparts; Effectiveness...............................A-27
Section 10.08. Entire Agreement; No Third-party Beneficiaries............A-27
Section 10.09. Extension; Waiver.........................................A-27
Section 10.10. Headings..................................................A-28
Section 10.11. Severability..............................................A-28
Section 10.12. WAIVER OF JURY TRIAL......................................A-28
INDEX OF DEFINED TERMS
Term Section
- ---- -------
Acquisition Proposal..............................................5.04
Balance Sheet.....................................................3.08
Balance Sheet Date................................................3.08
Benefit Arrangements..............................................3.14(d)
Buyer.............................................................Preamble
Buyer Material Adverse Effect.....................................4.01
Claim.............................................................6.03
Class A Shares....................................................1.02(c)
Class B Shares....................................................1.02(c)
Closing...........................................................1.02(b)
Closing Date......................................................1.02(b)
Code..............................................................3.13
Communications Act................................................3.03
Company...........................................................Preamble
Company Disclosure Documents......................................3.09(a)
Company Proxy Statement...........................................3.09(a)
Company Returns...................................................3.13
Company SEC Reports...............................................3.07(a)
Company Securities................................................3.05(e)
Company Stockholder Meeting.......................................5.02
Company 10-K......................................................3.06(a)
Confidentiality Agreement.........................................5.03
Contracts.........................................................3.18
Convertible Discount Notes........................................3.05(d)
Delaware Law......................................................1.01(a)
Draft 1997 Form 10-K..............................................3.06(a)
Effective Time....................................................1.01(c)
Employee Funds ...................................................5.01(a)(ii)
Employee Plans....................................................3.14(a)
Environmental Law.................................................3.20
ERISA.............................................................3.14(a)
Exchange Act......................................................3.03
Exchange Agent....................................................1.03(a)
FAA...............................................................3.16(a)
FCC...............................................................1.01(a)
FCC Application...................................................7.05(a)
FCC Licenses......................................................3.16(a)
FCC Transfer Approvals............................................8.01(e)
Final Order.......................................................8.01(e)
Financing Condition...............................................8.02(d)
HSR Act...........................................................3.03(b)
Indemnified Parties...............................................6.03(b)
Lien..............................................................3.04(d)
Material Adverse Effect...........................................3.01
Merger............................................................1.01(a)
Merger Consideration..............................................1.02(c)
Multiemployer Plans...............................................3.14(b)(i)
Permits...........................................................3.17
Person............................................................1.03(d)
Related Parties...................................................3.21(a)
SEC...............................................................3.07(a)
SEC Reports.......................................................3.07(a)
Securities Act....................................................3.07(b)
Series A Preferred Stock..........................................1.02(c)
Shares............................................................1.02(c)
Statutes..........................................................3.16(e)
Subsidiary........................................................3.01
Subsidiary Securities.............................................3.06(b)(ii)
Surviving Corporation.............................................1.01(a)
Taxes.............................................................3.13
Trigger Event.....................................................10.04(b)
Trustee...........................................................7.07
Voting Agreement..................................................Preamble
Warrant Agreement.................................................3.05(c)
Warrants..........................................................3.05(c)
Wireless..........................................................3.07(a)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of March 6, 1998
between PRICELLULAR CORPORATION, a Delaware corporation (the "Company"),
and AMERICAN CELLULAR CORPORATION, a Delaware corporation ("Buyer").
WHEREAS, the respective Boards of Directors of the Company
and Buyer have approved, and deem it advisable and in the best interests of
their respective stockholders that Buyer merge with and into the Company,
pursuant to and subject to the terms and conditions set forth herein; and
WHEREAS, as a condition to Buyer entering into this
Agreement and incurring the obligations set forth herein, concurrently with
the execution and delivery of this Agreement, Buyer is entering into a
voting agreement (the "Voting Agreement") with certain holders of
securities of the Company pursuant to which, among other things, such
holders have agreed to vote all shares of capital stock of the Company
owned by such holders in favor of this Agreement, the Merger provided for
herein and the transactions contemplated by this Agreement;
NOW, THEREFORE, in consideration of the promises and the
respective representations, warranties, covenants, and agreements set forth
herein and in the voting agreements, the parties hereto agree as follows:
ARTICLE 1
The Merger
Section 1.1. The Merger. (a) Upon the terms and subject
to the conditions set forth in this Agreement (including approval of the
Federal Communications Commission (the "FCC")), at the Effective Time,
Buyer shall be merged (the "Merger") with and into the Company in
accordance with the General Corporation Law of the State of Delaware (the
"Delaware Law") whereupon the separate existence of Buyer shall cease, and
the Company shall be the surviving corporation (the "Surviving
Corporation").
(b) Upon the terms and subject to the conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at
10:00 a.m. on a date to be specified by the parties (the "Closing Date"),
which shall be no later than the second business day after satisfaction of
the conditions set forth in Article 8, at the offices of Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York 10017, unless another
time, date or place is agreed to in writing by the parties hereto.
(c) Upon the Closing, the Company and Buyer will file a
certificate of merger with the Secretary of State of the State of Delaware
and make all other filings or recordings required by Delaware Law in
connection with the Merger. The Merger shall become effective at such time
as the certificate of merger is duly filed with the Secretary of State of
the State of Delaware or at such later time as is specified in the
certificate of merger (the "Effective Time").
(d) From and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises
and be subject to all of the restrictions, disabilities and duties of the
Company and Buyer, all as provided under Delaware Law.
Section 1.2. Conversion of Shares. At the Effective Time:
(a) all shares of capital stock of the Company held by the
Company as treasury stock or owned by Buyer or any subsidiary of Buyer
immediately prior to the Effective Time shall be canceled, and no payment
shall be made with respect thereto;
(b) each share of common stock and preferred stock of Buyer
outstanding immediately prior to the Effective Time shall be converted into
and become one share of common stock and preferred stock, respectively, of
the Surviving Corporation with the same rights, powers and privileges as
the shares so converted and shall constitute the only outstanding shares of
capital stock of the Surviving Corporation; and
(c) except as otherwise provided in Section 1.2(a) or as
provided in Section 1.4 with respect to Shares (as defined below) as to
which appraisal rights have been exercised, (i) each share of (x) Class A
Common Stock, par value $0.01 per share, of the Company ("Class A Shares")
issued and outstanding immediately prior to the Effective Time and (y)
Class B Common Stock, par value $0.01 per share, of the Company (the "Class
B Shares") issued and outstanding immediately prior to the Effective Time,
shall in each case be converted into the right to receive $14.00 in cash,
without interest (the "Merger Consideration") and (ii) each share of Series
A Cumulative Convertible Preferred Stock, par value $0.01 per share (the
"Series A Preferred Stock" and, together with the Class A Shares and the
Class B Shares, the "Shares"), of the Company issued and outstanding
immediately prior to the Effective Time shall be converted into the right
to receive the product of the Merger Consideration and the number of Class
A Shares into which each such share of Series A Preferred Stock is
convertible at such time in connection with a change of control.
Section 1.3. Surrender and Payment. (a) Prior to the
Effective Time, Buyer shall appoint an agent (the "Exchange Agent") for the
purpose of exchanging certificates representing Shares for the Merger
Consideration. Buyer will make available to the Exchange Agent, as needed,
the Merger Consideration to be paid in respect of the Shares. For purposes
of determining the Merger Consideration to be made available, Buyer shall
assume that no holder of Shares will perfect his right to appraisal of his
Shares. Promptly after the Effective Time, Buyer will send, or will cause
the Exchange Agent to send, to each holder of Shares at the Effective Time
a letter of transmittal for use in such exchange (which shall specify that
the delivery shall be effected, and risk of loss and title shall pass, only
upon proper delivery of the certificates representing Shares to the
Exchange Agent).
(b) Each holder of Shares that have been converted into a
right to receive the Merger Consideration, upon surrender to the Exchange
Agent of a certificate or certificates representing such Shares, together
with a properly completed letter of transmittal covering such Shares, will
be entitled to receive the Merger Consideration payable in respect of such
Shares. Until so surrendered, each such certificate shall, after the
Effective Time, represent for all purposes, only the right to receive such
Merger Consideration.
(c) The Merger Consideration shall be paid to each holder
of Shares free and clear of any withholding under Section 1445 of the Code,
(i) with respect to any Class B Share and any share of Series A Preferred
Stock, provided that Buyer receives (x) a certification from such holder of
non-foreign status as described in Treasury Regulation Section 1.1445-2(b)
or (y) other documentation reasonably satisfactory to Buyer establishing an
exemption from such withholding, in either such case at or prior to the
Closing Date and (ii) with respect to any Class A Share.
(d) If any portion of the Merger Consideration is to be
paid to a Person other than the registered holder of the Shares represented
by the certificate or certificates surrendered in exchange therefor, it
shall be a condition to such payment that the certificate or certificates
so surrendered shall be properly endorsed or otherwise be in proper form
for transfer and that the Person requesting such payment shall pay to the
Exchange Agent any transfer or other taxes required as a result of such
payment to a Person other than the registered holder of such Shares or
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable. For purposes of this Agreement, "Person" means an
individual, a corporation, a limited liability company, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality
thereof.
(e) After the Effective Time, there shall be no further
registration of transfers of Shares. If, after the Effective Time,
certificates representing Shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for the consideration
provided for, and in accordance with the procedures set forth, in this
Article 1.
(f) Any portion of the Merger Consideration made available
to the Exchange Agent pursuant to Section 1.3(a) that remains unclaimed by
the holders of Shares six months after the Effective Time shall be returned
to Buyer, upon demand, and any such holder who has not exchanged his Shares
for the Merger Consideration in accordance with this Section prior to that
time shall thereafter look only to Buyer for payment of the Merger
Consideration in respect of his Shares. Notwithstanding the foregoing,
Buyer shall not be liable to any holder of Shares for any amount paid to a
public official pursuant to applicable abandoned property laws. Any
amounts remaining unclaimed by holders of Shares two years after the
Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any governmental
entity) shall, to the extent permitted by applicable law, become the
property of Buyer free and clear of any claims or interest of any Person
previously entitled thereto.
(g) Any portion of the Merger Consideration made available
to the Exchange Agent pursuant to Section 1.3(a) to pay for Shares for
which appraisal rights have been perfected shall be returned to Buyer, upon
demand.
Section 1.4. Dissenting Shares. Notwithstanding Section 1.2,
Shares outstanding immediately prior to the Effective Time and held by a
holder who has not voted in favor of the Merger or consented thereto in
writing and who has demanded appraisal for such Shares in accordance with
Delaware Law shall not be converted into a right to receive the Merger
Consideration, unless such holder fails to perfect or withdraws or otherwise
loses his right to appraisal. If after the Effective Time such holder fails to
perfect or withdraws or loses his right to appraisal, such Shares shall be
treated as if they had been converted as of the Effective Time into a right to
receive the Merger Consideration. The Company shall give Buyer prompt notice
of any demands received by the Company for appraisal of Shares, and Buyer
shall have the right to participate in all negotiations and proceedings with
respect to such demands. The Company shall not, except with the prior written
consent of Buyer, make any payment with respect to, or settle or offer to
settle, any such demands.
Section 1.5. Stock Options. At or immediately prior to the
Effective Time, each outstanding employee stock option to purchase Class A
Shares granted under the Company's 1994 Stock Option Plan, as amended (the
"1994 Plan") , shall be canceled, and each holder of any such option,
whether or not then vested or exercisable, shall be paid by the Company
promptly after the Effective Time for each such option an amount determined
by multiplying (i) the excess, if any, of $14.00 per Class A Share over the
applicable exercise price of such option by (ii) the number of Class A
Shares such holder could have purchased (assuming full vesting of all
options) had such holder exercised such option in full immediately prior to
the Effective Time. Any such payment shall be subject to all applicable
federal, state and local tax withholding requirements.
ARTICLE 2
The Surviving Corporation
Section 2.1. Certificate of Incorporation. The certificate
of incorporation of Buyer in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law, except that the name of the Surviving
Corporation shall be changed to "American Cellular Corporation".
Section 2.2. Bylaws. The bylaws of Buyer in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until
amended in accordance with applicable law.
Section 2.3. Directors and Officers. From and after the
Effective Time, until successors are duly elected or appointed and
qualified in accordance with applicable law, the directors and officers of
Buyer at the Effective Time shall be the directors and officers of the
Surviving Corporation.
ARTICLE 3
Representations and Warranties of the Company
The Company represents and warrants to Buyer that:
Section 3.1. Corporate Existence and Power. The Company is
a corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware, and has all corporate powers
required to carry on its business as now conducted. The Company is duly
qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by
it or the nature of its activities makes such qualification necessary,
except for those jurisdictions where the failure to be so qualified would
not, or would not reasonably be expected to, individually or in the
aggregate, have a material adverse effect on the condition (financial or
otherwise), business, assets or results of operations of the Company and
its Subsidiaries (as defined below) taken as a whole (a "Material Adverse
Effect"). The Company has heretofore delivered to Buyer true and complete
copies of the Company's certificate of incorporation and bylaws as
currently in effect. For purposes of this Agreement, a "Subsidiary" of any
Person means any other Person of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are directly or
indirectly owned or controlled by such Person, and unless otherwise
specified, "Subsidiary" means a Subsidiary of the Company.
Section 3.2. Corporate Authorization. The execution,
delivery and performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby are
within the Company's corporate powers and, except for any required
approvals by the Company's stockholders in connection with the consummation
of the Merger, have been duly authorized by all necessary corporate action.
This Agreement constitutes a valid and binding agreement of the Company,
enforceable against it in accordance with its terms except as may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally and
by equitable principles of general applicability. The Board of Directors
of the Company has approved the Merger, this Agreement and the transactions
contemplated hereby and such approval is sufficient to render the
provisions of Section 203 of Delaware Law inapplicable to the Merger, this
Agreement and the transactions contemplated hereby. The approval of the
holders of a majority of the votes of the outstanding Shares is the only
vote of the holders of any class of the Company's capital stock necessary
to approve the Merger, this Agreement and the transactions contemplated
hereby.
Section 3.3. Governmental Authorization. The execution,
delivery and performance by the Company of this Agreement and the
consummation by the Company of the Merger and the other transactions
contemplated hereby require no consent, waiver, approval, authorization or
permit by or from, or action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (a) the filing
of a certificate of merger in accordance with Delaware Law; (b) compliance
with any applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"); (c) compliance with any
applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder (the "Exchange Act");
(d) compliance with any applicable requirements of the Communications Act
of 1934, as amended, together with the rules, regulations and published
decisions of the FCC (collectively, the "Communications Act"); (e)
compliance with the applicable requirements of state and local public
utility commissions or similar entities; and (f) any action, filing,
consent, waiver, approval, authorization or permit that would not in the
aggregate prevent or delay consummation of the Merger in any material
respect, or otherwise prevent the Company from performing its obligations
under this Agreement in any material respect, or would not, or would not
reasonably be expected to, in the aggregate have a Material Adverse Effect.
Section 3.4. Non-contravention. Except as described in
Schedule 3.4 and assuming compliance with the matters referred to in
Section 3.3, the execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions
contemplated hereby do not and will not (a) assuming receipt of the
approval of stockholders referred to in Section 3.2, contravene or conflict
with the certificate of incorporation or bylaws of the Company, (b)
contravene or conflict with or constitute a violation of any provision of
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Company or any Subsidiary, (c) result in a breach or
violation of or constitute a default under (or an event which with the
giving of notice or the lapse of time or both would constitute a default
under) or give rise to a right of termination, amendment, cancellation or
acceleration of any right or obligation of the Company or any Subsidiary or
to a loss of any benefit to which the Company or any Subsidiary is entitled
or require any consent, approval or authorization under any provision of
any material agreement, contract or other instrument binding upon the
Company or any Subsidiary or any of their respective assets (including any
license, franchise, permit or other similar authorization held by the
Company or any Subsidiary) or (d) result in the creation or imposition of
any Lien on any asset of the Company or any Subsidiary, except for such
contraventions, conflicts or violations referred to in clause (b) and
breaches, violations, defaults, rights of termination, cancellation or
acceleration, losses, Liens or other occurrences referred to in clauses (c)
and (d) that in the aggregate would not, or would not reasonably be
expected to, have a Material Adverse Effect or prevent or delay the
consummation of the Merger in any material respect or otherwise prevent the
Company from performing its obligations under this Agreement in any
material respect. For purposes of this Agreement, "Lien" means, with
respect to any asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset. The execution and
delivery of this Agreement and the Voting Agreement does not constitute a
"Change of Control" under the terms of that certain Certificate of
Designation of Series A Cumulative Convertible Preferred Stock of the
Company executed by the Company on December 15, 1995.
Section 3.5. Capitalization. (a) The authorized capital
stock of the Company consists of the following, as of March 3, 1998: (i)
100,000,000 Class A Shares, of which 21,824,566 are issued and outstanding,
(ii) 50,000,000 Class B Shares, of which 13,134,275 are issued and
outstanding, and (iii) 10,000,000 shares of preferred stock, of which
96,000 shares of Series A Preferred Stock are issued and outstanding.
(b) As of March 3, 1998, there were outstanding under the
1994 Plan employee stock options to purchase an aggregate of 1,476,981
Class A Shares (of which options to purchase an aggregate of 836,956 Class
A Shares were exercisable).
(c) As of the date of this Agreement, there were
outstanding warrants (the "Warrants") to purchase 1,819,584 Class B Shares
pursuant to the terms and conditions of the Warrant Agreement (the "Warrant
Agreement") amended and restated as of December 21, 1995 between Price
Communications Corporation and the Company.
(d) As of the date of this Agreement, there was outstanding
$60,000,000 aggregate principal amount of 10 3/4% Senior Subordinated
Convertible Discount Notes due 2004 (the "Convertible Discount Notes")
pursuant to the terms and conditions of the Indenture dated as of August
21, 1995 between the Company and The Bank of Montreal Trust Company, as
Trustee. As of December 31, 1997, the Accreted Value of the Convertible
Discount Notes was $45,622,650.
(e) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in this Section and except for changes
since March 3, 1998, resulting from the exercise of employee stock options
outstanding on such date, there are outstanding (i) no shares of capital
stock or other voting securities of the Company, (ii) no securities of the
Company convertible into or exchangeable for shares of capital stock or
voting securities of the Company and (iii) no options or other rights to
acquire from the Company, and no obligation of the Company to issue, any
capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company (the
items in clauses (a), (b), (c) and (d) of this Section 3.5 being referred
to collectively as the "Company Securities"). Except pursuant to the terms
of the Company Securities, there are no outstanding obligations of the
Company or any Subsidiary to repurchase, redeem or otherwise acquire any
Company Securities.
(f) Upon consummation of the Merger, neither any
outstanding Convertible Discount Notes, Warrants, Series A Preferred Stock
nor any other outstanding securities of the Company shall be convertible
into or exchangeable for any equity security of the Surviving Corporation.
(g) Upon consummation of the Merger, the Company shall have
no obligations due under any contracts entered into by the Company on or
prior to the Closing Date with regard to the voting, transfer or
registration under the Securities Act of any equity securities of the
Company or that grant any preemptive rights with respect to its equity
securities (other than any such contracts executed with Buyer).
Section 3.6. Subsidiaries. (a) Each Subsidiary is a
corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation, has all corporate powers
required to carry on its business as now conducted and is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, except for
such qualifications the failure of which to obtain would not, or would not
reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect. All Subsidiaries and their respective
jurisdictions of incorporation are identified in the draft copy dated
February 19, 1998 of the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1997 (the "Draft 1997 Form 10-K") or in
Schedule 3.6(a).
(b) Except as set forth in Schedule 3.6(b), all of the
outstanding capital stock of, or other ownership interests in, each
Subsidiary of the Company, is owned by the Company, directly or indirectly,
free and clear of any Lien and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose
of such capital stock or other ownership interests). There are no
outstanding (i) securities of the Company or any Subsidiary convertible
into or exchangeable for shares of capital stock or other voting securities
or ownership interests in any Subsidiary and (ii) options or other rights
to acquire from the Company or any Subsidiary, and no other obligation of
the Company or any Subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible
into or exchangeable for any capital stock, voting securities or ownership
interests in, any Subsidiary (the items in clauses 3.6(b)(i) and 3.6(b)(ii)
being referred to collectively as the "Subsidiary Securities"). There are
no outstanding obligations of the Company or any Subsidiary to repurchase,
redeem or otherwise acquire any outstanding Subsidiary Securities.
Section 3.7. SEC Filings. (a) The Company and PriCellular
Wireless Corporation ("Wireless") have each filed with the Securities and
Exchange Commission (the "SEC") (i) annual reports on Form 10-K for its
fiscal years ended December 31, 1995 and 1996, (ii) quarterly reports on
Form 10-Q for its fiscal quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997, (iii) proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of the
Company held since December 31, 1996 and (iv) all other reports,
statements, schedules and registration statements required to be filed with
the SEC since December 31, 1996. The Company has delivered to Buyer the
Draft 1997 Form 10-K. The Company's annual report on Form 10-K for such
reporting period shall not differ in any material respect from the Draft
1997 Form 10-K. The Draft 1997 Form 10-K and the documents described in
clauses (i)-(iv) above are collectively referred to herein as the "SEC
Reports."
(b) Other than Wireless, no Subsidiary is required to file
any report, form or document with the SEC pursuant under the Exchange Act
or the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Securities Act").
(c) As of their respective filing dates, none of the SEC
Reports (or with respect to the Draft 1997 Form 10-K, the date of such
draft) contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(d) Each such registration statement, as amended or
supplemented, if applicable, filed pursuant to the Securities Act as of the
date such statement or amendment became effective did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(e) The SEC Reports when filed complied (and the Draft 1997
Form 10-K complies) in all material respects with applicable requirements
of the Securities Act and the Exchange Act.
Section 3.8. Financial Statements. The audited consolidated
financial statements and unaudited consolidated interim financial statements
of the Company and Wireless, respectively included in the SEC Reports filed
prior to the date hereof and in the Draft 1997 Form 10-K fairly present, in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto or in the
case of unaudited interim financial statements as permitted by Form 10-Q of
the SEC ), the consolidated financial position of the Company and Wireless,
as the case may be, and their respective consolidated subsidiaries as of the
dates thereof and their consolidated statements of operations, stockholders'
equity and cash flows for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements which
would not be material in amount or effect). For purposes of this Agreement,
"Balance Sheet" means the consolidated balance sheet of the Company as of
December 31, 1997 set forth in the Draft 1997 Form 10-K and "Balance Sheet
Date" means December 31, 1997.
Section 3.9. Disclosure Documents. (a) Each document
required to be filed by the Company with the SEC in connection with the
transactions contemplated by this Agreement (the "Company Disclosure
Documents"), including, without limitation, the proxy or information
statement of the Company (the "Company Proxy Statement"), if any, to be
filed with the SEC in connection with the Merger, and any amendments or
supplements thereto will, when filed, comply as to form in all material
respects with the applicable requirements of the Exchange Act.
(b) At the time the Company Proxy Statement or any
amendment or supplement thereto is first mailed to stockholders of the
Company and at the time such stockholders vote on adoption of this
Agreement, the Company Proxy Statement, as supplemented or amended, if
applicable, will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made,
not misleading. At the time of the filing of any Company Disclosure
Document other than the Company Proxy Statement and at the time of any
distribution thereof, such Company Disclosure Document will not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The
representations and warranties contained in this Section 3.9(b) will not
apply to statements or omissions included in the Company Disclosure
Documents based upon information furnished to the Company in writing by
Buyer specifically for use therein.
Section 3.10. Absence of Certain Changes. Except as
disclosed in the Company SEC Reports filed prior to the date of this
Agreement or as set forth in Schedule 3.10, since the Balance Sheet Date,
the Company and its Subsidiaries have conducted their business in the
ordinary course consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of
circumstances or facts which, individually or in the
aggregate, has had, or reasonably would be expected to have,
a Material Adverse Effect;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any Shares,
or any repurchase, redemption or other acquisition, or
issuance, award, grant or sale by the Company or any
Subsidiary of any outstanding shares of capital stock or
other securities of, or other ownership interests in, the
Company or any Subsidiary (excluding repurchases,
redemptions or acquisitions or issuances, awards, grants or
sales required to be made pursuant to the terms of any
outstanding Company Securities);
(c) any amendment of any material term of any
outstanding security of the Company or any Subsidiary, or
any reorganization, recapitalization, split, consolidation
or reclassification with respect to its capital stock, or
any issuance of any other securities in respect of, or in
lieu of, shares of its capital stock;
(d) any incurrence, assumption or guarantee by the
Company or any Subsidiary of any indebtedness for borrowed
money other than in the ordinary course of business and in
amounts and on terms consistent with past practices and not
in an amount in excess of $5,000,000 in the aggregate;
(e) any creation or assumption by the Company or any
Subsidiary of any Lien on any material asset other than in
the ordinary course of business consistent with past
practices;
(f) any making of any loan, advance or capital
contributions to or investment in any Person other than
loans, advances or capital contributions to or investments
in wholly-owned Subsidiaries made in the ordinary course of
business consistent with past practices;
(g) any damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the business
or assets of the Company or any Subsidiary which,
individually or in the aggregate, has had, or would
reasonably be expected to have, a Material Adverse Effect;
(h) any transaction or commitment made, or any contract
or agreement entered into, by the Company or any Subsidiary
relating to its assets or business (including the
acquisition or disposition of any assets) or any
relinquishment by the Company or any Subsidiary of any
contract or other right, in either case, material to the
Company and its Subsidiaries taken as a whole, other than
transactions and commitments (i) in the ordinary course of
business consistent with past practice, and in the case of
asset acquisitions in an amount not in excess of $5,000,000
in the aggregate, and in the case of asset dispositions in
an amount not in excess of $5,000,000 in the aggregate and
(ii) those contemplated by this Agreement;
(i) any material change in any method of accounting or
accounting practice by the Company or any Subsidiary, except
for any such change required by reason of a concurrent
change in generally accepted accounting principles;
(j) except as contemplated by Section 5.01(b), any (i)
grant of any severance or termination pay to any director,
officer or employee of the Company or any Subsidiary, (ii)
entering into of any employment, deferred compensation or
other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee
of the Company or any Subsidiary, (iii) increase in benefits
payable under any existing severance or termination pay
policies or employment agreements or (iv) other than in the
ordinary course of business consistent with past practice,
increase in compensation, bonus or other benefits payable to
directors, officers or employees of the Company or any
Subsidiary;
(k) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union
or representative thereof to organize any employees of the
Company or any Subsidiary, which employees were not subject
to a collective bargaining agreement at the Balance Sheet
Date, or any lockouts, strikes, slowdowns, work stoppages or
threats thereof by or with respect to such employees;
(l) any material revaluation of any assets by the
Company or any Subsidiary; or
(m) any material transaction with a Related Party
(other than compensation for services rendered in the
ordinary course of business).
Section 3.11. No Undisclosed Material Liabilities. There
are no material liabilities of the Company or any Subsidiary of any kind,
whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a
liability, other than:
(a) liabilities disclosed or provided for in the
Schedules hereto, the Balance Sheet, the Company SEC Reports
filed prior to the date hereof or the Draft 1997 Form 10-K;
(b) liabilities incurred in the ordinary course of
business consistent with past practice since the Balance
Sheet Date, which in the aggregate would not, or would not
reasonably be expected to, have a Material Adverse Effect;
and
(c) liabilities under this Agreement or incurred in
connection with the transactions contemplated hereby.
Section 3.12. Litigation. Except as set forth in the
Company SEC Reports filed prior to the date hereof, the Draft 1997 Form 10-
K or in Schedule 3.12, there is no action, suit, investigation or
proceeding pending against, or to the knowledge of the Company threatened
against or affecting, the Company or any Subsidiary or any of their
respective properties before any court or arbitrator or any governmental
body, agency or official which, if determined or resolved adversely to the
Company or any Subsidiary in accordance with the plaintiff's demands, would
reasonably be expected to have a Material Adverse Effect.
Section 3.13. Taxes. Except as set forth in the Company
Balance Sheet (including the notes thereto) and except as would not, or
would not reasonably be expected to, individually or in the aggregate, have
a Material Adverse Effect, (i) all Tax returns, statements, reports and
forms (including estimated Tax or information returns)(collectively, the
"Company Returns") required to be filed with any taxing authority by, or
with respect to, the Company and its Subsidiaries have been filed in
accordance with all applicable laws; (ii) the Company and its Subsidiaries
have timely paid or made provision for payment of all Taxes shown as due
and payable on the Company Returns that have been so filed, and, as of the
time of filing, the Company Returns correctly reflected the facts regarding
income, business, assets, operations, activities and the status of the
Company and its Subsidiaries (other than Taxes which are being contested in
good faith and for which adequate reserves are reflected on the Company
Balance Sheet); (iii) the Company and its Subsidiaries have made provision
for all Taxes payable by the Company and its Subsidiaries for which no
Company Return has yet been filed; (iv) the charges, accruals and reserves
for Taxes with respect to the Company and its Subsidiaries reflected on the
Company Balance Sheet are adequate under United States generally accepted
accounting principles to cover the Tax liabilities accruing through the
date thereof; and (v) there is no action, suit, proceeding, audit or claim
now proposed or pending against or with respect to the Company or any of
its Subsidiaries in respect of any Tax where there is a reasonable
possibility of an adverse determination. Except as set forth on Schedule
3.13, (a) no extension of a statute of limitations relating to material
Taxes is in effect with respect to the Company or its Subsidiaries; (b)
neither the Company nor any of its Subsidiaries has ever been a member of
an affiliated group of corporations within the meaning of Section 1504 of
the Internal Revenue Code of 1986, as amended (the "Code"), other than an
affiliated group of corporations of which the Company was the common
parent; and (c) there are no material Tax sharing agreements or similar
arrangements (including Tax indemnity arrangements) with respect to or
involving the Company or any of its Subsidiaries. For purposes of this
Section 3.13, "Taxes" means any and all taxes, charges, fees, levies or
other assessments, including income, gross receipts, excise, real or
personal property, sales, withholding, social security, retirement,
unemployment, occupation, use, service, license, net worth, payroll,
franchise, and transfer and recording, imposed by the Internal Revenue
Service or any taxing authority (whether domestic or foreign, including any
federal, state, U.S. possession, county, local or foreign government or any
subdivision or taxing agency thereof), whether computed on a separate,
consolidated, unitary, combined or any other basis, including interest,
fines, penalties or additions to tax attributable to or imposed on or with
respect to any such taxes, charges, fees, levies or other assessments.
Section 3.14. ERISA and Labor Matters. (a) The Company
has provided Buyer with a list identifying each "employee benefit plan", as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), which (i) is or was during the six year period
ending on the date hereof subject to any provision of ERISA, (ii) is or was
during the six year period ending on the date hereof maintained,
administered or contributed to by the Company or any affiliate (as defined
below) of the Company and (iii) covers or has covered during such six year
period any employee or former employee of the Company or any Subsidiary.
Copies of such plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof have been made
available to Buyer together with (A) the most recent annual report (Form
5500 including, if applicable, Schedule B thereto) prepared in connection
with any such plan and (B) the most recent actuarial valuation report, if
any, prepared in connection with any such plan. Such plans are referred to
collectively herein as the "Employee Plans". For purposes of this Section,
"affiliate" of any Person means any other Person which, together with such
Person, would be treated as a single employer under Section 414 of the
Code.
(b) No Employee Plan (i) constitutes a "multiemployer
plan", as defined in Section 3(37) of ERISA (a "Multiemployer Plan"), (ii)
is maintained in connection with any trust described in Section 501(c)(9)
of the Code or (iii) is subject to Title IV of ERISA or the minimum funding
standards of Section 412 of the Code. Nothing done or omitted to be done
and no transaction or holding of any asset under or in connection with any
Employee Plan has or will make the Company or any Subsidiary, any officer
or director of the Company or any Subsidiary subject to any material
liability under Title I of ERISA or liable for any material tax pursuant to
Section 4975 of the Code.
(c) Each Employee Plan that is intended to be qualified
under Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and, to the knowledge of the Company,
there has been no event since the date os such determination which would
adversely affect such qualification; each trust created under any such Plan
has been determined by the Internal Revenue Service to be exempt from tax
under Section 501(a) of the Code and, to the knowledge of the Company,
there has been no event since the date of such exemption which would
adversely affect such exemption. The Company has furnished to the Buyer
copies of the most recent Internal Revenue Service determination letter
with respect to each such Employee Plan. Each Employee Plan has been
maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Employee Plan.
(d) The Company has provided Buyer with a list of each
employment, severance or other similar contract, arrangement or policy and
each plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation or other forms of incentive compensation
or post-retirement insurance, compensation or benefits which (i) is not an
Employee Plan, (ii) is entered into, maintained or contributed to, as the
case may be, by the Company or any of its affiliates and (iii) covers any
employee or former employee of the Company or any Subsidiary. Such
contracts, plans and arrangements as are described above, copies or
descriptions of all of which have been furnished previously to Buyer are
referred to collectively herein as the "Benefit Arrangements", and which
together with the Employee Plans are referred to collectively herein as the
"Benefit Plans". Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations that are applicable
to such Benefit Arrangement.
(e) Except as set forth in Schedule 3.14, neither the
Company nor any Subsidiary has any current or projected liability in
respect of post-employment or post-retirement health or medical or life
insurance benefits for retired, former or current employees of the Company
or any Subsidiary, except as required to avoid excise tax under Section
4980B of the Code.
(f) Except as disclosed in writing to Buyer prior to the
date hereof, there has been no amendment to, written interpretation or
announcement (whether or not written) by the Company or any of its
affiliates relating to, or change in employee participation or coverage
under, any Employee Plan or Benefit Arrangement which would increase
materially the expense of maintaining such Employee Plan or Benefit
Arrangement above the level of the expense incurred in respect thereof for
the fiscal year ended on the Balance Sheet Date.
(g) Neither the Company nor any Subsidiary is a party to or
subject to any union contract or any employment contract or arrangement
providing for annual future compensation of more than $100,000 with any
officer, consultant, director or employee.
(h) Neither the Company nor any Subsidiary is a party to
any collective bargaining agreement or other contract or agreement with any
labor organization or other representative of any of the employees of the
Company or any Subsidiary. The Company and each Subsidiary is in
compliance in all material respects with applicable laws relating to the
employment or the workplace, including, without limitation, provisions
relating to wages, hours, collective bargaining, safety and health, work
authorization, equal employment opportunity, immigration and the
withholding of income taxes, unemployment compensation, worker's
compensation, employee privacy and right to know and social security
contributions.
(i) Except as disclosed on Schedule 3.14 or as contemplated
by Sections 1.5 and 5.1(b) of this Agreement, neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any material payment (including,
without limitation, severance, or unemployment compensation) becoming due
to any director or employee of the Company or any Subsidiary; (ii) result
in the acceleration of vesting under any Employee Plan or Benefit
Arrangement; or (iii) materially increase any benefits otherwise payable
under any Employee Plan, and any such payment or increase in benefits is
fully deductible under the Code, including but not limited to Sections 162,
280G and 404. Deductibility of future compensation payments to employees
of the Company and each Subsidiary are not subject to the limitations of
Code Section 280G as a result of prior corporate transactions involving the
Company or any Subsidiary or the transactions contemplated hereby.
(j) As of the date hereof, except as disclosed on Schedule
3.14, (i) the Company and each Subsidiary have performed all material
obligations required to be performed by them under any Benefit Plan and
(ii) there are no actions, suits, arbitrations or claims (other than
routine claims for benefits) pending or threatened with respect to any
Benefit Plan.
Section 3.15. Finders' Fees. Except for (i) Donaldson,
Lufkin & Jenrette Securities Corporation, (ii) SBC Warburg Dillon Read and
(iii) Gleacher NatWest (the fees and expenses of which have been disclosed
to Buyer), there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf
of, the Company or any Subsidiary, who might be entitled to any fee or
commission from Buyer or any of its affiliates upon consummation of the
transactions contemplated by this Agreement.
Section 3.16. FCC Matters and Governmental Matters. (a)
The Company and its Subsidiaries hold all licenses, permits and other
authorizations issued by the FCC to the Company and its Subsidiaries for
the operation of their respective businesses that are set forth in Schedule
3.16(a) (the "FCC Licenses"). The FCC Licenses constitute all of the
licenses, permits and authorizations from the FCC that are required for the
operations and businesses of the Company and its Subsidiaries as they are
now operated, except that in the case of certain microwave operations, the
FCC has authorized such operations but has not issued a written microwave
authorization, and in the case of certain cell sites, the Company is
awaiting issuance of a license pursuant to a Form 489 notification.
Schedule 3.16(a) also identifies all microwave operations that are
authorized but for which the FCC has not issued a written authorization.
Without limiting the foregoing, the Company and its Subsidiaries have
received all necessary authorizations from the Federal Aviation
Administration ("FAA") for all existing towers that are part of the
cellular or microwave systems operated by the Company and its Subsidiaries
and for any facilities the construction of which have been approved by the
FCC or of which applications or notifications have been filed for such
approval.
(b) Schedule 3.16(b) sets forth each application and
notification that the Company and its Subsidiaries have pending before the
FCC and sets forth the expiration date for each of the cellular FCC
Licenses. The Company and its Subsidiaries have provided a copy to Buyer
of each of the FCC Licenses and the applications and notifications listed
in Schedule 3.16(b), except where the FCC has not issued a written
microwave authorization.
(c) The FCC Licenses are valid and in full force and
effect, unimpaired by any condition or restriction or any act or omission
by the Company or any of its Subsidiaries which would reasonably be
expected to have a Material Adverse Effect. Except as set forth in
Schedule 3.16(c), there are no modifications, amendments, applications,
revocations, or other proceedings, or complaints pending or, to the
knowledge of the Company, threatened, with respect to the FCC Licenses
(other than proceedings that apply to the cellular industry generally).
Except as set forth in Schedule 3.16(c), all fees due and payable to the
FCC have been paid and no event has occurred which, with or without the
giving of notice or lapse of time or both, would constitute grounds for
revocation or modification of the FCC Licenses. For all of the FCC
Licenses that are cellular licenses in which the five-year fill-in period
expired prior to the date of this Agreement, the Company timely filed
appropriate applications or notifications with the FCC such that none of
the original authorized area became " unserved area," as defined in 47
C.F.R. Part 22 , except where such unserved areas have subsequently been
added to the Company's Cellular Geographic Service Area pursuant to Phase 2
applications and Form 489 notifications or as identified on Schedule
3.16(c). Schedule 3.16(c) identifies all of the FCC Licenses that are
cellular licenses for which the five-year fill-in period has not yet passed
as of the date of this Agreement. The Company does not conduct any
microwave operations on frequencies that are subject to relocation under
the FCC's rules, except as identified on Schedule 3.16(c), which also
identifies which of such operations are classified as "primary" and which
as "secondary" under the FCC's rules.
(d) Except where a lack of compliance would not, or would
not reasonably be expected to, have a Material Adverse Effect, (i) all
reports required by the Communications Act or required to be filed with the
FCC by the Company and its Subsidiaries have been filed and are accurate
and complete in all material respects and (ii) all reports required to be
filed by the Company and its Subsidiaries with all other governmental or
administrative authorities, federal, state and local, have been filed and
are accurate and complete in all material respects.
(e) Except where a lack of compliance would not, or would
not reasonably be expected to, have a Material Adverse Effect, the Company
and its Subsidiaries are in compliance with, and their cellular systems
have been operated in compliance with, the Communications Act and the
rules, regulations, policies and orders of the relevant state public
utilities commissions and the FAA, including, without limitation, the FCC's
time and coverage requirements of 47 C.F.R. Section Section 22.142,
22.911, 22.912 and 22.946 (the "Statutes"). Except as set forth in
Schedule 3.16(e), the Company and its Subsidiaries have not received any
written notice to the effect, or otherwise been advised in writing, that
they are not in compliance with any Statutes and do not have any reason to
anticipate that any presently existing circumstances are reasonably likely
to result in violations of any Statutes.
(f) Without limiting the generality of the foregoing, no
adverse finding has been made, no consent decree entered, no adverse action
has been approved or taken by the FCC or any court or other administrative
body, and to the knowledge of the Company, no admission of liability has
been made with respect to the Company or any of its Subsidiaries or any of
the Company's stockholders or any management employee of the Company or its
Subsidiaries concerning any civil or criminal suit, action or proceeding
brought under the provision of any federal, state, territorial or local law
relating to any of the following: any felony; unlawful restraint of trade
or monopoly; unlawful combination; contract or agreement in restraint of
trade; the use of unfair methods of competition; fraud; unfair labor
practice; or discrimination.
(g) Neither the Company nor any of its Subsidiaries has
engaged in any course of conduct that could reasonably be expected to
impair the ability of Buyer or its subsidiaries to be the holder of the FCC
Licenses or is aware of any reason why the FCC Licenses might not be
renewed in the ordinary course, why any of the FCC Licenses might be
revoked, or why any pending applications or notifications might not be
approved.
Section 3.17. Licenses and Permits; Compliance with Laws.
The Company and its Subsidiaries hold all governmental permits, licenses,
authorizations, consents and approvals (none of which has been modified or
rescinded and all of which are in full force and effect) (collectively,
the "Permits") necessary for the Company and its Subsidiaries to own,
lease, and operate their respective properties and to carry their
respective businesses as now being conducted, except for Permits the
failure of which to obtain would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries are not being conducted in violation of
any applicable law, statute, ordinance, regulation, judgment, Permits,
order, decree, concession, grant or other authorization of any governmental
entity, except for violations that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Section 3.18. Contracts. (a) Except as set forth in
Schedule 3.18, included or incorporated by reference in the SEC Reports
filed prior to the date hereof and the Draft 1997 Form 10-K are all
contracts and documents required to be filed as exhibits thereto
(collectively, together with all contracts and documents that would be
required to be so filed but for the exception with respect to filing
contracts made in the ordinary course of business, the "Contracts").
(b) Except as set forth in Schedule 3.18, each of the
Contracts is valid, in full force and effect, binding upon the Company,
and, to the Company's knowledge, the other parties thereto and enforceable
in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect affecting creditors' rights generally. Neither the Company nor any
Subsidiary is in default under any Contract, nor, to the Company's
knowledge, does any condition exist that, with notice or lapse of time or
both, would constitute such default, excluding in any case such defaults
that individually or in the aggregate would not reasonably be expected to
have a Material Adverse Effect.
(c) The Company does not have any material contractual
arrangements relating to its joint venture with Southwestern Bell in respect
of the Laredo, Texas MSA that is not a Contract.
Section 3.19. Properties; Assets. (a) Except for such
exceptions that do not, or would not reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect, the
Company or one of its Subsidiaries (i) has good and marketable title to all
the properties and assets reflected in the consolidated balance sheet of
the Company dated as of December 31, 1997 as being owned by the Company or
any Subsidiary (except properties sold or otherwise disposed of since the
date thereof in the ordinary course of business), or acquired after the
date thereof, free and clear of all Liens, except (x) statutory liens
securing payments not yet due and (y) such imperfections or irregularities
of title, claims, liens, charges, security interests or encumbrances as do
not materially affect the use of the properties or assets subject thereto
or affected thereby or otherwise materially impair business operations at
such properties and (ii) is the lessee of all leasehold estates and is in
possession of the properties purported to be leased thereunder, and to the
knowledge of the Company, each such lease is valid without default
thereunder by the lessee or lessor.
(b) Except for such exceptions that do not, or would not
reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect, the assets and properties of the Company and its
Subsidiaries, taken as a whole, are in good operating condition and repair
(ordinary wear and tear excepted), and constitute all of the assets and
properties which are required for the businesses and operations of the
Company and its Subsidiaries as presently conducted.
Section 3.20. Environmental Matters. Neither the Company
nor any Subsidiary is in violation of any applicable Environmental Law, and
no condition or event has occurred with respect to the Company or any
Subsidiary, with the giving of notice, lapse of time, or both, would
constitute a violation of any such Environmental Law, excluding in any
event such violations, conditions and events that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect, and neither the Company nor any Subsidiary, nor to the Company's
knowledge any other Person has ever generated, manufactured, refined,
transported, treated, stored, handled, disposed, transferred, produced or
processed any Contaminant in any reportable quantity at, or to the
Company's knowledge in the vicinity of any real property that has been or
is currently owned or leased by the Company or any Subsidiary, other than
any such acts that individually or in the aggregate do not, or would not
reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect. To the Company's knowledge, no other Person has
violated any Environmental Law with respect to the business or assets of
the Company or any Subsidiary, excluding any violations that, individually
or in the aggregate, do not, or would not reasonably be expected to have a
Material Adverse Effect. For purposes of this Section, "Environmental Law"
means any and all applicable federal, state and local statutes, laws,
judicial decisions, regulations, ordinances, rules, judgments, orders,
decrees, codes, injunctions, permits, licenses, agreements and governmental
restrictions relating to the environment, the effect of the environment on
human health or to emissions, discharges or releases of pollutants,
contaminants, petroleum or petroleum products, chemicals or industrial,
toxic, radioactive or hazardous substances or wastes into the environment
including without limitation ambient air, surface water, groundwater, or
land, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, petroleum or petroleum products, chemicals or industrial,
toxic, radioactive or hazardous substances or wastes or the clean-up or
other remediation thereof; and "Contaminant" means any waste, pollutant,
hazardous or toxic substance or waste, petroleum, petroleum-based substance
or waste, special waste, or any constituent of any such substance or waste,
in each of the foregoing cases as defined in or pursuant to any
Environmental Law.
Section 3.21. Related Party Transactions. (a) Except as
set forth in the Company SEC Reports or Schedule 3.21, no beneficial owner
of 5% or more of the Company's outstanding equity securities or officer or
director of the Company or any Person (other than the Company) in which any
such Person owns any beneficial interest (other than a publicly held
corporation whose stock is traded on a national securities exchange or in
the over-the-counter market and less than 1% of the stock of which is
beneficially owned by all such Persons) (collectively, "Related Parties")
has any interest in: (i) any contract, arrangement or understanding with,
or relating to, the business or operations of, the Company or any
Subsidiary, (ii) any loan, arrangement, understanding, agreement or
contract for or relating to indebtedness of the Company or any Subsidiary,
or any property (real, personal or mixed), tangible or intangible, used in
the business or operations of the Company or any Subsidiary; excluding any
such contract, arrangement, understanding or agreement constituting an
Employee Plan or Benefit Arrangement.
(b) Following the Effective Time, except for obligations
set forth herein, neither the Company nor any Subsidiary will have any
obligations of any kind to any Related Party except for (i) accrued salary
for the pay period commencing immediately prior to the Effective Time, (ii)
the obligations set forth in the Company SEC Reports and (iii) contracts
entered into with AT&T in the ordinary course of business.
Section 3.22. Opinion of Financial Advisor. The Directors
of the Company have received the opinions of SBC Warburg Dillon Read and
Gleacher NatWest to the effect that the Merger Consideration is fair from a
financial point of view to the stockholders of the Company (other than
Buyer and its affiliates).
ARTICLE 4
Representations and Warranties of Buyer
Buyer represents and warrants to the Company that:
Section 4.1. Corporate Existence and Power. Buyer is a
corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has all corporate powers
and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except for
such licenses, authorizations, consents and approvals the failure of which
to obtain would not, or would not reasonably be expected to, individually
or in the aggregate, have a material adverse effect on the condition
(financial or otherwise), business, assets or results of operations of
Buyer (a "Buyer Material Adverse Effect"). Since the date of its
incorporation, Buyer has not engaged in any activities other than in
connection with or as contemplated by this Agreement or in connection with
arranging any financing required to consummate the transactions
contemplated hereby.
Section 4.2. Corporate Authorization. The execution,
delivery and performance by Buyer of this Agreement and the consummation by
Buyer of the transactions contemplated hereby are within the corporate
powers of Buyer and have been duly authorized by all necessary corporate
action. This Agreement constitutes a valid and binding agreement of Buyer,
enforceable against it in accordance with its terms except as may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally and
by equitable principles of general applicability.
Section 4.3. Governmental Authorization. The execution,
delivery and performance by Buyer of this Agreement and the consummation by
Buyer of the transactions contemplated by this Agreement require no action
by or in respect of, or filing with, any governmental body, agency,
official or authority other than (a) the filing of a certificate of merger
in accordance with Delaware Law, (b) compliance with any applicable
requirements of the HSR Act, (c) compliance with any applicable
requirements of the Exchange Act and (d) compliance with any applicable
requirements of the Communications Act.
Section 4.4. Non-contravention. The execution, delivery
and performance by Buyer of this Agreement and the consummation by Buyer of
the transactions contemplated hereby do not and will not (a) contravene or
conflict with the certificate of incorporation or bylaws of Buyer, (b)
assuming compliance with the matters referred to in Section 4.3, contravene
or conflict with or constitute a violation of any provision of law,
regulation, judgment, order or decree binding upon Buyer or (c) result in a
breach or violation of or constitute a default under (or an event which
with the giving of notices or the lapse of time or both would constitute a
default under) or give rise to any right of termination, cancellation or
acceleration of any right or obligation of Buyer or to a loss of any
benefit to which it is entitled or require any consent, approval or
authorization under any provision of any material agreement, contract or
other instrument binding upon Buyer or any of its assets, except for such
contraventions, conflicts or violations referred to in clause (b) and
breaches, violations, defaults, rights of termination, cancellation or
acceleration or losses referred to in clause (c) that in the aggregate
would not, or would not reasonably be expected to, have a Buyer Material
Adverse Effect or prevent or delay the consummation of the Merger in any
material respect or otherwise prevent Buyer from performing its obligations
under this Agreement in any material respect or prevent or delay the
consummation of the Merger in any material respect.
Section 4.5. Disclosure Documents. The information with
respect to Buyer that Buyer furnishes to the Company in writing
specifically for use in any Company Disclosure Document will not contain,
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading (i) in the case of
the Company Proxy Statement at the time the Company Proxy Statement or any
amendment or supplement thereto is first mailed to stockholders of the
Company, at the time the stockholders vote on adoption of this Agreement
and at the Effective Time, and (ii) in the case of any Company Disclosure
Document other than the Company Proxy Statement, at the time of the filing
thereof and at the time of any distribution thereof.
Section 4.6. Finders' Fees. There is no investment banker,
broker, finder or other intermediary who might be entitled to any fee or
commission from the Company or any of its affiliates upon consummation of
the transactions contemplated by this Agreement.
Section 4.7. Financing. (a) Buyer has delivered to the
Company copies of (i) a stock purchase agreement (the "Stock Purchase
Agreement") dated March 5, 1998 by and among Buyer and the purchasers
listed on Exhibit A thereto pursuant to which each of the foregoing
purchasers has committed, subject to the terms and conditions set forth
therein, to purchase securities of Buyer for an aggregate amount equal to
$350,000,000, (ii) a bridge loan commitment letter dated March 6, 1998 from
Merrill Lynch Capital Corporation ("MLCC") and Toronto-Dominion (Texas),
Inc. and TD Securities (USA) Inc. (collectively, "TD", and together with
MLCC, the "Initial Lenders") pursuant to which the Initial Lenders have
committed, subject to the terms and conditions set forth therein, to
provide an unsecured senior subordinated bridge loan in the aggregate
principal amount of $200,000,000 (the "Bridge Loan Commitment") and (iii) a
credit facilities commitment letter dated March 6, 1998 from the Initial
Lenders pursuant to which the Initial Lenders have committed, subject to
the terms and conditions set forth therein, to enter into one or more
credit agreements providing for loans to Buyer of up to $1,000,000,000 (the
"Credit Facilities Commitment"). The aforementioned Stock Purchase
Agreement, the Bridge Loan Commitment and the Credit Facilities Commitment
shall be referred to as the "Financing Agreements" and the financing to be
provided thereunder shall be referred to as the "Financing." As of the date
hereof, neither the Stock Purchase Agreement, the Bridge Loan Commitment
nor the Credit Facilities Commitment referred to above has been withdrawn
and Buyer does not know of any facts or circumstances that may reasonably
be expected to result in any of the conditions set forth in the Financing
Agreements not being satisfied.
(b) Upon obtaining the Financing described in paragraph
(a), Buyer will have sufficient funds available to consummate the Merger as
contemplated by this Agreement.
(c) As of the date hereof, Buyer believes that the
Financing will not create any liability to the directors, officers or
stockholders of the Company under any federal or state fraudulent
conveyance or transfer law. As of the date hereof, Buyer further believes
that immediately after consummation of the transactions contemplated
hereby, including, without limitation, the Financing, the Surviving
Corporation (i) will not become insolvent, (ii) will not be left with
unreasonably small capital, (iii) will not have incurred debts beyond its
ability to pay such debts as they mature, and (iv) the capital of the
Company will not become impaired.
Section 4.8. Qualification of Buyer. Buyer is and at the
Effective Time will be legally, technically and otherwise qualified under
the Communications Act and all rules, regulations and policies of the FCC
to acquire, own and operate the assets and business of the Company and its
Subsidiaries. There are no facts or proceedings which would reasonably be
expected to disqualify Buyer under the Communications Act or otherwise from
acquiring or operating any of the assets and business of the Company and
its Subsidiaries or would cause the FCC not to approve the FCC Application
(as defined in Section 7.5(a)). Buyer has no knowledge of any fact or
circumstance relating to Buyer or any of its affiliates that would be
reasonably be expected to (a) cause the filing of any objection to the FCC
Application or (b) lead to a delay in the processing by the FCC of the FCC
Application. No waiver of any FCC rule or policy is necessary to be
obtained for the approval of the FCC Application, nor will processing
pursuant to any exception or rule of general applicability be requested or
required in connection with the consummation of the transaction herein.
Section 4.9. Capitalization. Within 20 days after the date
hereof, the shareholders of Buyer will have contributed $25,000,000 in
equity capital to Buyer. Buyer agrees that its paid in equity capital will
not be less than such amount until after the later of: (i) the tenth day
after this Agreement is terminated pursuant to Section 9.1 and (ii) the
date on which any disputes between the parties hereto arising out of or
relating to this Agreement and the transactions contemplated hereby have
been resolved. Buyer agrees not to pay any fees to any of its affiliates
prior to the Effective Time.
ARTICLE 5
Covenants of the Company
The Company agrees that:
Section 5.1. Conduct of the Company. (a) From the date
hereof until the Effective Time, except pursuant to existing obligations
disclosed in the Schedules to this Agreement or in the Company SEC Reports,
or except as contemplated by this Agreement, (A) the Company and its
Subsidiaries shall conduct their business in the ordinary course consistent
with past practice and shall use their best efforts to preserve intact
their business organizations and relationships with third parties, to
maintain their rights and franchises, to keep available the services of
their present officers and employees and to maintain and keep their
properties and assets in as good repair and condition as at present,
ordinary wear and tear excepted and (B) without limiting the generality of
the foregoing, without the written consent of Buyer (which consent will not
be unreasonably withheld or delayed):
(i) the Company will not adopt or propose any change in
its certificate of incorporation or bylaws;
(ii) the Company will not, and will not permit any
Subsidiary of the Company to, merge or consolidate with any
other Person or acquire a material amount of assets or
business of any other Person or make any capital
expenditures other than as contemplated by the Company's
1998 Budget previously delivered to Buyer;
(iii) the Company will not, and will not permit any
Subsidiary of the Company to, sell, lease, license or
otherwise dispose of any assets or property except (x)
pursuant to existing contracts or commitments and (y) in the
ordinary course consistent with past practice;
(iv) the Company will not, and will not permit any
Subsidiary of the Company to (x) take or agree or commit to
take any action that would make any representation and
warranty of the Company hereunder inaccurate in any respect
at, or as of any time prior to, the Effective Time or (y)
omit or agree or commit to omit to take any action necessary
to prevent any such representation or warranty from being
inaccurate in any respect at any such time; or
(v) the Company will not, and will not permit any
Subsidiary of the Company to, agree or commit to do any of
the foregoing.
(b) Between the date hereof and the Effective Time, the
Company will allocate and make available four million dollars in cash
($4,000,000) (the "Employee Funds") from its cash reserves for
distribution to officers and employees of the Company (excluding the
President of the Company). The Employee Funds will be distributed at the
Effective Time to such officers and employees of the Company (excluding the
President of the Company) and in such amounts and at such times as shall be
determined in the sole discretion of the President of the Company.
Section 5.2. Stockholder Meeting; Proxy Material. (a)
The Company shall cause a meeting of its stockholders (the "Company
Stockholder Meeting") to be duly called and held as soon as reasonably
practicable for the purpose of voting on the approval and adoption of this
Agreement and the Merger. The Directors of the Company shall, subject to
their fiduciary duties as advised by counsel, recommend approval and
adoption of this Agreement and the Merger by the Company's stockholders.
In connection with such meeting, the Company will (i) promptly prepare and
file with the SEC, will use its best efforts to have cleared by the SEC and
will thereafter mail to its stockholders as promptly as practicable the
Company Proxy Statement and all other proxy materials for such meeting,
(ii) use its best efforts to obtain the necessary approvals by its
stockholders of this Agreement and the transactions contemplated hereby
unless otherwise required by applicable fiduciary duties of the directors
of the Company, as determined by such directors in good faith after
consultation with counsel and (iii) otherwise comply with all legal
requirements applicable to such meeting. Buyer shall have the right to
review the Company Proxy Statement and other proxy materials before filing
with the SEC.
(b) Without limiting the generality of the foregoing, the
Company and Buyer shall each notify the other as promptly as practicable
(i) upon becoming aware of any event or circumstance which should be
described in an amendment of, or supplement to, the Company Proxy Statement
and (ii) after the receipt by it of any written or oral comments of the SEC
on, or of any written request by the SEC for amendments or supplements to,
the Company Proxy Statement, and shall promptly supply the other with
copies of all correspondence between it or any of its representatives and
the SEC with respect to any of the foregoing filings.
Section 5.3. Access to Information. (a) From the date
hereof until the Effective Time, the Company will (i) give Buyer, its
counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties,
books and records of the Company and its Subsidiaries as such Persons may
reasonably request, and furnish such persons with such financial and
operating data and other information as such Persons may reasonably request
and (ii) instruct the Company's employees, counsel and financial advisors
to cooperate with Buyer in its investigation of the business of the Company
and its Subsidiaries; provided that no investigation pursuant to this
Section shall affect any representation or warranty given by the Company to
Buyer hereunder. The foregoing information shall be held in confidence to
the extent required by, and in accordance with, the provisions of the
letter agreement dated December 5, 1997 between Donaldson, Lufkin &
Jenrette Securities Corporation and Spectrum Equity Investors (the
"Confidentiality Agreement").
(b) The Company will not waive or fail to enforce any
provision of any confidentiality or standstill or similar agreement to
which it is a party without the prior written consent of Buyer.
Section 5.4. Other Offers. (a) From the date hereof until
the termination hereof, the Company and its Subsidiaries and their
respective officers, directors, employees, representatives (including any
investment banker, attorney or accountant) and other agents will not,
directly or indirectly, (i) take any action to solicit, initiate or
encourage any Acquisition Proposal or (ii) subject to the fiduciary duties
of the Board of Directors under applicable law as advised by Davis Polk &
Wardwell, counsel to the Company, engage in discussions or negotiations
with, or disclose any nonpublic information relating to the Company or any
Subsidiary or afford access to the properties, books or records of the
Company or any Subsidiary to, any Person that may be considering making, or
has made, an Acquisition Proposal. The Company will promptly notify Buyer
after receipt of any Acquisition Proposal or any indication that any Person
is considering making an Acquisition Proposal or any request for nonpublic
information relating to the Company or any Subsidiary or for access to the
properties, books or records of the Company or any Subsidiary by any Person
that may be considering making, or has made, an Acquisition Proposal, which
notification shall include the identity of the offeror and the terms and
conditions of any Acquisition Proposal (but only to the extent the Board of
Directors of the Company may disclose such information without breaching
its fiduciary duties as advised by counsel and as determined in good faith
and without violating any of the conditions of such Acquisition Proposal),
and will keep Buyer fully informed (subject to such fiduciary duties) on a
current basis of the status and details of any such Acquisition Proposal,
indication or request.
(b) For purposes of this Agreement, "Acquisition Proposal"
means any offer or proposal for, or any indication of interest in, a merger
or other business combination involving the Company or any Subsidiary or
the direct or indirect acquisition of any equity interest in, or a
substantial portion of the assets of, the Company or any Subsidiary, other
than the transactions contemplated by this Agreement, or a tender offer or
exchange offer for at least 20% of the outstanding Shares or any other
extraordinary transaction the consummation of which would or could
reasonably be expected to impede, interfere with, prevent or materially
delay the Merger.
Section 5.5. Notices of Certain Events. The Company shall
promptly notify Buyer of:
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be
required in connection with the transactions contemplated by
this Agreement;
(b) any notice or other communication from any
governmental or regulatory agency or authority in connection
with the transactions contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or
proceedings commenced or, to the best of its knowledge
threatened against, relating to or involving or otherwise
affecting the Company or any Subsidiary which, if pending on
the date of this Agreement, would have been required to have
been disclosed pursuant to Section 3.12 or which relate to
the consummation of the transactions contemplated by this
Agreement.
Section 5.6. Solvency Advice. The Company shall request
Valuation Research or Houlihan Lokey to deliver the advice contemplated by
Section 8.03(d) as promptly as practicable.
ARTICLE 6
Covenants of Buyer
Buyer agrees that:
Section 6.1. Confidentiality. Buyer acknowledges and
agrees that all information received from or on behalf of the Company or
any of the Company's Subsidiaries in connection with the Merger shall be
deemed received pursuant to the Confidentiality Agreement and Buyer shall,
and shall cause Buyer's affiliates and Representatives (each as defined
therein), to comply with the provisions of the Confidentiality Agreement
with respect to such information and the provisions of the Confidentiality
Agreement are hereby incorporated herein by reference with the same effect
as if fully set forth herein.
Section 6.2. Voting of Shares. Buyer agrees to vote all
Shares beneficially owned by it in favor of adoption of this Agreement at
the Company Stockholder Meeting.
Section 6.3. Indemnification; Directors' and Officers'
Insurance. (a) The certificate of incorporation and bylaws of the
Surviving Corporation shall contain the provisions with respect to
indemnification set forth in the certificate of incorporation and bylaws of
the Company on the date of this Agreement, which provisions shall not be
amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights
thereunder of persons who at any time prior to the Effective Time were
identified as prospective indemnified parties under the certificate of
incorporation or bylaws of the Company in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation,
the transactions contemplated by this Agreement), unless such modification
is required by applicable law.
(b) From and after the Effective Time, the Surviving
Corporation shall indemnify, defend and hold harmless the present and
former officers, directors and employees of the Company and the
Subsidiaries (collectively, the "Indemnified Parties") against all losses,
expenses (including reasonable fees and expenses of counsel), claims,
damages, liabilities or amounts that are paid in settlement of, with the
approval of Buyer and the Surviving Corporation (which approval shall not
be unreasonably withheld), or otherwise in connection with, any claim,
action, suit, proceeding or investigation (a "Claim"), based in whole or in
part on, or arising in whole or in part out of, any actions or omissions
occurring at or prior to the Effective Time (including, without limitation,
the transactions and financing contemplated by this Agreement), in each
case to the fullest extent permitted under Delaware Law (and shall pay
expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under
Delaware Law, upon receipt from the Indemnified Party to whom expenses are
advanced of the undertaking to repay such advances contemplated by Section
145(e) of Delaware Law).
(c) Without limiting the foregoing, in the event any Claim
is brought against any Indemnified Party (whether arising before or after
the Effective Time) after the Effective Time, (i) the Indemnified Parties
may retain its regularly engaged independent legal counsel as of the date
of this Agreement, or other independent legal counsel satisfactory to them
and reasonably acceptable to Buyer, (ii) the Surviving Corporation shall
pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received and (iii) the
Surviving Corporation will use its reasonable efforts to assist in the
vigorous defense of any such matter, provided that the Surviving
Corporation shall not be liable for any settlement of any Claim effected
without its written consent, which consent shall not be unreasonably
withheld. Any Indemnified Party wishing to claim indemnification under
this Section 6.3, promptly upon learning of any such Claim, shall notify
the Surviving Corporation (although the failure so to notify the Surviving
Corporation shall not relieve the Surviving Corporation from any liability
which the Surviving Corporation may have under this Section 6.3, except to
the extent such failure materially prejudices the Surviving Corporation),
and shall deliver to the Surviving Corporation the undertaking contemplated
by Section 145(e) of Delaware Law. The Indemnified Parties as a group may
retain one law firm (in addition to local counsel) to represent them with
respect to each such matter unless there is, under applicable standards of
professional conduct (as reasonably determined by counsel to such
Indemnified Parties) a conflict on any significant issue between the
position of any two or more of such Indemnified Parties, in which event, an
additional counsel as may be required may be retained by such Indemnified
Parties.
(d) Buyer shall cause to be maintained in effect for not
less than six years after the Effective Time the current policies of
directors' and officers' liability insurance and fiduciary liability
insurance maintained by the Company with respect to matters occurring prior
to the Effective Time, provided that (i) Buyer may substitute therefor
policies with reputable and financially sound carriers having at least the
same coverage and amounts thereof and containing terms and conditions which
are no less advantageous to the Indemnified Parties and (ii) Buyer shall
not be required to pay an annual premium for such insurance in excess of
three hundred percent of the last annual premium paid prior to the date of
this Agreement, but in such case shall purchase as much coverage as
possible for such amount.
(e) This Section 6.3 is intended to be for the benefit of,
and shall be enforceable by, the Indemnified Parties referred to herein,
their heirs and personal representatives and shall be binding on Buyer and
the Surviving Corporation and their respective successors and assigns.
Section 6.4. Name Change. On or about the Closing Date,
Buyer agrees to take such action as is necessary to cause the Surviving
Corporation and its Affiliates to change their respective names to names
that do not include, and are not identical or confusingly similar to, the
name "Price" or "PriCellular."
Section 6.5. High Yield Financing. As promptly as
practicable following the date hereof, Buyer shall use its commercially
reasonable efforts to raise gross cash proceeds of $200 million from an
offering of its unsecured senior subordinated debt securities (the "High
Yield Financing") upon such terms and conditions as may be specified by the
Initial Lenders pursuant to the Financing Agreements. Buyer agrees that it
shall not amend (other than to extend the termination date thereof), waive,
discharge or terminate any material provision of any of the Financing
Agreements without the prior written consent of the Company, which consent
shall not be unreasonably withheld or delayed. In the event that any
portion of such Financing becomes unavailable, regardless of the reason
therefor, Buyer will use its commercially reasonable efforts to obtain
alternative financing on substantially comparable or more favorable terms
from other sources.
Section 6.6. Equity Financing. Promptly after entering
into this Agreement, Buyer shall deliver to each of the purchasers party to
the Stock Purchase Agreement, in accordance with the procedures set forth
therein, the "Initial Funding Notice" referred to therein, which notice
shall not be withdrawn. If Buyer shall not have received $25 million of
equity capital within 20 days after the date hereof, upon the request of
the Company, Buyer shall use its commercially reasonable efforts to seek
specific enforcement and such other legal remedies as may be available to
enforce the respective commitments of its investors, as set forth in the
Stock Purchase Agreement, to fund such $25 million.
ARTICLE 7
Covenants of Buyer and the Company
The parties hereto agree that:
Section 7.1. Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each party will use its best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate the transactions
contemplated by this Agreement as promptly as practicable, including,
without limitation, using its best efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders required to
be obtained (i) from any governmental body, agency or official under
applicable laws and regulations, and (ii) pursuant to contracts to which
the Company or Buyer is a party. From the date hereof until the Closing
Date, each party shall execute and file or join in the execution and filing
of any applications or other documents (in form reasonably satisfactory to
the other party) that may reasonably be necessary in order to obtain the
authorizations, approvals or consents of the FCC and each other
governmental body or third party that may be required or that each party
may reasonably request of the other in connection with the consummation of
the transactions contemplated by this Agreement. Each party agrees that it
will give the other party notice if it becomes aware of an occurrence or
nonoccurrence that would result in such party not being able to deliver the
certificate required by Section 8.02(a) or 8.03(a), as applicable.
(b) The Company agrees to provide such cooperation as is
reasonably requested by Buyer in connection with the arrangement of the
debt financing to be consummated in connection with this Agreement,
including making Company personnel available to participate in drafting
sessions for offering memoranda and due diligence sessions. The Company
will also provide assistance in connection with the preparation of
customary closing documentation for such debt financing, provided that the
Company will have no obligation to provide such cooperation to the extent
it reasonably could result in a potential personal liability to an officer,
director or employee of the Company. Subject to Section 10.04, any out of
pocket expenses incurred by the Company in connection with such assistance
will be reimbursed by Buyer if the Closing does not occur.
(c) The Company shall, and shall cause Wireless to, provide
such cooperation as is reasonably requested by Buyer in connection with
Buyer's consummation of the tender offers for the debt securities issued by
Wireless or the Company in connection with the arrangement of debt
financing for the transactions contemplated by this Agreement, including
without limitation, making Company and Wireless personnel available to
participate in the preparation of tender offer documents and ancillary
documents, executing supplemental indentures, providing assistance in
connection with arranging for the delivery of customary legal opinions and
preparation of other customary closing documentation, provided that the
Company and Wireless will have no obligation to make any payments in
connection therewith; provided further that the Company and Wireless will
have no obligation to provide such cooperation to the extent it reasonably
could result in a potential liability to an officer, director or employee
of the Company or Wireless. Subject to Section 10.04, any out of pocket
expenses incurred by the Company or Wireless in connection with such
assistance will be reimbursed by Buyer if the Closing does not occur.
(d) Buyer agrees that upon satisfaction of (i) the
conditions set forth in Article 8 of this Agreement (other than the
Financing Condition) and (ii) the conditions precedent to any extension of
credit under the financing agreements relating to the Bridge Loan
Commitment and the Credit Facilities Commitment, other than those
conditions which are within Buyer's control to cause to be satisfied at
such time, it shall promptly, but in no event later than the second
business day after satisfaction of the conditions referred to in clause (i)
and (ii) above, borrow such amounts under the Financing Agreements as are
required for Buyer to consummate the Merger and all transactions
contemplated by this Agreement.
Section 7.2. Certain Filings. The Company and Buyer shall
cooperate with one another (a) in connection with the preparation of the
Company Disclosure Documents, and (b) in determining whether any action by
or in respect of, or filing with, any governmental body, agency or
official, or authority is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any material contracts,
in connection with the consummation of the transactions contemplated by
this Agreement and (c) in seeking any such actions, consents, approvals or
waivers or making any such filings, furnishing information required in
connection therewith or with the Company Disclosure Documents and seeking
timely to obtain any such actions, consents, approvals or waivers.
Section 7.3. Public Announcements. Buyer and the Company
will consult with each other before issuing any press release or making any
public statement with respect to this Agreement and the transactions
contemplated hereby and, except as may be required by applicable law or any
listing agreement with any national securities exchange, will not issue any
such press release or make any such public statement prior to such
consultation.
Section 7.4. Further Assurances. At and after the
Effective Time, the officers and directors of the Surviving Corporation
will be authorized to execute and deliver, in the name and on behalf of the
Company or Buyer, any deeds, bills of sale, assignments or assurances and
to take and do, in the name and on behalf of the Company or Buyer, any
other actions and things to vest, perfect or confirm of record or otherwise
in the Surviving Corporation any and all right, title and interest in, to
and under any of the rights, properties or assets of the Company acquired
or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
Section 7.5. FCC Application. (a) As promptly as
practicable after the execution and delivery of this Agreement, Buyer and
the Company shall prepare all appropriate applications for FCC consent, and
such other documents as may be required, with respect to the transfer of
control of the Company to Buyer (collectively, the "FCC Application"). Not
later than the fifth business day following execution and delivery of this
Agreement, the Company shall deliver to Buyer its completed portion of the
FCC Application. Not later than the tenth business day following the
execution and delivery of this Agreement, Buyer shall file, or cause to be
filed, the FCC Application. Buyer and the Company shall prosecute the FCC
Application in good faith and with due diligence in order to obtain such
FCC consent as expeditiously as practicable. If the Closing shall not have
occurred for any reason within the initial effective period of the granting
of approval by the FCC of the FCC Application, and neither Buyer nor the
Company shall have terminated this Agreement pursuant to Section 9.1, Buyer
and the Company shall jointly request one or more extensions of the
effective period of such grant. No party hereto shall knowingly take, or
fail to take, any action the intent or reasonably anticipated consequence
of which action or failure to act would be to cause the FCC not to grant
approval of the FCC Application or delay either such approval or the
consummation of the transfer of control of the Company.
(b) Buyer and the Company shall each pay one-half (1/2) of
any FCC fees that may be payable in connection with the filing or granting
of approval of the FCC Application. Buyer and the Company shall each
oppose any request for reconsideration or judicial review of the granting
of approval of the FCC Application.
Section 7.6. HSR Act Matters. Promptly after the date
hereof, Buyer and the Company (as may be required pursuant to the HSR Act)
will complete all documents required to be filed with the Federal Trade
Commission and the United States Department of Justice in order to comply
with the HSR Act and, not later than 15 days after the date hereof,
together with the persons who are required to join in such filings, shall
file the same with the appropriate governmental agencies. Buyer and the
Company shall promptly furnish all materials thereafter required by any of
the governmental agencies having jurisdiction over such filings, and shall
take all reasonable actions and shall file and use best efforts to have
declared effective or approved all documents and notifications with any
such governmental agencies, as may be required under the HSR Act or other
Federal antitrust laws for the consummation of the Merger and the other
transaction contemplated hereby.
Section 7.7. Warrants; Convertible Notes. (a) Prior to
the Effective Time, the Company and Buyer will deliver to the holder of the
Warrants the written instrument required to be delivered pursuant to
Section 1.3(c) of the Warrant Agreement. After the Effective Time, at the
request of the holder of the Warrants, the Company will exchange the
Warrants for an amount in cash equal to the product of (i) the number of
Class B Shares into which the Warrants to be exchanged are exercisable and
(ii) the difference between the Merger Consideration and the Exercise Price
on the day the holder of the Warrants requests an exchange pursuant to this
Section 7.7.
(b) Prior to the Effective Time, the Company and Buyer will
execute and deliver to the Bank of Montreal Trust Company (the "Trustee")
the supplemental indenture (and any necessary officer's certificates)
relating to the Convertible Discount Notes as required by Section 13.06 of
that Indenture dated as of August 21, 1995 between the Company and the
Trustee. In addition, prior to the Effective Time, the Company and Buyer
will mail to each holder of the Convertible Discount Notes a notice of the
execution of such supplemental indenture.
ARTICLE 8
Conditions to the Merger
Section 8.1. Conditions to the Obligations of Each Party. The
obligations of the Company and Buyer to consummate the Merger are subject to
the satisfaction of the following conditions:
(a) this Agreement and the transactions contemplated
hereby shall have been approved and adopted by the
stockholders of the Company in accordance with Delaware Law;
(b) any applicable waiting period under the HSR Act
relating to the Merger shall have expired;
(c) no provision of any applicable law or regulation
and no judgment, injunction, order or decree shall prohibit
the consummation of the Merger or any other transactions
pursuant to this Agreement;
(d) all consents, waivers, approvals, authorizations or
permits by or from, and all actions by or in respect of or
filings with any governmental body, agency, official, or
authority required to permit the execution, delivery and
performance of this Agreement, and the consummation of the
Merger and the other transactions contemplated by this
Agreement, including, without limitation, the FCC Transfer
Approvals referred to below, shall have been obtained; and
(e) except as set forth below, all consents, waivers,
approvals and authorizations (the "FCC Transfer Approvals")
required to be obtained from, and all filings or notices
required to be made by Buyer and the Company prior to
consummation of the transactions contemplated in this
Agreement shall have been obtained from or made with, the
FCC, and each of the FCC Transfer Approvals shall have
become a Final Order.
For purposes of this Agreement, "Final Order" shall mean an action by the
FCC: (i) that is not reversed, stayed, enjoined, set aside, annulled or
suspended within the deadline, if any, provided by applicable statute or
regulation, (ii) with respect to which no request for stay, motion or
petition for reconsideration or rehearing, application or request for
review, or notice of appeal or other judicial petition for review that is
filed within such period is pending and (iii) as to which the deadlines, if
any, for filing any such request, motion, petition, application, appeal or
notice, and for the entry of orders staying, reconsidering or reviewing on
the FCC's own motion have expired. Notwithstanding anything to the
contrary contained herein or otherwise: (x) Buyer may, at its option by
written notice to the Company, waive on behalf of all the parties the
requirement that each of the FCC Transfer Approvals shall have become a
Final Order and (y) in the case of the required FCC Transfer Approvals of
the transfer of the microwave licenses only, Buyer shall, on behalf of all
the parties, deem either initial FCC approvals or special temporary
authority to transfer the microwave licenses to satisfy this condition and
in such case upon receipt of either the initial FCC approvals or special
temporary authority each party shall be obligated hereunder as though a
Final Order had been received.
Section 8.2. Conditions to the Obligations of Buyer. The
obligations of Buyer to consummate the Merger are subject to the satisfaction
of the following further conditions:
(a) the Company shall have performed in all material
respects all of its obligations hereunder required to be
performed by it at or prior to the Effective Time, the
representations and warranties of the Company contained in
this Agreement and in any certificate or other writing
delivered by the Company pursuant hereto shall be true in
all material respects at and as of the Effective Time
(provided that any representation or warranty contained
herein that is qualified by a materiality standard shall not
be further qualified hereby) as if made at and as of such
time (except that those representations and warranties made
as of a specified date shall be true in all material
respects as of such date) and Buyer shall have received a
certificate signed by an executive officer of the Company to
the foregoing effect;
(b) no court, arbitrator or governmental body, agency
or official shall have issued any order, and there shall not
be any statute, rule or regulation, restraining or
prohibiting the consummation of the Merger or the effective
operation of the business of the Company and its
Subsidiaries after the Effective Time;
(c) Buyer shall have received all documents it may
reasonably request relating to the existence of the Company
and its Subsidiaries and the authority of the Company for
this Agreement, all in form and substance reasonably
satisfactory to Buyer;
(d) Buyer shall have obtained the debt financing set
forth in the Financing Agreements on the terms set forth
therein, unless the failure to obtain such financing was the
result of a willful failure by Buyer to perform any covenant
or condition contained therein or the inaccuracy of any
representation or warranty arising out of the bad faith or
willful misconduct of Buyer (the "Financing Condition");
(e) Since the date of this Agreement, there shall not
have occurred any change, event, occurrence, development or
circumstance which, individually or in the aggregate, has
had, or would reasonably be expected to have, a Material
Adverse Effect; and
(f) The AT&T consent and waiver agreement shall be in
full force and effect in accordance with its terms.
Section 8.3. Conditions to the Obligations of the Company.
The obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) Buyer shall have performed in all material
respects all of its obligations hereunder required to be
performed by it at or prior to the Effective Time, the
representations and warranties of Buyer contained in this
Agreement and any certificate or other writing delivered by
Buyer pursuant hereto shall be true in all material respects
at and as of the Effective Time as if made at and as of such
time (except that those representations and warranties made
as of a specified date shall be true in all material
respects as of such date) and the Company shall have
received a certificate signed by an executive officer of
each of Buyer to the foregoing effect;
(b) the Company shall have received all documents it
may reasonably request relating to the existence of Buyer
and the authority of Buyer for this Agreement, all in form
and substance reasonably satisfactory to the Company;
(c) Buyer shall have entered into a consulting
agreement with the President of the Company in form and
substance reasonably satisfactory to the President and
Buyer; and
(d) The Board of Directors of the Company shall have
received advice, reasonably satisfactory to the Board, from
an independent advisor confirming the belief of Buyer set
forth in Section 4.07(c).
ARTICLE 9
Termination
Section 9.1. Termination. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the stockholders of the
Company):
(a) by mutual written consent of the Company and Buyer;
(b) by either the Company or Buyer if the Merger has
not been consummated by the earliest to occur of (i) the
termination of the Bridge Loan Commitment or the Credit
Agreement Commitment if the High Yield Financing shall not
have been consummated prior thereto, (ii) if the High Yield
Financing shall have been consummated, the proceeds thereof
ceasing to be held in escrow and (iii) March 6, 1999;
(c) by either the Company or Buyer, if there shall be
any law or regulation that makes consummation of the Merger
illegal or otherwise prohibited or if any judgment,
injunction, order or decree enjoining Buyer or the Company
from consummating the Merger is entered and such judgment,
injunction, order or decree shall become final and
nonappealable;
(d) by the Company, upon payment to Buyer of the
amounts referred to in Section 10.4(b), if prior to or after
the Company Stockholder Meeting, the Directors of the
Company, in good faith based upon the advice of independent
legal counsel, shall have withdrawn or modified in a manner
adverse to Buyer their approval or recommendation of this
Agreement, or shall have resolved to do so, in order to
permit the Company to execute a definitive agreement in
connection with an Acquisition Proposal, provided that the
Company has complied with its obligations in Section 5.4;
(e) by Buyer upon the occurrence of any Trigger Event;
(f) by the Company or Buyer if the approval of the
stockholders of the Company required for the consummation of
the Merger shall not have been obtained at a duly held
meeting of shareholders to vote on the Merger, or any
adjournment thereof;
(g) by Buyer or the Company upon a material breach on
the part of the other of any covenant or agreement herein or
if any representation or warranty of the other party shall
not be true in any material respect (provided that any
representation or warranty that is qualified by a
materiality standard shall not be further qualified hereby)
and, if such breach is capable of being cured, shall not
have been cured within 20 business days following receipt by
the breaching party of written notice of such breach from
the other party; or
(h) by the Company if equity capital in an amount equal
to at least $25 million shall not have been contributed to
Buyer within 30 days after the date of this Agreement as
contemplated by Section 4.9.
The party desiring to terminate this Agreement pursuant to
this Section 9.1 shall give written notice of such termination to the other
party in accordance with Section 10.1.
Section 9.2. Effect of Termination. If this Agreement is
terminated pursuant to Section 9.1, this Agreement shall become void and of
no effect with no liability on the part of any party hereto, except that
the agreements contained in Sections 6.1 and 10.4 shall survive the
termination hereof, and except that nothing herein shall relieve any party
from liability for any breach hereof.
ARTICLE 10
Miscellaneous
Section 10.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including
telecopy or similar writing) and shall be given,
if to Buyer, to:
American Cellular Corporation
c/o Spectrum Equity Investors
245 Lytton Avenue, Suite 175
Palo Alto, California 94301
Attn: Brion Applegate
Telecopy: (415) 464-4601
with a copy to:
Scott R. Haber, Esq.
Latham & Watkins
505 Montgomery Street
Suite 1900
San Francisco, California 94111
Telecopy: (415) 395-8095
if to the Company, to:
PriCellular Corporation
711 Westchester Avenue
White Plains, NY 10604
Telecopy: (914) 422-3939
with a copy to:
Dennis Hersch, Esq.
John Buttrick, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
or such other address or telecopy number as such party may hereafter
specify for the purpose by notice to the other parties hereto. Each such
notice, request or other communication shall be effective (a) if given by
telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section and the appropriate telecopy confirmation is
received or (b) if given by any other means, when delivered at the address
specified in this Section.
Section 10.2. Survival of Representations and Warranties
and Agreements. The representations and warranties and agreements
contained herein and in any certificate or other writing delivered pursuant
hereto shall not survive the Effective Time except for the agreements set
forth in Article 1, Sections 6.3, 7.4 and 7.7, which shall survive the
Effective Time, and Section 10.4, which shall survive the termination of
this Agreement.
Section 10.3. Amendments; No Waivers. (a) Any provision
of this Agreement may be amended or waived prior to the Effective Time if,
and only if, such amendment or waiver is in writing and signed, in the case
of an amendment, by the Company and Buyer, or in the case of a waiver, by
the party against whom the waiver is to be effective; provided that after
the adoption of this Agreement by the stockholders of the Company, no such
amendment or waiver shall, without the further approval of such
stockholders, alter or change (i) the amount or kind of consideration to be
received in exchange for any shares of capital stock of the Company or (ii)
any of the terms or conditions of this Agreement if such alteration or
change would adversely affect the holders of any shares of capital stock of
the Company.
(b) No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
Section 10.4. Expenses. (a) Except as otherwise provided
in this Section, all costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
(b) In order to induce Buyer to enter into this Agreement,
the Company agrees to pay Buyer a fee in immediately available funds equal
to $24,000,000 (unless a Trigger Event occurs after May 15, 1998 and at
such time the Buyer shall not have either (i) consummated the High Yield
Financing, the proceeds of which shall continue to be held in escrow or
(ii) obtained the irrevocable waiver by the Initial Lenders of the
conditions set forth in Sections 3(c), Section 4 (paragraph 2) and in the
attached term sheet under the caption entitled "Conditions to Effectivness
and to Interim Loan" the references to the accuracy of representations and
warranties of Target in the first paragraph thereof and subparagraphs (l)
and (r) of the Bridge Loan Commitment in which case, $19,000,000) promptly,
but in no event later than three business days, after the termination of
this Agreement as a result of the occurrence of any of the events set forth
below (a "Trigger Event"):
(i) the Company shall have entered into a definitive
agreement with respect to any Acquisition Proposal;
(ii) any Person or group (as defined in Section 13(d)(3)
of the Exchange Act) (other than Buyer or any of its
affiliates or any shareholders of the Company that have
executed voting agreements with Buyer) shall have become the
beneficial owner (as defined in Rule 13d-3 promulgated under
the Exchange Act) of outstanding Shares representing at
least 50.1% of the total voting power of the Company or
shall have acquired, directly or indirectly, at least 50.1%
of the assets of the Company;
(iii) the Board of Directors of the Company shall have
withdrawn or materially modified its approval or
recommendation of the Merger or shall have resolved to do
so;
(iv) the Board of Directors of the Company shall have
recommended an Acquisition Proposal to the stockholders of
the Company; or
(v) the approval of the stockholders of the Company
required for the consummation of the Merger shall not have
been obtained at a duly held meeting of the stockholders to
vote on the Merger, or any adjournment thereof.
(c) If this Agreement is terminated by the Company pursuant
to Section 9.1(d) or (f) or by Buyer pursuant to Section 9.01(e), (f) or
(g), the Company agrees to reimburse Buyer (i) for all out-of-pocket
expenses reasonably incurred in connection with this Agreement of up to
$8,000,000 plus (ii) if Buyer shall have consummated the High Yield
Financing for all out-of-pocket expenses reasonably incurred in connection
with the High Yield Financing, including interest, underwriting discounts,
debt tender payments and fees, expenses and other costs of consummating and
unwinding the High Yield Financing of up to $27,000,000.
Section 10.5. Successors and Assigns. The provisions of
this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, provided that
no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of the other parties
hereto.
Section 10.6. Governing Law. This Agreement shall be
construed in accordance with and governed by the law of the State of
Delaware.
Section 10.7. Counterparts; Effectiveness. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each
party hereto shall have received counterparts hereof signed by all of the
other parties hereto.
Section 10.8. Entire Agreement; No Third-party
Beneficiaries. This Agreement and the other agreements referred to herein
or executed contemporaneously herewith constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement.
This Agreement, other than as provided in Section 6.3, is not intended to
confer upon any Person other than the parties any rights or remedies.
Section 10.9. Extension; Waiver. At any time prior to the
Effective Time, any party hereto may with respect to any other party hereto
(a) extend the time for the performance of any of the obligations or other
acts, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (c)
subject to Section 10.3, waive compliance with any of the agreements or
conditions (other than Section 8.1(a)). No failure or delay on the part of
any party hereto in the exercise of any rights hereunder shall impair such
right or be construed to be a waiver of, or acquiescence in, any breach of
any representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
Section 10.10. Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 10.11. Severability. In the event that any one or
more of the provisions contained in this Agreement or in any other
instrument referred to herein, shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
Section 10.12. WAIVER OF JURY TRIAL. EACH OF THE COMPANY
AND BUYER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.
PRICELLULAR CORPORATION
By: /s/ Steven Price
-----------------------------------------
Name: Steven Price
Title: President, Chief Executive Officer
AMERICAN CELLULAR CORPORATION
By: /s/ Brion Applegate
-----------------------------------------
Name: Brion Applegate
Title: Chairman, Chief Executive Officer
APPENDIX B
VOTING AGREEMENT
AGREEMENT dated as of March 6,1998 among AMERICAN CELLULAR
CORPORATION, a Delaware corporation ("Buyer"), PRICELLULAR CORPORATION, a
Delaware corporation (the "Company") and the SHAREHOLDERS executing a
counterpart of this Agreement (collectively, the "Shareholders").
WHEREAS, the Shareholders are each beneficial owners of Class A
Common Stock, par value $.01 per share ("Class A Common Stock"), Class B Common
Stock, par value $.01 per share ("Class B Common Stock"), or Series A Cumulative
Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred"), of the Company (collectively, the "Securities"), as listed on
Schedule I hereto;
WHEREAS, the Shareholders are each parties to one or more stockholder
agreements and voting agreements with each other and/or the Company in their
capacity as shareholders of the Company (collectively, and together with any
amendments thereto, the "Prior Shareholder Agreements"), including, without
limitation, the Voting Agreement dated as of December 28, 1995 by and among the
Company and the other parties thereto (as amended, the "Voting Agreement");
WHEREAS, in connection with Buyer entering into an Agreement and Plan
of Merger, dated as of the date hereof (the "Merger Agreement"), with the
Company, which provides for the merger (the "Merger") of Buyer with and into the
Company, Buyer has requested each Shareholder, and each Shareholder has agreed,
to enter into this Agreement with respect to all Securities of the Company that
such Shareholder beneficially owns; and
WHEREAS, the voting provisions of this Agreement will be in effect
only so long as the Merger Agreement is in full force and effect;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
GRANT OF PROXY; VOTING AGREEMENT
SECTION 1.01. Capitalized Terms. Capitalized terms used but not
defined herein shall have the respective meanings set forth in the Merger
Agreement.
SECTION 1.02. Voting Agreement. Notwithstanding anything to the
contrary in any of the Prior Shareholder Agreements, each Shareholder hereby
agrees to vote all Securities that such Shareholder is entitled to vote at the
time of any vote (i) to approve and adopt the Merger Agreement and the Merger
and the other transactions contemplated thereby (subject to Section 1.04 hereof)
at any meeting of the stockholders of the Company, and at any adjournment
thereof, at which such Merger Agreement and the Merger, or such other
transactions or actions, are submitted for the consideration and vote of the
stockholders of the Company, and (ii) against any (w) Acquisition Proposal, (x)
reorganization, recapitalization, liquidation or winding up of the Company or
any other extraordinary transaction involving the Company, or (y) corporate
action the consummation of which would frustrate the purposes, or be
inconsistent with the other agreements of such Shareholder pursuant to this
paragraph (it being understood that the Shareholders may vote for transactions
permitted by the Merger Agreement and not be bound by these provisions if the
Merger Agreement has been terminated and that AWS' obligations pursuant to this
Section 1.02 shall terminate if the Board of Directors of the Company shall have
withdrawn or materially modified its approval or recommendation of the Merger or
shall have resolved to do so).
SECTION 1.03. Prior Proxy. Each Shareholder hereby revokes any and
all previous proxies granted with respect to the Securities owned by such
Shareholder except as may be deemed to exist pursuant to Section 1.01 of the
Voting Agreement.
SECTION 1.04. Conflict with Prior Shareholders Agreements.
Notwithstanding anything to the contrary contained elsewhere in this Agreement,
nothing contained in this Agreement shall require a Shareholder to take any
action inconsistent with the requirements of Section 1.01 of the Voting
Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder, severally but not jointly, represents and warrants
to Buyer that:
SECTION 2.01. Corporate Authorization. If such Shareholder is a
corporation, the execution, delivery and performance by such Shareholder of this
Agreement and the consummation by such Shareholder of the transactions
contemplated hereby are within the corporate powers of such Shareholder and have
been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding Agreement of such Shareholder.
SECTION 2.02. Partnership Authorization. If such Shareholder is a
partnership, the execution, delivery and performance by such Shareholder of this
Agreement and the consummation by such Shareholder of the transactions
contemplated hereby have been duly authorized and approved by all necessary
partnership action on the part of such Shareholder. This Agreement constitutes a
valid and binding Agreement of such Shareholder.
SECTION 2.03. Individual Authorization. If such Shareholder is an
individual and is married, and the Securities set forth on the signature page
hereto opposite such Shareholder's name constitute community property under
applicable laws, this Agreement has been duly authorized, executed and delivered
by, and constitutes the valid and binding agreement of, such Shareholder's
spouse. If this Agreement is being executed in a representative or fiduciary
capacity, the Person signing this Agreement has full power and authority to
enter into and perform this Agreement.
SECTION 2.04. Non-Contravention. The execution, delivery and
performance by such Shareholder of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (i) violate the certificate
of incorporation or bylaws (or agreement of limited partnership, if applicable)
of such Shareholder, (ii) violate any applicable law, rule, regulation,
judgment, injunction, order or decree, (iii) require any consent or other action
by any Person under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration or to a loss of any benefit to which
such Shareholder is entitled under any provision of any agreement or other
instrument binding on such Shareholder or (iv) result in the imposition of any
Lien on any asset of such Shareholder.
SECTION 2.05. Ownership of Shares. Such Shareholder is the record and
beneficial owner of the Securities set forth on Schedule I hereto opposite such
Shareholder's name, free and clear of any Lien and any other limitation or
restriction (including any restriction on the right to vote or otherwise dispose
of the Securities) other than the Prior Shareholder Agreements. None of the
Securities is subject to any voting trust or other agreement or arrangement with
respect to the voting of such Securities other than the Prior Shareholder
Agreements.
SECTION 2.06. Total Shares. Except for the Securities set forth on
Schedule I hereto opposite such Shareholder's name and except for options on
Class A Shares granted pursuant to the Company's employee stock option plan,
such Shareholder does not beneficially own any (i) shares of capital stock or
voting securities of the Company, (ii) securities of the Company convertible
into or exchangeable for shares of capital stock or voting securities of the
Company or (iii) options or other rights to acquire from the Company any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company.
SECTION 2.07. Finder's Fees. No investment banker, broker, finder or
other intermediary is entitled to a fee or commission from Buyer or the Company
in respect of this Agreement based upon any arrangement or agreement made by or
on behalf of such Shareholder.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to each Shareholder:
SECTION 3.01. Organizational Authorization. The execution, delivery
and performance by Buyer of this Agreement and the consummation by Buyer of the
transactions contemplated hereby are within the organizational powers of Buyer
and have been duly authorized by all necessary organizational action. This
Agreement constitutes a valid and binding Agreement of Buyer.
SECTION 3.02. Non-contravention. The execution, delivery and
performance by Buyer of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) violate the certificate of
incorporation or bylaws (or agreement of limited partnership, if applicable) of
Buyer, (ii) violate any applicable law, rule, regulation, judgment, injunction,
order or decree, (iii) require any consent or other action by any Person under,
constitute a default under, or give rise to any right of termination,
cancellation or acceleration or to a loss of any benefit to which Buyer is
entitled under any provision of any agreement or other instrument binding on
Buyer or (iv) result in the imposition of any Lien on any asset of Buyer.
ARTICLE 4
COVENANTS OF EACH SHAREHOLDER
Each Shareholder hereby covenants and agrees that:
SECTION 4.01. No Proxies for or Encumbrances on Securities. (a)
Except pursuant to the terms of this Agreement and the Merger Agreement, and
notwithstanding anything to the contrary in any of the Prior Shareholder
Agreements (subject to Section 1.04 hereof), such Shareholder shall not, without
the prior written consent of Buyer, directly or indirectly, (i) grant any
proxies or enter into any voting trust or other agreement or arrangement with
respect to the voting of any Securities or (ii) sell, assign, transfer, encumber
or otherwise dispose of, or enter into any contract, option or other arrangement
or understanding with respect to the direct or indirect sale, assignment,
transfer, encumbrance or other disposition of, any Securities during the term of
this Agreement, including, without limitation, dispositions of such Securities
through dividends or liquidation or other distributions of such Securities to
any stockholders or partners of such Shareholder.
(b) Notwithstanding the foregoing, each of AT&T Wireless Services,
Inc. ("AWS"), Steven Price and Eileen Farbman (in each case on behalf of
themselves or their respective children) may sell up to 150,000 Shares each in
open market transactions (subject to the provisions of the Prior Shareholder
Agreements) upon not less than two business days written notice to Buyer. After
receiving any such written notice, Buyer may elect to purchase such Shares
(subject to the provisions of the Prior Shareholder Agreements) directly from
AWS, Steven Price or Eileen Farbman at a price equal to the closing price for
the Shares on the American Stock Exchange on the day immediately preceding the
day on which such individuals propose to sell such Shares.
SECTION 4.02. Other Offers. Such Shareholder shall not, directly or
indirectly, (i) take any action to solicit, initiate or encourage any
Acquisition Proposal or (ii) subject to any fiduciary duties of such Shareholder
as an officer, director or shareholder of the Company under applicable law as
advised by the Company's counsel, engage in discussions or negotiations with, or
disclose any nonpublic information relating to the Company or any Subsidiary or
afford access to the properties, books or records of the Company or any
Subsidiary to, any Person that such Shareholder knows or has reason to know may
be considering making, or has made, an Acquisition Proposal or has agreed to
endorse an Acquisition Proposal. Such Shareholder will promptly notify Buyer
after receipt of an Acquisition Proposal or any indication that any Person is
considering making an Acquisition Proposal or any request for nonpublic
information relating to the Company or any Subsidiary or for access to the
properties, books or records of the Company or any of its Subsidiaries by any
Person that may be considering making, or has made, an Acquisition Proposal,
which notification shall include the identity of the offeror and the terms and
conditions of any Acquisition Proposal (but only to the extent such Shareholder
may disclose such information without breaching its fiduciary duties as advised
by counsel and as determined in good faith and without violating any of the
conditions of such Acquisition Proposal), and will keep Buyer fully informed of
the status and details (subject to such fiduciary duties) of any such
Acquisition Proposal, indication or request.
SECTION 4.03. Appraisal Rights. Such Shareholder agrees not to
exercise any rights (including, without limitation, under Section 262 of the
General Corporation Law of the State of Delaware) to demand appraisal of any
Securities which may arise with respect to the Merger.
SECTION 4.04. Waiver. Such Shareholder waives any rights it may have
in respect of the Securities owned by another Shareholder to the extent (but
only to the extent) that such rights would arise as a result of (i) the
execution of the Merger Agreement, (ii) the execution of this Voting Agreement
or the performance of covenants hereunder or (iii) the consummation of the
Merger.
SECTION 4.05. Redemption Rights; Amendment to Charter. (a) If such
Shareholder is a holder of any Series A Preferred, such Shareholder agrees not
to exercise its right (if any), under Section 5(b) of the Certificate of
Designation of the Series A Preferred, to require the Company to redeem any or
all of its Series A Preferred, to the extent that the right to do so arises
solely from board of director or shareholder approval of the Merger, the
execution by the Company of the Merger Agreement, the execution of this
Agreement or the consummation of the Merger.
(b) Such Shareholder agrees to vote all Securities that such
Shareholder is entitled to vote at the time of any vote to approve and adopt an
amendment to the Certificate of Designation of the Series A Preferred, which
amendment shall provide that the holders of the Series A Preferred shall have no
rights under Section 5(b) of such Certificate of Designation, to the extent that
such rights would have otherwise arisen solely from board of director or
shareholder approval of the Merger, the execution by the Company of the Merger
Agreement, the execution of this Agreement or the consummation of the Merger.
SECTION 4.06. Acquisition Proposals. Each Shareholder agrees that in
the event that after the later of (x) the 25th day following the date hereof and
(y) the contribution of $25,000,000 of equity capital to Buyer as contemplated
by Section 4.09 of the Merger Agreement, the Merger Agreement is terminated
pursuant to Section 9.01(d), (e) or (f) thereto (or by Buyer pursuant to Section
9.01(g) thereto if there is an Acquisition Proposal pending at such time of
termination) and such Shareholder shall thereafter but prior to the first
anniversary of the termination date of the Merger Agreement sell or otherwise
transfer or dispose of by operation of law (by merger or otherwise) any
Securities when an Acquisition Proposal is pending, such Shareholder shall
promptly pay to Buyer an amount equal to the excess, if any, of (i) the
aggregate consideration received by such Stockholder pursuant to such transfer
over (ii) the product of (x) $14.00 and (y) the sum of the number of shares of
Class A Common Stock and Class B Common Stock so transferred and the number of
shares of Class A Common Stock issuable upon conversion of any shares of Series
A Preferred Stock so transferred; provided, however, that this Section 4.06
shall not apply if the Merger Agreement is terminated on or after the date that
is ten weeks from the date hereof and at such time Buyer shall not have either
(i) consummated the High Yield Financing the proceeds of which shall continue to
be held in escrow or (ii) obtained the irrevocable waiver of the Initial Lenders
of the conditions set forth in Sections 3(c), Section 4 (paragraph 2) and under
the caption entitled "Conditions to Effectiveness and to Interim Loan", the
references to the accuracy of representations and warranties of the Target in
the first paragraph thereof and subparagraphs (l) and (r) of the Bridge Loan
Commitment.
ARTICLE 5
MISCELLANEOUS
SECTION 5.01. Action in Shareholder Capacity Only. No Shareholder
makes any agreement or understanding hereunder as a director or officer of the
Company. Each Shareholder signs this Agreement solely in his, her or its
capacity as record and beneficial owners of the Securities, and nothing herein
shall limit or affect any actions taken in such Shareholder's capacity as an
officer or director of the Company.
SECTION 5.02. Indemnification. (a) Buyer agrees to indemnify and hold
harmless each Shareholder from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) related to the execution and performance of this Agreement or
any actions taken pursuant hereto except insofar as such losses, claims, damages
or liabilities result from the breach of any representation or warranty of such
Shareholder contained herein.
(b) The Company hereby agrees to indemnify, defend and hold harmless
each Shareholder and its directors, officers, employees, affiliates, successors
and assigns (collectively the "Indemnified Party") from and against all actions,
causes of actions, suits, claims, complaints, demands, litigations, proceedings,
losses, liabilities, damages, deficiencies, judgments, assessments, fines
(including, without limitation, interest, penalties, taxes, fees and reasonable
expenses and disbursements of attorneys, experts, personnel and consultants,
reasonably incurred in connection with the defense or investigation thereof,
including, without limitation, allocated costs of in-house counsel, experts,
personnel and consultants) (collectively, "Losses") based upon, relating to,
arising out of or otherwise in respect of the Merger Agreement, the Merger, the
Consent and Waiver between the Company and AWS, this Voting Agreement with Buyer
and the transactions contemplated by these agreements. Notwithstanding the
foregoing, the Company shall not be responsible for Losses that are finally
judicially determined to have resulted from the bad faith of the Indemnified
Party and Losses that Buyer has indemnified the Indemnified Party for pursuant
to the immediately preceding paragraph but only to the extent that the
Indemnified Party has actually been paid. Upon the making of any payment
pursuant to Section 5.02(b) with respect to any claim that Buyer has indemnified
such indemnified person for pursuant to Section 5.02(a), the Company shall be
subrogated to the rights of such indemnified person against Buyer with respect
thereto.
(c) In case any proceeding shall be instituted involving any
Shareholder in respect of which indemnity may be sought pursuant to either the
two immediately preceding paragraphs, such Shareholder shall promptly notify
Buyer or the Company, as the case may be, in writing and Buyer or the Company,
as the case may be, upon request of such Shareholder, shall retain counsel
reasonably satisfactory to such Shareholder to represent such Shareholder in
such proceeding and shall pay the fees and disbursements of such counsel related
to such proceeding. The Shareholders as a group may retain one law firm (in
addition to local counsel) to represent them with respect to any action or
proceeding involving one or more Shareholders. In any such proceeding, an
individual Shareholder shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such Shareholder.
Neither Buyer nor the Company shall be liable for any settlement of any
proceeding effected without its written consent (which consent will not be
unreasonably withheld or delayed), but if settled with such consent, or if there
be a final judgment for the plaintiff, Buyer or the Company, as the case may be,
agrees to indemnify such Shareholder from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the immediately preceding
sentence, if the Buyer or the Company shall have materially breached its
obligations pursuant to this Section 5.02 (which breach shall have continued for
90 days after written notice thereof), such indemnifying party shall be liable
for any such settlement effected without its written consent.
(d) No Shareholder shall be entitled to indemnification in respect of
claims that are determined by the final judgment of court to arise from such
Shareholder's willful misconduct.
SECTION 5.03. Amendments; Termination. Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by each party to this
Agreement or in the case of a waiver, by the party against whom the waiver is to
be effective. This Agreement, other than Sections 4.06 and this Article 5, shall
terminate upon the termination of the Merger Agreement in accordance with its
terms.
SECTION 5.04. Expenses. All costs and expenses incurred in
connection with this Agreement shall be paid by the party incurring such cost or
expense.
SECTION 5.05. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto, except that Buyer may
transfer or assign its rights and obligations to a wholly owned subsidiary of
Buyer.
SECTION 5.06. Governing Law. This Agreement shall construed in
accordance with and governed by the laws of the State of Delaware.
SECTION 5.07. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
SECTION 5.08. Severability. If any term, provision or covenant of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions and
covenants of this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
SECTION 5.09. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement is
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof in addition to any other
remedy to which they are entitled at law or in equity.
SECTION 5.10. Entire Agreements. Each Shareholder represents to the
other Shareholders that the Merger Agreement, this Agreement, the Consent and
Waiver between the Company and AWS and the binding term sheet for the Operating
Agreement between the Company and AWS constitute the entire agreement of the
Shareholders with Buyer, the Company and their affiliates with respect to the
Merger and the other transactions contemplated by such agreements except as
otherwise disclosed in or contemplated by such agreements.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
AMERICAN CELLULAR CORPORATION
By: /s/ Brion Applegate
-------------------------------------
Name: Brion Applegate
Title: Chairman, Chief Executive
Officer
PRICELLULAR CORPORATION
By: /s/ Steven Price
-------------------------------------
Name: Steven Price
Title: President, Chief Executive
Officer
AT&T WIRELESS SERVICES, INC.
By: /s/ Mufit Cinali
-------------------------------------
Name: Mufit Cinali
Title: Financial Vice President
THOMAS H. LEE EQUITY FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership,
as its General Partner
By: THL Equity Trust III,
as its General Partner
By: /s/ Scott Sperling
-------------------------------------
Name: Scott Sperling
Title: Managing Director
THL-CCI INVESTORS LIMITED PARTNERSHIP
By: /s/ Scott Sperling
-------------------------------------
Name: Scott Sperling
Title: Managing Director
/s/ Steven Price
-------------------------------------
Steven Price
/s/ Eileen Farbman
-------------------------------------
Eileen Farbman
/s/ Eileen Farbman
-------------------------------------
Leo Farbman, by Eileen Farbman as
custodian (with respect to shares held
until age 21 under the Uniform Gift to
Minors Act) and a natural guardian
(with respect to shares held by joint
tenancy)
/s/ Eileen Farbman
-------------------------------------
Alexandra Farbman, by Eileen Farbman
as custodian (with respect to shares
held until age 21 under the Uniform
Gift to Minors Act) and as natural
guardian (with respect to shares held
by joint tenancy)
Schedule I
Number of Shares
Name of Shareholder Class Of Stock Owned
- ------------------- -------------- ----------------
AT&T Wireless Class A Common Stock 3,911,763
Wireless Services, Inc. Class B Common Stock 2,625,781
Thomas H. Lee Series A Preferred 54,600
Equity Fund III, L.P.
THL-CCI Investors Series A Preferred 5,400
Limited Partnership
Steven Price Class A Common Stock 30,038
Class B Common Stock 3,080,537
Eileen Farbman Class A Common Stock 1,000
Class B Common Stock 2,176,208
Eileen Farbman, as custodian for Class B Common Stock 761,718
Leo Farbman
Eileen Farbman, as custodian for Class B Common Stock 761,718
Alexandra Farbman
APPENDIX C
[LETTERHEAD OF GLEACHER NATWEST CORPORATION]
March 6, 1998
Board of Directors
PriCellular Corporation
711 Westchester Avenue
White Plains, New York 10604
Ladies and Gentleman:
We understand that PriCellular Corporation ("PriCellular" or the "Company") is
contemplating entering into a definitive Agreement and Plan of Merger (the
"Merger Agreement") with American Cellular Corporation ("American Cellular")
pursuant to which, among other things, (i) American Cellular would merge with
and into PriCellular, with PriCellular being the surviving corporation of such
merger (the "Merger"); and (ii) upon consummation of the Merger, each share of
Class A Common Stock, par value $.01 per share, and Class B Common Stock, par
value $.01 per share, of PriCellular (collectively, the "Shares") would be
converted into the right to receive $14.00 per Share in cash (the "Merger
Consideration").
You have requested our opinion as to whether the Merger Consideration is fair,
from a financial point of view, to the Company's stockholders (other than
American Cellular and its affiliates).
For the purposes of the opinion set forth herein, we have:
1. reviewed the Merger Agreement, including the schedules thereto
and the other documents and information referred to therein;
2. reviewed publicly-available information concerning the
Company, including the annual reports to stockholders and
annual reports on Form 10-K of the Company for the fiscal
years ended December 31, 1994, 1995 and 1996, and the
quarterly reports on Form 10-Q for the fiscal quarters
ended March 31, June 30 and September 30, 1997;
3. reviewed the Company's draft annual report on Form 10-K for
the fiscal year ended December 31, 1997;
4. discussed the past and current operations, financial
condition and prospects of PriCellular with the management
of PriCellular;
5. reviewed certain internal financial information and other
data relating to the business and prospects of the Company,
including budgets for fiscal year 1998 prepared by the
management of the Company, that were provided to us by the
Company;
6. reviewed certain financial forecasts provided to us by the
Company which were prepared by unaffiliated financial
analysts, which forecasts the Company has represented to us
are consistent with the best judgments of the Company's
management as to the future financial performance of the
Company and are the best currently available forecasts with
respect to such future financial performance of the
Company;
7. reviewed the current and historically reported market prices,
valuation parameters, and reported trading activity of the
Shares;
8. compared the financial performance of PriCellular and the
reported market prices, valuation parameters and trading
activity of the shares with that of other publicly traded
companies that we deemed comparable and their securities;
9. compared the financial terms of the Merger with the financial
terms of recent acquisitions of companies that we deemed
comparable based upon publicly available information;
10. reviewed with representatives of Donaldson, Lufkin & Jenrette
("DLJ"), financial advisor to the Company, the scope and
substance of the discussions held with potential acquirors
of the Company since November 1997, the process by which
offers were solicited and the comments provided by such
potential acquirors; and
11. reviewed such other information and performed such other
studies, analyses, inquiries and investigations as we have
deemed appropriate.
We have assumed and relied upon, without assuming responsibility for
independent verification, the accuracy and completeness of the information
reviewed by us for purposes of this opinion. In addition, with your
consent, we have not made any independent evaluation or appraisal of any of
the assets or liabilities (contingent or otherwise) of PriCellular, nor
have we been furnished with any such evaluation or appraisal. With respect
to the financial forecasts provided to us, we have assumed that they have
been reasonably prepared and are consistent with the best currently
available estimates and judgments of the management of PriCellular as to
the expected future financial performance of PriCellular. We assume no
responsibility for and express no view as to such forecasts or the
assumptions on which they are based. Our opinion is based necessarily on
the economic, market, and other conditions as in effect on, and the
information made available to us as of, the date hereof.
In rendering our opinion herein, we have not solicited, and have not been
requested to solicit, any third party acquisition interest in PriCellular.
In this regard, we have further assumed that DLJ, in conjunction with the
Company, has undertaken a full and fair process to solicit indications of
interest or offers from those third parties who would most likely have an
interest in acquiring PriCellular, and has used its best efforts to secure
the highest available offers from such third parties.
Further, we have assumed that the Merger will consummated on the terms
described in the Merger Agreement, without any waiver of any material terms
or conditions by the Company. We have not reviewed any proxy statement or
similar documentation that may be prepared for use in connection with the
Merger.
PriCellular acknowledges that the opinion and any advice or materials
provided by Gleacher NatWest in connection with its engagement hereunder is
intended for the benefit and use of the Board of Directors of PriCellular
in considering the transaction to which the opinion, advice or materials
relate. We express no opinion or recommendation as to how the holders of
Shares should vote in connection with the Merger. The Company agrees that,
except for references to this opinion in the Merger Agreement and the
inclusion of this letter in its entirety in the Company's proxy statement
to be sent to its stockholders as contemplated by the Merger Agreement, no
such opinion, advice or material shall by used for any other purpose or be
reproduced, disseminated, quoted or referred to at any time, in any manner
or for any purpose, nor shall any public references to Gleacher NatWest be
made by or on behalf of the Company, in each case without Gleacher
NatWest's prior written consent.
Based upon and subject to the foregoing, we are of the opinion that as of
the date hereof the Merger Consideration is fair, from a financial point of
view, to the Company's stockholders (other than American Cellular and its
affiliates).
Very truly yours,
GLEACHER NATWEST INC.
/s/ Charles G. Phillips
- --------------------------
Charles G. Phillips
Managing Director
APPENDIX D
[LETTERHEAD OF SBC WARBURG DILLON READ INC.]
March 6, 1998
The Board of Directors
PriCellular Corporation
711 Westchester Avenue
White Plains, New York 10604
Dear Members of the Board:
We understand that PriCellular Corporation, a Delaware corporation
(the "Company"), and American Cellular Corporation, a Delaware corporation
("Acquiror") propose to enter into an Agreement and Plan of Merger, dated
as of March 5, 1998 (the "Agreement"), which provides, among other things,
for the merger of Acquiror with and into the Company (the "Transaction").
As a result of the Transaction, each issued and outstanding share of the
Class A Common Stock, par value $0.01 per share and Class B Common Stock,
par value $0.01 per share, of the Company (collectively the "Common Stock")
will be converted into the right to receive $14.00 in cash and each share
of the Company's Series A Cumulative Convertible Preferred Stock, par value
$0.01 per share (the "Series A Preferred Stock"), will be converted into
the right to receive the product of (x) $14.00 in cash and (y) the number
of shares of Class A Common Stock into which such share of Series A
Preferred Stock is then convertible (the "Consideration"). The terms and
conditions of the Transaction are more fully set forth in the Agreement.
You have requested our opinion as to whether the Consideration is
fair to the stockholders of the Company, other than the Acquiror and its
direct and indirect shareholders, from a financial point of view.
In the past, SBC Warburg Dillon Read Inc. ("SBC Warburg Dillon
Read") and its predecessors have provided investment banking services to
the Company and have received customary compensation for the rendering of
such services. In the ordinary course of business, SBC Warburg Dillon Read
and its affiliates may actively trade or hold the equity securities of the
Company for their own accounts and the accounts of their customers and,
accordingly, may at any time hold a long or short position in such
securities.
Our opinion is directed only to the fairness, from a financial
point of view, of the Consideration to be received by the stockholders of
the Company (other than the Acquiror and its direct and indirect
shareholders) in the Transaction pursuant to the Agreement and does not
address the Company's underlying business decision to effect the
Transaction or constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote with respect to the
Transaction.
In arriving at our opinion, we have, among other things, (i)
reviewed certain publicly available business and historical financial
information relating to the Company; (ii) reviewed certain internal
financial information and other data relating to the business and prospects
of the Company, including budgets prepared by the management of the
Company, that were provided to us by the Company and are not publicly
available; (iii) since the Company has not prepared any long-term
forecasts, reviewed financial forecasts provided by the Company which were
prepared by unaffiliated financial analysts; (iv) conducted discussions
with members of the senior management of the Company; (v) reviewed the
historical market prices and trading activity of the Common Stock; (vi)
reviewed publicly available financial and stock market data with respect to
certain other publicly traded companies that we believe to be generally
comparable to the Company; (vii) compared the financial terms of the
Transaction with the financial terms of certain other transactions that we
believe to be relevant; (viii) reviewed the Agreement; and (ix) conducted
such other financial studies, analyses and investigations, and considered
such other information as we deemed necessary or appropriate.
In connection with our review, we have not, with your consent,
assumed any responsibility for independent verification of any of the
information reviewed by us for the purpose of this opinion and have, with
your consent, relied on its being complete and accurate in all material
respects. In addition, with your consent, we have not made any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of the Company, nor have we been furnished with any such
evaluation or appraisal. Furthermore, with your consent, we assume no
responsibility for and express no view as to any of the forecasts provided
to or reviewed by us or the assumptions on which they are based. Our
opinion is necessarily based on economic, monetary, market, legislative and
other conditions as in effect on, and the information made available to us
as of, the date hereof.
In rendering our opinion herein, we have not solicited, and have
not been requested to solicit, any third party acquisition interest in the
Company. We have, however, taken into account the efforts of Donaldson,
Lufkin & Jenrette Securities Corporation, which was engaged by the Company
to solicit potential acquirors. Further, we have assumed that the
Transaction will be consummated on the terms described in the Agreement,
without any waiver of any material terms or conditions by the Company. We
have not reviewed any proxy statements or similar documents that may be
prepared for use in connection with the Transaction.
Our engagement and the opinion expressed herein are for the
benefit of the Board of Directors of the Company and our opinion is
rendered in connection with its consideration of the Transaction. It is
understood that, except for inclusion of this letter in its entirety in a
proxy statement to the stockholders of the Company as contemplated by the
Agreement, this letter may not be summarized, excerpted from, disclosed or
otherwise publicly referred to without our prior written consent, except as
may otherwise be required by law or by a court of competent jurisdiction.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Consideration is fair to the stockholders of the
Company, other than the Acquiror and its direct and indirect shareholders,
from a financial point of view.
Very truly yours,
SBC WARBURG DILLON READ INC.
By: /s/ F. Davis Terry, Jr.
----------------------------
Managing Director
By: /s/ Dominic Lester
----------------------------
Director
APPENDIX E
SECTION 262 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection
(d) of this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or
more share, or fractions thereof, solely of stock of a corporation, which
stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Section 251 (other than a merger or
consolidation to be effected pursuant to Section 251(g) of this title), 252,
254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights
under this section shall be available for the shares of any
class or series of stock, which stock, or depository receipts in
respect thereof, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for
its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this
title.
(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall be
available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
Section Section 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock
(or depository receipts in respect thereof) or depository
receipts at the effective date of the merger or consolidation
will be either listed on a national securities exchange or
designated as a nation market system security on an interdealer
quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section
253 of this title is not owned by the parent corporation
immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those set
forth in subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof
that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor
of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved
pursuant to Section 228 or 253 of this title, each constituent
corporation, either before the effective date of the merger or
consolidation or within ten days thereafter, shall notify each
of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of
the approval of the merger or consolidation and that appraisal
rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if
the notice is given on or after the effective date of the merger
or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series
of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after
the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date
of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of
the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such
notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice
is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date
shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date
shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholder.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the office
of the Register in Chancery in which the petition was filed a duly verified
list containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list
at the addresses therein stated. Such notice shall be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication as the Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine
the stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholders.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporate pursuant to subsection
(f) of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceeding until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holder of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any state.
(j) The costs of the proceeding may be determined by the Court
and taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as
provided in subsection (d) of this section shall be entitled to vote such
stock for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection (e) of this
section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been converted had
they assented to the merger or consolation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
APPENDIX F
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K/A
AMENDMENT NO. 2
TO
---------------
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
or
___ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number: 1-13526
PRICELLULAR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 22-3043811
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
711 Westchester Avenue
White Plains, New York 10604
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (914) 422-0800
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------- ---------------------------
Class A Common Stock, par American Stock Exchange
value $0.01 per share
Securities registered pursuant to Section 12(g) of the Act: NONE
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 [ ] No[X]
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 knowledge of the registrant, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 20, 1998 was approximately $212,000,000.
The number of shares outstanding of each class of the registrant's common stock,
as of May 20, 1998, was 21,987,847 shares of Class A Common Stock and
12,970,994 shares of Class B Common Stock.
Documents incorporated by reference: PriceCellular's Annual Reports on Form 10-K
for the years ended December 31, 1996 and 1995.
===============================================================================
Table of Contents
Part I
Item 1. Business................................................ F-3
General................................................. F-3
Cellular Markets and Systems............................ F-5
Acquisitions and Dispositions........................... F-7
Recent Developments..................................... F-9
Business Strategy....................................... F-9
Cellular Operations..................................... F-11
Overview of Cellular Telephone Industry................. F-17
Regulations............................................. F-21
Item 2. Properties.............................................. F-23
Item 3. Legal Proceedings....................................... F-23
Item 4. Submission of Matters to a Vote of Security Holders..... F-23
Part II
Item 5. Market for the Company's Common Equity and
Related Stockholder Matters........................... F-24
Item 6. Selected Financial Data................................. F-24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... F-26
Item 8. Financial Statements and Supplementary Data............. F-30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... F-30
Part III
Items 10. Directors and Executive Officers of the Registrant...... F-31
Item 11. Compensation of Executive Officers...................... F-34
Item 12. Security Ownership of Management and Principal
Stockholders of PriCellular........................... F-36
Item 13. Certain Relationships and Related Transactions.......... F-39
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................... F-43
Exhibit Index ...................................................... F-43
Signatures ...................................................... F-46
Part I
Unless otherwise indicated all references herein to "PriCellular" or the
"Company" include its subsidiaries and predecessors. See "Item 1.
Business-Certain Terms" for the definitions of certain other terms used herein.
Item 1. Business
General
PriCellular, through its subsidiaries, owns and operates FCC licensed cellular
telephone systems in the United States, primarily in smaller MSAs and
strategically located RSAs. PriCellular owns cellular interests representing
approximately 5.1 million Net Pops. These interests consist principally of four
large operating clusters of cellular Systems:
Upper Midwest Cluster--a 1.8 million Net Pop cluster of 15 Systems covering
approximately 78,000 contiguous square miles in Minnesota, Wisconsin and
Michigan. Mid-Atlantic Cluster--an 857,000 Net Pop cluster of five contiguous
Systems consisting of five RSAs in Ohio, Pennsylvania and West Virginia
covering approximately 10,000 contiguous square miles. New York Cluster--a
1.1 million Net Pop cluster of two MSAs and two RSAs covering more than 8,000
contiguous square miles in suburban New York located between the New York
City MSA of AT&T Wireless Services Inc. ("AT&T"), a subsidiary of AT&T Corp.,
and Southwestern Bell's Albany, NY MSA. Kentucky Cluster--a 1.0 million Net
Pop cluster of four RSAs adjacent to Louisville and Lexington, KY and one RSA
in Tennessee which abuts Knoxville, TN. The 38 counties in Kentucky and the
six counties in Tennessee cover more than 15,000 square miles.
In addition, the Company owns a 44.5% interest in a joint venture with
Southwestern Bell (which is managed and operated by Southwestern Bell),
representing 264,000 Net Pops, and certain other cellular interests.
PriCellular completed an Initial Public Offering of its Class A common stock in
December 1994. Its principal stockholders include members of the Price family,
AT&T, Spectrum Equity Investors, L.P. ("Spectrum"), The Thomas H. Lee Company,
and The Public School Employees' Retirement System of Pennsylvania.
The Company has a strategic alliance with AT&T which allows the Company to take
advantage of AT&T's acquisition experience, and benefit from AT&T's volume
purchasing power. The Company purchases landline interlata telephone service for
its switched cellular systems and cellular telephones at volume discounts
through its relationship with AT&T thereby minimizing two of the principal costs
associated with providing cellular service and acquiring new subscribers. The
volume discounts also extend to certain of the equipment necessary for the
Company's system development and expansion thereby reducing the Company's
capital expenditures. The Company believes that the proximity of three of its
operating clusters to AT&T's Systems affords significant opportunities for joint
marketing, promotions and other programs. The Company's Upper Midwest Cluster is
contiguous to AT&T's Systems serving the Minneapolis/St. Paul, MN MSA and the
St. Cloud, MN MSA. The Company's Mid-Atlantic Cluster borders the Pittsburgh,
PA, Steubenville, OH and Wheeling, WV MSAs, which are owned by AT&T. The
Company's New York Cluster abuts the northern border of AT&T's New York City
MSA, including Westchester and Rockland counties. The New York Cluster is also
adjacent to three MSAs owned by Southwestern Bell, with whom the Company has a
joint venture in Illinois and Texas.
The Company's acquisition strategy is to continue to expand its current clusters
through the acquisition of contiguous properties and, secondarily, to target for
purchase other small to mid-sized MSAs and strategic RSAs that it believes are
undervalued, underdeveloped or that possess traits indicative of potentially
high cellular usage and superior financial performance. The operation of
contiguous markets permits the Company to provide broad areas of uninterrupted
service and achieve certain economies of scale, including certain centralized
marketing, administrative and engineering functions. The Company believes that
smaller MSAs and certain RSAs often exhibit a concentration of small businesses,
longer commute times and well-traveled roads, all indicators of strong cellular
use. Many of these markets serve as hubs for retail trading areas and as
business, cultural or medical centers for populations spread over wide
geographic areas. In addition, management believes that because its markets are
less densely populated, they are less likely to face the level of competition
expected to be experienced in large urban areas.
The Company's operating strategy is, upon acquiring a cellular system, to effect
certain management, operational and organizational changes in order to increase
the number and quality of subscribers and enhance operating cash flow, while
controlling costs to acquire subscribers and promoting superior customer
service. Management believes that the majority of its Systems are in the early
stages of their growth cycle and represent significant growth opportunities. In
addition, many of these systems were underdeveloped prior to their acquisition
by the Company. After selectively upgrading the engineering in its cellular
network, the Company has implemented aggressive marketing programs to add
subscribers and reduce deactivations or "churn." In its Systems, the Company
markets under the CELLULARONE(R) brand name and participates in the North
American Cellular Network ("NACN"), a cellular network whose goal is to make
cellular service "seamless" across system borders throughout North America.
A key element of the Company's operating strategy is the positioning of its
cellular systems as the quality local service provider. The Company's chain of
95 local retail stores, which are staffed with sales and customer service
representatives, differentiate the Company from many of its larger competitors,
which frequently centralize customer service and other functions outside the
local market. In addition, these stores provide the Company with more control
over the sales process than if it relied upon independent agents. Management
believes that the Company's local presence enhances its ability to provide a
higher level of customer service and satisfaction.
The Company was incorporated under the laws of the State of Delaware on February
20, 1990. The principal executive offices of the Company are located at 711
Westchester Avenue, White Plains, New York 10604 and its telephone number is
(914) 422-0800.
Cellular Markets and Systems
The following table summarizes certain information concerning the Company's
markets.
<TABLE>
Total Date of
Market(a) Pops Ownership Net Pops Acquisition
--------------------------------------- --------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Upper Midwest Cluster
Duluth, MN/Superior, WI MSA 240,234 100.0% 240,234 04/28/94
Eau Claire, WI MSA 143,701 96.7% 139,001 04/28/94
Wausau, WI MSA 121,727 95.1% 115,715 03/28/95
MN-2A RSA 38,766 100.0% 38,766 07/07/95
MN-3 RSA 59,528 100.0% 59,528 04/28/94
MN-4 RSA 15,226 100.0% 15,226 08/10/95
MN-5 RSA 207,107 100.0% 207,107 07/07/95
MN-6 RSA 220,067 100.0% 220,067 11/23/94
WI-1 RSA 110,749 100.0% 110,749 04/28/94
WI-2 RSA 85,645 100.0% 85,645 11/18/96
WI-3 RSA 140,697 100.0% 140,697 11/23/94
WI-4 RSA 118,993 100.0% 118,993 01/07/97
WI-5 RSA 81,194 100.0% 81,194 05/29/97
WI-6A RSA 32,939 100.0% 32,939 11/23/94
MI-1 RSA 203,391 100.0% 203,391 03/07/95
Mid-Atlantic Cluster
OH-7 RSA 257,290 100.0% 257,290 09/27/95
OH-10A RSA 62,345 100.0% 62,345 09/29/95
PA-9 RSA 188,096 100.0% 188,096 02/02/96
WV-2 RSA 79,567 100.0% 79,567 12/20/95
WV-3 RSA 269,709 100.0% 269,709 07/23/96
New York Cluster
Orange County, NY MSA 327,053 100.0% 327,053 10/17/96
Poughkeepsie, NY MSA 263,723 95.6% 251,997 04/23/96
NY-5 RSA 382,180 100.0% 382,180 12/29/95
NY-6 RSA 111,373 100.0% 111,373 04/23/96
Kentucky Cluster
KY-4 RSA 245,952 100.0% 245,952 01/07/97
KY-5 RSA 158,204 100.0% 158,204 01/07/97
KY-6 RSA 260,920 100.0% 260,920 01/07/97
KY-8 RSA 119,840 100.0% 119,840 01/07/97
TN-4 RSA 263,553 100.0% 263,553 01/15/98
Southwestern Bell Joint Venture
Laredo, TX MSA 176,162 44.5% 78,392 11/30/95
IL-4 RSA 216,119 44.5% 96,173 11/30/95
IL-6 RSA 201,234 44.5% 89,550 11/30/95
Other Interests n/a n/a 45,842 various
----------- ------------
Total 5,403,284 5,097,288
=========== ============
</TABLE>
(a) All of the Company's licenses are non-wireline licenses with the exception
of the license for the Laredo, TX MSA.
Markets
Upper Midwest Cluster
The Upper Midwest Cluster consists of approximately 1.8 million Net Pops in 15
contiguous Systems and covers over 78,000 square miles. The Upper Midwest
Cluster includes three of the Company's original Systems acquired in April 1994
and has grown steadily to 15 Systems through the acquisition of three Systems in
November 1994, two Systems in March 1995, three Systems in July 1995, one System
in August 1995, one System in November 1996, one System in January 1997 and one
system in May 1997.
The Systems in the Upper Midwest Cluster all operate under the CELLULARONE(R)
brand name. The Systems in the Upper Midwest Cluster compete against various
wireline cellular service providers marketing under six different names.
Management believes that the diversity of competitors operating under various
names and the Company's use of the CELLULARONE(R) brand name affords the Company
marketing, advertising and other operational advantages relative to those
competitors. These advantages include advertising and marketing the Company's
services as a single brand name on a regional basis, allowing the Company to set
regional roaming rates, be a single cellular service provider to corporate
accounts, allow calls to be handed-off between cell sites that cross market
borders and reduce the number of dropped calls as subscribers exit an individual
license area.
The Mid-Atlantic Cluster
The Mid-Atlantic Cluster comprises approximately 857,000 Pops and includes
portions of southeastern Ohio as well as adjacent portions of Pennsylvania and
northern West Virginia south of Pittsburgh. The Mid-Atlantic Cluster was
established with the acquisition of two Systems in September 1995 and currently
includes five contiguous RSAs as a result of acquisitions in December 1995,
February 1996 and July 1996. In addition, the Mid-Atlantic Cluster abuts
Columbus, OH and three MSAs owned by AT&T including its Pittsburgh, PA System,
affording the opportunity for joint marketing and promotions.
The New York Cluster
The Company's New York Cluster consists of approximately 1.1 million Net Pops
and over 8,000 square miles in suburban New York. The New York Cluster is
adjacent to AT&T's New York City MSA and is located between it and Southwestern
Bell's Albany, NY MSA. The New York Cluster was established with the acquisition
of the NY-5 RSA in December 1995 and currently includes two MSAs and two RSAs as
a result of acquisitions in April and October of 1996. With the addition of the
Orange County, NY MSA, the Company's New York Cluster includes the entire Hudson
Valley/Catskill region, thereby creating significant marketing and promotional
synergies and opportunities.
The Orange County, NY MSA is directly north of AT&T's New York City MSA and
abuts Westchester, Putnam and Rockland counties. Serving as a residential
community of metropolitan New York, Orange County includes the cities of
Newburgh, Middletown, Port Jervis and the affluent towns of Tuxedo and Warwick.
Major tourist attractions include The United States Military Academy at West
Point, Storm King State Park and Sterling Forest. The MSA contains more than 40
miles of the New York State Thruway (I-87), approximately 50 miles of I-84 and
35 miles of Route 17.
The Kentucky Cluster
The Kentucky Cluster consists of four RSAs in Kentucky containing approximately
785,000 Pops and over 12,000 square miles and one RSA in Tennessee consisting of
approximately 264,000 Pops and over 2,000 square miles. Three of the Kentucky
RSAs (KY-4, 5 and 6) form a contiguous cluster encompassing all of Kentucky
south of Louisville and Lexington and north of the Nashville, TN MSA and other
Tennessee markets. The 120,000 Pop KY-8 RSA serves the northeastern suburbs of
Lexington. The Tennessee RSA (TN-4) is located south of the Kentucky RSAs and
contains some of the most visited areas in the country, including the towns of
Gatlinburg and Pigeon Forge, the Dollywood tourist attraction and the entrance
to the Great Smoky Mountain National Park.
The Southwestern Bell Joint Venture
The Company owns 44.5% of a joint venture with Southwestern Bell in which the
Company contributed its System serving the Laredo, TX MSA and Southwestern Bell
contributed its Systems serving the IL-4 RSA and IL-6 RSA (the "Southwestern
Joint Venture"). The Company owns 44.5% of the Systems serving the combined
593,515 Pops, or 264,115 Net Pops. The Southwestern Joint Venture was
consummated on November 30, 1995.
Pursuant to the Southwestern Joint Venture, the Company receives guaranteed
preferential distributions in the first four years of the Southwestern Joint
Venture increasing from $3.3 million in the first year to $5.8 million in the
final year. The Company has the option to remain in the Southwestern Joint
Venture for four years or "put" its Joint Venture interest in the Southwestern
Joint Venture to Southwestern Bell at any time during the four year period at a
price beginning at $28.5 million and increasing to approximately $39.0 million
at the end of the four year period. Southwestern Bell had the right to purchase
the Company's interest during the first year at approximately $56.0 million and
has the right to purchase the Company's interest on the day prior to
Southwestern Joint Venture's fourth anniversary at 5% above the then "put"
price. Southwestern Bell has operating control of these properties during the
term of the Southwestern Joint Venture.
Acquisitions and Dispositions
Recent Transactions
During 1995, 1996, 1997 and January 1998, the Company consummated several
strategic acquisitions which expanded its Upper Midwest Cluster and established
the Mid-Atlantic Cluster, the New York Cluster and the Kentucky Cluster. In
addition during July 1996, November 1996 and January 1997, the Company disposed
of its standalone wireline Systems in Alabama and its MI-2 RSA which were
considered by management to be non-strategic.
Expansion of Upper Midwest Cluster
On March 7, 1995, the Company acquired from Buckhead Telephone Company the
assets of the System serving the MI-1 RSA (which represents 203,391 Pops) for
approximately $17.7 million in cash.
On March 28, 1995, the Company acquired a 50.02% general partnership interest
and a 0.58% limited partnership interest in Wausau Cellular Limited Partnership,
a Delaware limited partnership that wholly owns the System serving the Wausau,
WI MSA (115,715 Net Pops), for $5.4 million in cash.
On July 7, 1995, the Company consummated a transaction with Western Wireless
Corporation ("Western Wireless") pursuant to which the Company exchanged the
wireline System serving the Lubbock, TX MSA (229,051 Pops) for approximately
340,000 Net Pops, most of which are now part of the Upper Midwest Cluster. The
Net Pops acquired consist of the System serving the MN-5 RSA, the portion of the
System serving the MN-3 RSA that the Company did not own, a portion of the MN-2
RSA (Beltrami County), approximately 87.0% of the System serving the
Alton/Granite City, IL MSA, an additional 10.0% of the System serving the Eau
Claire, WI MSA and an additional 14.5% of the System serving the Wausau, WI MSA.
In addition, Western Wireless agreed to pay the Company $3.0 million in exchange
for the Company's agreement not to compete with Western Wireless within the
Lubbock, TX MSA for a period of three years following the exchange. Western
Wireless retained ownership of certain cell sites and other capital equipment.
On August 10, 1995, the Company acquired from Louise Hart 49.0% of the System
serving the MN-4 RSA (7,461 Net Pops), for approximately $75,000.
On November 18, 1996, the Company acquired from Wisconsin II Venture the 85,645
Pop WI-2 RSA for approximately $4.3 million in cash. Prior thereto, the Company
had interim operating authority for the WI-2 RSA.
In January 1997, the Company entered into two transactions with a subsidiary of
Bell South Corporation. The stand-alone wireline systems serving the Florence,
AL MSA (136,816 Pops) and AL-1B RSA (62,035 Pops) were sold for $24.0 million in
cash, of which $2.0 million is attributable to a two year covenant not to
compete. The transactions resulted in a gain of approximately $8.0 million. In
addition, the Company acquired for $6.0 million the WI-4 RSA (118,993 Pops). The
WI-4 RSA abuts the Company's MI-1 RSA to the northeast, its WI-3 RSA to the
northwest and its Wausau, WI MSA to the west.
In May 1997, the Company acquired from United States Cellular Corporation
("USCC") three counties in the WI-5 RSA containing 81,194 Pops for approximately
$10.6 million in cash and the contribution of approximately 18,000 minority
Pops. The WI-5 RSA abuts the Company's Eau Claire, WI MSA, its WI-1 RSA and
AT&T's Minneapolis, MN MSA.
The Mid-Atlantic Cluster Acquisitions
On September 27, 1995, the Company acquired from USCC substantially all of the
assets of the System serving the OH-7 RSA (257,290 Pops) for $39.8 million in
cash.
On December 20, 1995, the Company acquired from USCC substantially all of the
assets of the System serving the WV-2 RSA (79,567 Pops) for $7.8 million in
cash.
On February 2, 1996, the Company acquired from USCC substantially all of the
assets of the System serving the PA-9 RSA (188,096 Pops) for $26.1 million in
cash.
On July 23, 1996, the Company acquired substantially all of the assets of the
System serving the WV-3 RSA (269,709 Pops) from a subsidiary of Horizon Cellular
Telephone Company, L.P. ("Horizon") for $35.0 million in cash.
The New York Cluster Acquisitions
On December 29, 1995, the Company acquired from Cellular Upstate New York, Inc.
substantially all of the assets of the System serving the NY-5 RSA (382,180
Pops) for approximately $65.9 million in cash.
On April 23, 1996, the Company acquired from subsidiaries of USCC the System
serving the NY-6 RSA (111,373 Pops) and 83% of the System serving the
Poughkeepsie, NY MSA (218,890 Net Pops). The Company acquired substantially all
of the assets serving the NY-6 RSA for approximately $19.8 million in cash and
83.0% of the stock of the Dutchess County Cellular Telephone Company serving the
Poughkeepsie, NY MSA for approximately $38.9 million, with one half paid in cash
and the balance in a three-year note bearing interest at the prime rate (the
"Poughkeepsie Note"). The note was subsequently repaid in November 1996.
On October 17, 1996, the Company consummated an exchange transaction with
Vanguard Cellular Systems, Inc. The Company exchanged an aggregate of 520,528
Pops consisting of its OH-9 RSA, a portion of its OH-10 RSA (excluding Perry and
Hocking counties) and the Parkersburg, WV/Marietta, OH MSA for the Orange
County, NY MSA (327,053 Pops), 11.1% of the Company's majority-owned
Poughkeepsie, NY MSA (29,367 Pops), 12.2% of the Janesville, WI MSA (18,296
Pops) and approximately 28,509 additional Pops, including small interests in the
Eau Claire, WI and Wausau, WI MSAs (in each of which the Company currently has a
majority interest). During 1997 the Company acquired an additional 1.3% of the
Poughkeepsie, NY MSA (3,740 Pops) from minority holders.
Kentucky Cluster Acquisition
In January 1997, the Company acquired from a subsidiary of Horizon four RSAs in
Kentucky (approximately 785,000 Net Pops) for $96.4 million in cash and
1,948,052 shares of the Company's Class A common stock (valued at approximately
$19.1 million). On February 4, 1997 the Company repurchased and retired the
1,948,052 shares from Horizon for $15.3 million.
In January 1998, the Company acquired from Bachtel Liquidity, L.P., an affiliate
of Bachow & Associates, Inc., the TN-4 RSA which contains approximately 264,000
Pops for approximately $73.0 million in cash (subject to adjustments). The RSA,
adjacent to three MSAs, including Knoxville, TN, is located south of the
Company's Kentucky Cluster.
Dispositions
During July 1996, the Company consummated the sale of its AL-4 RSA for $27.5
million in cash ($2.5 million of which is attributable to a two year covenant
not to compete). In November 1995, the Company had acquired this stand-alone RSA
for total consideration of $20.0 million. During October, 1996 the Company
consummated the sale of its MI-2 RSA for approximately $6.5 million in cash.
Remaining Shares of CIS
In April 1997, the Company acquired all of the outstanding shares of capital
stock of CIS not previously owned.
Recent Developments
On March 6, 1998, the Company and American Cellular Corporation, a Delaware
corporation ("ACC"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"). Pursuant to the Merger Agreement and subject to the terms and
conditions set forth therein, ACC will be merged with and into the Company, with
ACC to be the surviving corporation of such merger (the "Merger"). At the
Effective Time (as defined in the Merger Agreement) of the Merger, each issued
and outstanding share of Class A common stock, par value $0.01 per share, of the
Company (the "Class A Shares") and Class B common stock, par value $0.01 per
share, of the Company will in each case be converted into the right to receive
$14.00 in cash, without interest (the "Merger Consideration"), and each issued
and outstanding share of Series A Cumulative Convertible Preferred Stock, par
value $0.01 per share (the "Series A Preferred Stock"), of the Company will be
converted into the right to receive the product of the Merger Consideration and
the number of Class A Shares into which each such share of Series A Preferred
Stock is convertible at such time in connection with a change of control. The
Merger Agreement permits the Company, under certain circumstances, to respond to
unsolicited third party acquisition proposals and, upon payment of certain fees
to ACC, to terminate the Merger Agreement.
In connection with the execution of the Merger Agreement, AT&T Wireless, Inc.,
The Thomas H. Lee Company, Steven Price and Eileen Farbman (collectively, the
"Principal Shareholders") entered into a Voting Agreement with ACC. Pursuant to
the agreement, the Principal Shareholders, the beneficial owners of
approximately 39% of the outstanding Common Stock and Preferred Stock of the
Company (or 57% of the fully diluted voting power of the Company), agreed to
vote their shares in favor of the approval and adoption of the Merger Agreement.
The Voting Agreement terminates upon termination of the Merger Agreement.
Business Strategy
Acquisition Strategy
The Company's strategy is to continue to expand its current clusters through the
acquisition of contiguous properties and, secondarily, to target for purchase
other small to mid-sized MSAs and strategic RSAs that it believes are
undervalued, underdeveloped or that possess traits indicative of potentially
high cellular usage and superior financial performance. The operation of
contiguous markets permits the Company to provide broad areas of uninterrupted
service and achieve certain economies of scale, including certain centralized
marketing, administrative and engineering functions. The Company believes that
smaller MSAs and certain RSAs often exhibit a concentration of small businesses,
longer commute times and well-travelled roads, all indicators of strong cellular
use. Many of these markets serve as hubs for retail trading areas and as
business, cultural or medical centers for populations spread over wide
geographic areas. In addition, management believes that because its markets are
less densely populated than the national average, they are less likely to face
the level of competition expected to be experienced in large urban areas.
Operating Strategy
Upon acquiring a cellular system, the Company's operating strategy is to effect
certain management, operational and organizational changes in order to increase
the number and quality of subscribers and enhance operating cash flow, while
controlling subscriber acquisition costs and promoting superior customer
service. The Company seeks to accomplish these changes by employing the
following practices:
- Decentralized Management. The Company manages each of its Systems on a
decentralized basis, delegating direct responsibility for hiring,
marketing, distribution, customer service, churn control, billing,
roaming and other day-to-day operating decisions to the general manager
of each System. General managers must strictly adhere to a budget
designed to improve operating cash flow and increase the subscriber base.
Their compensation is linked to their ability to meet or exceed their
budgeted goals. The Company believes that its decentralized management
structure fosters a strong sense of customer service and community
spirit, enabling it to customize its marketing strategy to the needs of
the local market, and eliminate the need for a large corporate staff or
for a centralized multi-system customer service center that is located
outside of the local market. The Company believes that placing
decision-making responsibility in the hands of its general managers
fosters the decisive actions necessary to meet local competitive
challenges.
- Aggressive Marketing and Promoting of Cellular Service. The Company
aggressively markets to increase subscriber activations and reduce churn.
Many of its marketing programs are designed to distinguish the Company as
the local market's highest quality cellular service provider, stressing
its localized sales offices, customer service and commitment to the
community. These programs also include offering distinctive rate plans
and roaming rates to emphasize "value" and the "advantage" of the
Company's cellular service, launching targeted advertising campaigns
aimed at the most attractive cellular user segments, creating regional
marketing alliances with neighboring cellular carriers and taking an
active, visible role in community, government and charity organizations.
Management believes that the Company's positioning of its cellular system
as the local service provider often contrasts with its larger
competitors, which frequently centralize customer service and other
functions outside of the local market.
- Strong Retail and Direct Sales Effort. A key element of the Company's
positioning in its markets is its use of local retail stores, as well as
a local direct sales force. A retail location complemented by a direct
sales force provides the Company with more control over the sales process
than if it were to rely exclusively on independent agents. The Company
has aggressively opened its own retail stores and currently operates 95
retail locations. Management believes that this local presence enhances
its ability to provide quality customer service, and that customers who
purchase cellular service directly from the Company through its retail
stores and direct sales force tend to have fewer complaints and higher
usage than subscribers who activate with independent agents or retailers.
- Dedication to Customer Service. The Company strives to maintain a high
level of customer satisfaction through a variety of techniques, including
tying sales commissions to subscriber retention, outbound telemarketing
to subscribers on a regular basis and active ongoing contact with new
customers. The Company believes that its emphasis on superior local
customer service has helped reduce its average monthly churn rate. The
Company's average monthly churn rate for the year ended December 31, 1997
was 1.5%, well below the industry average of approximately 2.1%.
- System Development and Expansion. The Company develops or builds out its
cellular service areas by adding channels to existing cell sites and by
building new cell sites with an emphasis on improving coverage for
hand-held phones in heavily-trafficked areas. Such development is done
for the purpose of increasing capacity and improving coverage in response
to projected subscriber demand and competitive factors. Projected
subscriber demand is calculated for each cellular service area on a
cell-by-cell basis. These projections involve a traffic analysis of usage
by existing subscribers, coverage quality analysis and an estimate of the
number of additional subscribers in each such area. In calculating
projected subscriber demand, the Company builds into its design
assumptions a maximum call "blockage" rate of 2% (percentage of calls
that are not connected on the first attempt at peak usage time during the
day). After calculating projected subscriber demand, the Company
determines the most cost-efficient manner of meeting such projected
demand. The Company has historically met such demand through a
combination of augmenting channel capacity in existing cell sites and
building new cell sites. Cell site expansion is expected to enable the
Company to continue to add subscribers, enhance use of the systems by
existing subscribers, increase roamer traffic due to the larger
geographic area covered by the cellular network and further enhance the
overall quality of the network.
Cellular Operations
General
The Company has concentrated its recent efforts on creating an integrated
network of cellular systems in its operating clusters. The Company operates four
clusters of cellular systems as well as certain other markets and minority
interests. As of December 31, 1997, PriCellular had over 250,000 subscribers, or
5.2% penetration. Through the participation of its non-wireline Systems in NACN
and other special networking arrangements between the Company and other
non-wireline operators of cellular systems in the United States, management
believes the Company's subscribers are able to receive quality coverage
throughout the United States.
Management believes that the majority of its Systems are in the early stages of
their growth cycle and afford significant opportunities for improvements in
performance, particularly with respect to rates of penetration and churn. There
can be no assurances, however, that the Company will be able to maintain such
improvements or achieve similar improvements with respect to its other Systems.
Management believes that prior to the Company's assumption of ownership many of
these Systems had been significantly undermanaged or underdeveloped. Some of the
Systems had minimal signal coverage, had never been actively marketed and had
never developed a subscriber base. Certain other markets had adequate signal
coverage but the sales and marketing activity had largely been dormant. The
following table sets forth certain information with respect to the performance
of the Company's Systems owned as of the dates indicated.
<TABLE>
Years ended December 31
-------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Ending subscribers (1) 250,441 150,328 78,227 17,344 9,886
Ending penetration (2) 5.2% 3.8% 2.2% .95% .53%
Ending Pops (in millions) 4.8 3.9 3.6 1.8 1.8
Churn (3) 1.5% 1.6% 2.0% 2.7% 3.2%
Average monthly revenue per subscriber (4) $72 $82 $107 $123 $156
Average marketing cost per net subscriber $399 $371 $403 $497 $496
addition (5)
</TABLE>
- ------------------------
(1) Each billable telephone number in service represents one subscriber, not
including test, demonstration or other telephone numbers for which payment
is not expected.
(2) Represents the ratio of ending subscribers to the estimated total
population of majority owned Systems and the Southwestern Bell Joint
Venture.
(3) Represents the average monthly churn for the periods presented. Churn
equals the ratio of disconnected monthly subscribers to average monthly
subscribers.
(4) Represents the ratio of total monthly service revenues to average monthly
subscribers.
(5) Determined by dividing the amount of marketing costs by the net subscribers
added. Marketing cost represents all selling expenses and losses incurred
on equipment sales.
Subscribers and System Usage
The Company's cellular subscribers have increased to approximately 250,000 as of
December 31, 1997 from approximately 150,000 as of December 31, 1996 and
approximately 78,000 as of December 31, 1995. The Company's subscribers fall
into 12 major categories: construction, professional/management, medical, sales,
real estate, agriculture, service industry, transportation, financial,
government, manufacturing and other, which includes low usage subscribers.
Reductions in the cost of cellular services have led to an increase in cellular
telephone usage by general consumers for non-business purposes. In addition, the
Company believes that several categories of its subscribers will develop
requirements for specialized cellular applications, such as wireless data
technology. As a result, the Company believes that there is an opportunity for
significant growth in each of its existing service areas. The Company will
continue to seek to broaden its subscriber base for basic cellular services as
well as to increase its offering of customized services. The sale of custom
calling features typically results in increased usage of cellular telephones by
subscribers, thereby further enhancing revenues.
Marketing
The Company markets all of its cellular products and services under the name
CELLULARONE(R), one of the most recognized brand names in the cellular industry
(see "Service Marks"). The national advertising campaign conducted by the
Cellular One Group enhances the Company's advertising exposure at a fraction of
the cost of what could be achieved by the Company alone. The Company also
obtains substantial marketing benefits from the name recognition associated with
this widely used service mark, both with existing subscribers traveling outside
of the Company's service areas and with potential new subscribers moving into
the Company's service areas. In addition, travelers who subscribe to
CELLULARONE(R) service in other markets may be more likely to use the Company's
Systems when they travel in the Company's service areas, primarily due to the
technical operation of the cellular telephone. Cellular telephones of
non-wireline subscribers are programmed to select the non-wireline carrier (such
as the Company) when roaming, unless the non-wireline carrier in the roaming
area is not yet operational or the subscriber either dials a special code or has
a cellular telephone equipped with an "A/B" (non-wireline/wireline) switch and
selects the wireline carrier.
Through its membership in NACN and other special networking arrangements, the
Company provides extended regional and national service to its subscribers in
other markets, thereby allowing them to make and receive calls while in other
cellular service areas without dialing special access codes. This service
distinguishes the Company's service and call delivery features from those of
some of its competitors. NACN is the largest wireless telephone network system
in the world, linking non-wireline cellular operators throughout the United
States and Canada. NACN connects key areas across North America so that
customers can use their cellular phones to place and receive calls in these
areas as easily as they do in their home areas. Through NACN, customers receive
calls automatically without the use of complicated roaming codes as they "roam"
in more than 7,000 cities, in the United States and Canada. By dialing
subscribers' cellular telephone numbers, a caller can reach the Company's
subscribers without knowing their location or having to dial additional roaming
access numbers. In addition, special services such as call forwarding and call
waiting automatically follow the subscribers as they travel.
The Company's marketing strategy is designed to generate continued net
subscriber growth by focusing on subscribers who are likely to generate higher
than industry average monthly revenues and lower than industry average churn
rates, while simultaneously maintaining a low cost of adding net subscribers.
The Company principally uses in-house sales and marketing staff and its own
retail outlets.
Management has implemented its marketing strategy by training and compensating
its sales force in a manner designed to stress the importance of customer
service, high penetration levels and minimum acquisition costs per subscriber.
The Company believes that its internal sales force is better able to select and
screen new subscribers and select pricing plans that realistically match
subscriber means and needs than are independent agents. In addition, the Company
motivates its direct sales force to sell appropriate rate plans to subscribers,
thereby reducing churn, by linking payment of commissions to subscriber
retention. As a result, the Company's use of an internal sales force keeps
marketing costs lower than when independent agents are used because commissions
are lower and subscriber retention is higher.
The Company believes that it helps minimize its churn rate through an after-sale
telemarketing program implemented through its sales force and customer service
personnel. This program not only enhances customer loyalty, which reduces churn,
but also increases add-on sales and customer referrals. The telemarketing
program allows the sales staff to check customer satisfaction as well as to
offer additional calling features, such as voicemail, call waiting and call
forwarding.
The Company's sales force works principally out of its own retail stores in
which the Company offers a full line of cellular products and services. As of
December 31, 1997, the Company maintained 95 retail locations. Ranging from 250
square feet to 4,000 square feet, each store is fully equipped to handle
customer service and telephone maintenance and installation. Some of these
stores are also authorized warranty repair centers. The Company's stores provide
subscriber-friendly retail environments (extended hours, large selection, an
expert sales staff and convenient locations) which make the sales process quick
and easy for the subscriber.
Products and Services
In addition to providing high-quality cellular telephone service in each of its
markets, the Company also offers various custom-calling features such as
voicemail, call forwarding, call waiting, three-way conference calling and no
answer transfer. In 1998, the Company intends to upgrade its systems to provide
digital services in some of its markets such as caller I.D., message waiting
indicator, short messaging services and sleep mode for longer battery life.
Several rate plans are presented to prospective customers so that they may
choose the plan that will best fit their expected calling needs. Unlike some of
its competitors, the Company designs rate plans on a market-by-market basis. The
Company's local general managers generally have the authority to modify existing
rate plans and initiate new rate plans depending upon market and competitive
conditions. These rate plans include a high-volume user plan, a medium-volume
user plan, a basic plan and an economy plan. Most rate plans combine a fixed
monthly access fee, a designated amount of free minutes, per-minute usage
charges and additional charges for custom-calling features in a package which
offers value to the customer while enhancing airtime use and revenues for the
Company. In general, rate plans which include a higher monthly access fee
typically include a lower usage rate per minute. An ongoing review of equipment
and service pricing is maintained to ensure the Company's competitiveness.
Reciprocal agreements between the Company and other cellular operators allow
their respective subscribers to place calls, or roam, in most cellular service
areas throughout the country. Roamers, subscribers placing calls outside their
home market, are typically charged a higher per minute rate than would be
charged for home users. Roaming revenues derived from this usage not only have
higher yields than home usage revenues, but have almost no associated marketing
or customer service costs, therefore, achieving higher margins than home service
revenues. The Company's markets, strategically surrounding or between major
metropolitan areas, encompass significant portions of heavily traveled corridors
which results in significant roaming revenues for the Company.
Customer Service
Customer service is an essential element of the Company's marketing and
operating philosophy. The Company is committed to attracting new subscribers and
retaining existing subscribers by providing consistently high-quality customer
service. In each of its cellular service areas, the Company maintains a local
staff, including a market manager, customer service representatives, technical
and engineering staff, sales representatives and installation and repair
facilities. Each cellular service area handles its own customer-related
functions such as credit evaluation, customer activations, account adjustments
and rate plan changes. Local offices and installation and repair facilities
enable the Company to better service customers, schedule installations and make
repairs. Through the use of sophisticated monitoring equipment, technicians at
the customer service center are able to monitor the technical performance of its
cellular system.
In addition, the Company's customers are able to report cellular telephone
service or account problems to a local office representative. Management
believes its decentralized philosophy and emphasis on customer service in each
of its markets affords it a competitive advantage over its large competitors who
typically centralize customer service outside of the local market.
System Development and Expansion
The Company develops or builds out its cellular service areas by adding channels
to existing cell sites and by building new cell sites with an emphasis on
improving coverage for hand-held phones in heavily-trafficked areas. Such
development is done for the purpose of increasing capacity and improving
coverage in response to projected subscriber demand and competitive factors.
Projected subscriber demand is calculated for each cellular service area on a
cell-by-cell basis. These projections involve a traffic analysis of usage by
existing subscribers and an estimation of the number of additional subscribers
in each such area. In calculating projected subscriber demand, the Company
builds into its design assumptions a maximum call "blockage" rate of 2%
(percentage of calls that are not connected on first attempt at peak usage time
during the day). After calculating projected subscriber demand, the Company has
historically met such demand through a combination of augmenting channel
capacity in existing cell sites and building new cell sites.
Cell site expansion is expected to enable the Company to continue to add
subscribers, enhance use of the Systems by existing subscribers, increase roamer
traffic due to the larger geographic area covered by the cellular network and
further enhance the overall quality of the network. The Company believes that
the increased cellular coverage will have a positive impact on market
penetration, subscriber usage and roaming revenue.
The Company also continues to evaluate expansion through acquisitions of other
cellular properties that will further enhance its network. In evaluating
acquisition targets, the Company considers, among other things, demographic
factors, including population size and density, traffic patterns, cell site
coverage and required capital expenditures.
Competitors and Adjoining Systems
The Company competes with various competitors in each of its clusters.
Management believes that its integrated network of contiguous cellular systems
operating as CELLULARONE(R) affords it significant advantages over many of its
cellular competitors. In the Upper Midwest Cluster, the Company competes against
six distinct operators, in the Mid-Atlantic Cluster, the Company competes
against four distinct operators, and in the Kentucky Cluster, the Company
competes against five distinct operators.
The following chart lists the Company's cellular competitors in each of its
clusters and the major adjoining operators.
<TABLE>
Company Cluster Competitors Adjoining Systems
- --------------------------- ---------------------------------- -------------------------------------------
<S> <C> <C>
Upper Midwest Cluster Air Touch Communications, Inc. AT&T
United States Cellular Corp. BellSouth
CelluLink Western Wireless
Cellular 2000
CellCom
Century Telephone Enterprises
Mid-Atlantic Cluster United States Cellular Corp. AT&T
360 Communications Airtouch Communications Inc.
Ameritech Vanguard Cellular Systems, Inc. ("Vanguard")
Bell Atlantic Mobile
New York Cluster Bell Atlantic Mobile Bell Atlantic Mobile
AT&T
Southwestern Bell
Vanguard
Kentucky Cluster BellSouth Mobility GTE Corp.
Ramcell, Inc. United States Cellular Corp.
Bluegrass Cellular
United States Cellular Corp.
360 Communications
</TABLE>
Telecommunications Act of 1996; Other Regulatory Developments
The Telecommunications Act of 1996 ("Telecom Act") is the first legislation
enacted in over 60 years that attempts comprehensive reform of
telecommunications regulation, although the legislation did not have as a
principal focus the cellular industry in particular or the wireless
communications industry in general. The Telecom Act's goal is to remove
statutory, regulatory, and court-ordered barriers that historically prohibited
new entrants into many segments of the telecommunications industry. Certain of
the provisions of the Telecom Act have been declared unconstitutional, including
several provisions relating to restrictions on Regional Bell Operating Companies
that were deemed a bill of attainder by the United States District Court in
Wichita Falls, Texas. That ruling has been appealed. The Company cannot predict
the outcome of that litigation or the eventual impact of the result of that
litigation on the Company.
To facilitate the entry of competitors, the Telecom Act imposes certain
requirements on local exchange carriers, including interconnection, universal
service, equal access, and facilitating local wireline telephone service. The
FCC has adopted regulations implementing these provisions, including rules on
telephone number portability pursuant to which subscribers will be able to
migrate their landline telephone numbers to a cellular carrier or other
Commercial Mobile Radio Service ("CMRS") or landline carrier, or from a cellular
carrier to another CMRS or landline carrier.
In August 1996, the FCC released its decision implementing the interconnection
portions of the Telecom Act. However, major portions of the FCC's
interconnection rules were reversed by the United States Court of Appeals for
the Eighth Circuit, which held that the rules interfered with matters left to
the jurisdiction of the states by the Telecom Act. The Eighth Circuit's decision
has been appealed to the United States Supreme Court, which has decided to
expedite its review of petitions for certiorari with regard to the Eighth
Circuit's decision. The Company cannot predict the eventual outcome of the
judicial review of the FCC's interconnection rules or the effect of the eventual
implementation of interconnection rules by the FCC. However, pursuant to the
provisions of the Telecom Act, the Company has renegotiated many of its
interconnection agreements with incumbent local exchange carriers and thereby
reduced the cost of interconnection with the local telephone facilities.
The FCC's interconnection decision concluded that CMRS providers are entitled to
reciprocal compensation arrangements with incumbent local exchange carriers and
prohibited local exchange carriers from charging CMRS providers for terminating
traffic initiated on the local exchange carrier's network. While the FCC noted
the potential for asserting jurisdiction over certain aspects of CMRS
interconnection with landline local exchange carriers, it has so far determined
to defer primarily to the states in implementing interconnection policies
pursuant to general guidelines established by the FCC, some of which survive the
Eighth Circuit decision.
The FCC declined to require cellular carriers to comply with certain
interconnection provisions of the Telecom Act applicable to local exchange
carriers. Prior to the passage of the Telecom Act, the FCC had proposed to
require CMRS providers to interconnect directly with other mobile service
providers but tentatively concluded that it would be premature to adopt such a
requirement. The FCC has since stated that it would revisit this issue in the
future.
The Telecom Act requires telecommunications carriers providing interstate
service to contribute to a federal Universal Service Support Fund established by
the FCC. The Universal Service Fund will support telephone service in high-cost
and low-income areas and support access to telecommunications facilities by
schools and libraries. States will also be implementing requirements that
carriers contribute universal service funding from intrastate telecommunications
revenues. The Company has revised its customer billing to reflect additional
costs related to these universal service fund requirements. There can be no
guarantee that the Company will be able to continue to pass the costs of the
fund requirements on to its customers in the future.
The FCC has eliminated its PCS-cellular cross ownership rule, but retained a
spectrum cap on aggregation of CMRS spectrum. A cellular licensee and its
affiliates may not hold an attributable interest in more than 45 MHz of licensed
cellular, broadband personal communications service ("PCS"), and specialized
mobile radio ("SMR") spectrum in a particular geographic area.
The FCC has revised its rules pertaining to cellular licensees' obligations to
allow resale of cellular service. The FCC requires a cellular carrier (and
certain other wireless carriers) to permit unrestricted resale of its service
(including to other FCC-licensed wireless carriers). This rule contains a sunset
provision that provides that the rule will lapse five years following the FCC's
grant of the last group of initial broadband PCS licenses.
Pursuant to an earlier amendment of the Communications Act of 1934, as amended,
Congress preempted state or local regulation of entry into, or rates charged by,
any CMRS or private mobile service carrier. States were allowed to petition the
FCC for authorization to continue their authority to regulate rates and entry by
August 1994. While eight states sought such authority, the FCC denied all such
requests.
Service Marks
CELLULARONE(R) is a registered service mark with the U.S. Patent and Trademark
Office. The service mark is owned by Cellular One Group, a Delaware general
partnership of Cellular One Marketing, Inc., a subsidiary of Southwestern Bell
Mobile Systems, Inc., together with Cellular One Development, Inc., a subsidiary
of AT&T and Vanguard Cellular Systems, Inc. The Company uses the CELLULARONE(R)
service mark to identify and promote its cellular telephone service pursuant to
licensing agreements with Cellular One Group (the "Licensor"). Licensing and
advertising fees are determined based upon the population of the licensed areas.
The licensing agreements require the Company to provide high-quality cellular
telephone service to its customers and to maintain a certain minimum overall
customer satisfaction rating in surveys commissioned by the Licensor. The
licensing agreements, which the Company has entered into, are for original
five-year terms expiring on various dates. These agreements may be renewed at
the Company's option for three additional five-year terms.
Employees and Agents
Currently, the Company has approximately 800 employees. In addition, the Company
has agreements with independent sales agents, including car dealerships,
electronics stores, paging services companies and independent contractors. None
of the Company's employees are represented by a labor organization, and the
Company's management considers its employee relations to be good.
Overview of Cellular Telephone Industry
The cellular telephone industry is a regulated duopoly. The FCC has designated
734 distinct markets in the country, 306 MSAs and 428 RSAs. Since it became
operational in 1983, the cellular telephone industry has experienced significant
growth. For the year ended December 31, 1996, the cellular industry reported
total revenues of $23.6 billion, versus $19.1 and $14.0 billion for the years
ended 1995 and 1994, respectively. The "Dick Tracy" Wireless Communications
Industry Report, published by Donaldson, Lufkin & Jenrette, predicts continued
rapid growth for the cellular industry and forecasts in their fall 1997 issue
that the penetration rate of cellular telephones will be 58.0% of U.S. Pops at
year-end 2006.
The following table sets forth information published by the Cellular
Telecommunication Industry Association ("CTIA") with respect to the number of
subscribers served by cellular, PCS and ESMR telephone systems in the United
States and the combined penetration rate of such operators as of the dates
indicated:
<TABLE>
As of December 31
1996 1995 1994 1993 1992
------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Subscribers (in thousands) 44,706 33,786 24,134 16,009 11,033
Ending penetration (1) 16.9% 12.8% 9.1% 6.1% 4.1%
</TABLE>
(1) Determined by dividing the aggregate number of subscribers by estimated
population as determined by Donnelly's 1996 United States population estimates.
Rates reflect combined penetration of both wireline and non-wireline cellular
operators.
Cellular telephone technology is based upon the division of a given market area
into a number of smaller geographic areas or "cells." Each cell has "base
stations" or "cell sites," which are physical locations equipped with
transmitter receivers and other equipment that communicate by radio signal with
cellular telephones located within range of the cell. Cells generally have a
high quality operating range of one to ten miles. Each cell site transmits to a
mobile telephone switching office ("MTSO") which, in turn, transmits to the
local landline telephone network. As cellular telephone systems are fully
interconnected with the landline telephone network and long-distance networks,
subscribers can receive and originate both local and long-distance calls from
their cellular telephones on a worldwide basis.
When a cellular subscriber in a particular cell dials a number, the cellular
telephone sends the call by radio signal to the cell's transmitter-receiver,
which then sends it to the MTSO. The MTSO then completes the call by connecting
it with the landline telephone network or another cellular telephone unit.
Incoming calls are received by the MTSO, which instructs the appropriate cell to
complete the communications link by radio signal between the cell's
transmitter-receiver and the cellular telephone. Each conversation on a cellular
system occurs on a pair of radio talking paths, thus providing full duplex
telephone service. The relatively short-range transmissions between cell sites
and cellular telephones permit the two distinguishing features of cellular
telephone systems: frequency re-use, enabling the simultaneous use of the same
frequency in two or more adequately separated cells, and call hand-off,
occurring when the MTSO routes a mobile user to an adjacent cell that can
provide a higher quality signal without interrupting an ongoing call.
Frequency re-use allows for the efficient use of the radio frequencies allocated
to each cellular operator. Each cell in a cellular telephone system is assigned
a specific set of frequencies for use between that cell's base station and
cellular telephones within the operations range of the cell, so that the radio
frequencies being used in one cell do not interfere with those being used in
adjacent cells. Due to the relatively low transmission power of the base
stations and cellular telephones, two or more cells which are sufficiently far
apart can use the same frequencies within the same market without interfering
with one another.
A cellular telephone system's capacity can be increased in various ways. Within
certain limitations, increasing demand may be met by simply adding available
frequency capacity to cells as required, or by using directional antennae to
divide a cell into discrete multiple sectors or coverage areas, thereby reducing
the required distance between cells using the same frequency. Furthermore, areas
within a system may be served by more than one cell through procedures which
utilize available channels in adjacent cells. When all possible channels are in
use, further growth can be accomplished through a process called "cell
splitting." Cell splitting entails dividing a single cell into a number of
smaller cells served by lower-power transmitters, thereby increasing the re-use
factor and the number of calls that can be handled in a given area. Although the
Company has generally not experienced any material capacity constraints in its
systems, the Company plans to implement a program of cell splitting to meet
projected capacity demands for the next several years. System capacity can also
be expanded through the implementation of digital cellular technology described
below.
Call hand-off in a cellular telephone system is automatic and virtually
unnoticeable to the user. The MTSO and base stations continuously monitor the
signal strength of the call in progress. The signal strength of the transmission
between the cellular telephone and the base station declines as the caller moves
away from the base station in that cell. When the signal strength of a call
declines to a predetermined threshold level, the MTSO automatically determines
if the signal strength is greater in an adjacent cell and, if so, hands off the
call to that cell. If the cellular telephone user leaves the service areas of
the cellular telephone system, the call can often be handed off to an adjacent
system through intersystem networking arrangements. The Company currently has
several such networking arrangements and will continue to work towards
establishing intersystem networking with all adjacent Systems.
Digital Cellular Technology
Some cellular operators have upgraded their cellular systems, especially in the
more populated markets, to support both analog and digital technology. Over the
next few years, it is expected that many other cellular systems will upgrade to
support both analog and digital technology. These upgrades are being undertaken
due in part to capacity constraints in many of the largest cellular markets,
such as New York, Los Angeles and Chicago. As carriers reach limited capacity
levels of analog only networks, certain calls may be unable to be completed,
especially during peak hours. The industry-wide migration from analog to digital
technology is expected to be a process that will take a number of years to
complete.
The FCC has not mandated a single national digital standard (as it did with
analog Advanced Mobile Phone System) and, as a result, three distinct
technologies have evolved as standards and are being deployed nationally.
1. CDMA-Code division multiple access is a spread-spectrum technology that
is predominantly being used by Sprint and Bell Atlantic.
2. GSM-Global system mobile is a digital standard that originated in Europe
and is being deployed by several 1.9 GHz license holders such as Western
Wireless and TDS Aerial Communications.
3. TDMA-Time division multiple access is the standard adopted and certified
by CTIA. It is the digital standard being deployed nationally by AT&T.
TDMA is the most widely supported and enhanced digital standard utilized
domestically today, with support from all of the large infrastructure
providers, such as Nortel, Lucent and Ericsson. TDMA encodes three voice
calls on a single 30 KHz channel effectively yielding a
spectral-efficient, three fold increase in system capacity.
Digital technology increases system capacity while simultaneously providing an
architecture that supports delivery of revenue enhancing features and services,
commonly referred to as PCS (or simply Digital PCS). Digital PCS features
include extended (60 + hours) battery life on hand-held model phones, improved
call security, intelligent system selection/zone billing, alphanumeric paging,
internet based electronic mail receipt, presentation of calling party
identification, voice mail message waiting information and enhanced
data/facsimile transmission. Management does not believe that its network will
experience capacity constraints in the foreseeable future that would require
converting its network from analog to digital technology. However the Company
has concluded a successful TDMA digital trial in 1997 and is planning for a
limited cost, broad scale TDMA digital infrastructure upgrade in 1998 so as to
position the Company to offer the revenue enhancing digital PCS feature set to
its subscribers.
Competition; New Technology
The Company currently competes with one other cellular licensee in each of its
cellular markets. Many of these licensees are larger, and have greater financial
resources, than the Company. In addition, the Company competes in many of its
markets with providers of other CMRS such as PCS, SMR and paging. The Company
also competes with local landline telephone companies for telephone usage by
customers.
Although current policies of the FCC authorize only two cellular system
licensees in each market, the Company expects that it will face competition from
not only the other cellular licensee in each cellular market in which the
Company operates, but also from PCS and other CMRS licensees. Competition for
subscribers among CMRS providers is based principally upon the services and
enhancements offered, the technical quality of the system, sound quality,
reliability of connections, customer service, system coverage, capacity and
price.
The FCC requires all cellular system operators to provide service to
"resellers." A reseller provides cellular service to customers but does not hold
an FCC cellular license or own cellular facilities. Instead, the reseller buys
blocks of cellular telephone numbers from a licensed carrier and resells service
to the public through its own distribution methods. Thus, a reseller may be both
a customer of a cellular licensee's services and, also, a competitor of that
licensee. The Company does not know of any significant resellers currently
operating in competition with the Company's Systems.
Cellular telephones have remained the technology of choice for mobile
communications. Potential users of cellular systems may, however, find their
communications needs satisfied by other current and developing technologies,
particularly in the broadband personal communications services. PCS operators
providing digital communication technology may compete with cellular service
with regard to rates, enhanced privacy, and additional features such as
electronic mail and built-in paging. One-way paging or beeper services that
feature voice message and data display as well as tones, may be adequate for
potential subscribers who do not need to speak to the caller. In the future,
cellular service may also compete more directly with traditional landline
telephone service providers.
There are six potential broadband PCS providers in each PCS service area.
Licensing areas for broadband PCS are divided into 51 Major Trading Areas
("MTAs") and 493 smaller Basic Trading Areas ("BTAs") based on the geographic
divisions in the 1992 Rand McNally Commercial Atlas & Marketing Guide. Three
licensees per market hold 30 MHz of PCS spectrum, two licensed for each MTA and
one licensed for each BTA. The BTA licenses were awarded to small business and
rural telephone entities qualifying for participation in an "Entrepreneurs'
Block." The 30 MHz frequency blocks permit licensees to offer a broad range of
two-way voice, data and related communications services employing digital
micro-cellular technology. Three 10 MHz frequency blocks were licensed in each
BTA, with one per BTA licensed to an Entrepreneurs' Block entity. It is
anticipated that the 10 MHz licensees will provide niche services or will be
purchased by existing CMRS, including cellular operators for added spectrum. The
FCC's PCS rules, among other things, limit a cellular licensee until the year
2000 to two 10 MHz PCS licenses in areas in which it also provides cellular
services to 10 percent or more of the population. Thus, given the 25 MHz of
spectrum afforded cellular carriers under the cellular rules, cellular carriers
are subject to a 45 MHz spectrum cap for their combined cellular and PCS
spectrum in areas where they offer both services. After January 1, 2000,
cellular licensees will be permitted to acquire an additional five MHz for a
total of 15 MHz of PCS spectrum in their cellular service areas.
The FCC has also adopted rules for narrowband PCS services in the 900 MHz
frequency band and awarded national and regional licenses by auction. Narrowband
PCS services typically are advanced paging and messaging services. In addition,
the FCC allocated 30 MHz to unlicensed PCS, which will consist of new cordless
telephones, local area networks in offices and other kinds of short-range
communications. Unlicensed PCS operations are restricted to very low power.
SMR and other land mobile radio systems, such as those historically used by
taxicabs, tow truck services, and other communications services that have the
technical capability to handle mobile telephone calls (including interconnection
to the landline telephone network), may provide competition to cellular and PCS
services in certain markets. Beginning in February 1991, the FCC granted waivers
of certain of its SMR rules to permit several large operators of SMR systems to
construct and operate Enhanced Specialized Mobile Radio ("ESMR") systems. These
waivers allow SMR operators to use digital technology to provide a wide-area
mobile communications service that substantially increases the number of
customers that can be served. The ESMR system incorporates characteristics of
cellular technology, including multiple low power transmitters and
interconnection with the landline telephone network. ESMR service may compete
with cellular service by providing digital communication technology, lower
rates, enhanced privacy and additional features such as electronic mail and
built-in paging. The FCC has and will be auctioning SMR licenses in the 800 and
900 MHz frequency bands for the provision of wide area SMR licensing. The new
licenses were designed to promote wide-area systems that would make SMR more
competitive with other wireless services, including cellular.
Continuing technological advances in the telecommunications industry make it
impossible to predict the extent of future competition. A consortium of
telecommunications providers known as American Mobile Satellite Corporation has
been licensed by the FCC to provide mobile satellite service. In addition, the
FCC has issued licenses for low-orbit satellite systems that would provide voice
and data mobile communications to subscribers throughout the world. Other
proposals for additional mobile satellite service and spectrum are pending
before the FCC. The FCC and international and foreign regulatory authorities are
considering additional aspects of mobile satellite systems and services. The
International Maritime Satellite Organization ("Inmarsat") has been planning for
several years an "Inmarsat-P" international global satellite telephone and data
service that is expected to commence service in 1999 or 2000.
Mobile satellite systems could augment or replace communications within land
based cellular systems. Similar technological advances may make available
alternatives to cellular service, creating additional sources of competition.
In addition, the FCC has auctioned off 25 MHz of spectrum for unspecified fixed
and mobile services, collectively known as the General Wireless Communications
Service ("WCS"). The FCC defined WCS as any fixed or mobile service except
broadcasting, radiolocation, and satellite service. Among the services the FCC
anticipates the WCS may be used for are voice, video and data transmission,
private microwave, broadcast auxiliary, and ground-to-air voice and data. The
FCC has scheduled for February 1998 an auction for Local Multipoint Distribution
Service ("LMDS") frequencies in the 28 and 31 GHz frequency bands for which the
FCC will permit flexible use. It is anticipated that LMDS licenses will be used
to provide video and data transmission and Internet access, although voice use
is also permitted. Frequencies in the 38 GHz band have also been licensed for
similar uses.
As a result of the above, the Company's cellular operations may face increased
competition from entities providing other communication technologies and
services. The Company cannot predict the success of such competing technologies
or their operational abilities. While some of these technologies are currently
operational, others are operational on only a limited basis or are not yet
operational. Broadband PCS operators will compete directly with the Company and
may have access to substantial capital resources, although such resources have
generally not been available to Entrepreneurs' Block licensees. There can be no
assurance that the Company will be able to provide or that it will choose to
pursue, depending on the economics thereof, such services and features in
addition to those already provided. The Company believes that traditional tested
cellular service is economically proven. While the Company believes that
competition from other technologies will increase over both the short and long
terms, it also believes that the development of cellular technology and
expansion of the Company's cellular clusters is its best strategy. Nonetheless,
there can be no assurance that one or more of the technologies currently used by
the Company will not become obsolete sometime in the future.
Regulations
Regulation and Licensing of Cellular Telephone Systems
The FCC regulates the construction, operation and acquisition of cellular
systems in the United States pursuant to the Communications Act. FCC regulations
specify that two cellular radio licenses are available for any given area within
each of the 734 FCC designated markets in the United States (306 MSAs and 428
RSAs). Frequency block "B" was initially awarded to incumbent landline local
exchange carriers (the "Wireline" license) and frequency block "A" was initially
awarded to nonincumbents (the "Non-Wireline" license). Apart from the different
frequency blocks, there is no technical difference between Wireline and
Non-Wireline cellular systems and the operational requirements imposed on
Wireline and Non-Wireline licensees are the same. The regulatory distinction
between Wireline and Non-Wireline systems only concerns an applicant's
eligibility to apply for an initial authorization. After initial authorization,
a Non-Wireline company may purchase interests in a Wireline system, subject to
restrictions on common ownership of Wireline and Non-Wireline systems in the
same market and to any necessary prior approval of the FCC. Likewise, a company
affiliated with a landline telephone service provider may purchase an interest
in a Non-Wireline system, subject to the same restrictions on common ownership
and prior FCC approval where necessary.
FCC licensing of all MSA markets and the FCC's initial lotteries of all of the
RSA markets have been completed. Additional lotteries are to be held for several
RSA markets in which the initially selected applicant has been disqualified.
For Systems below the top 90 MSA markets (including all RSA markets), the
issuance of a construction permit initiates an 18-month period during which the
permittee must construct at least one cell and begin providing service via those
facilities. A permittee that does not complete initial construction within 18
months is subject to having its permit canceled. A small number of RSA
permittees forfeited their permits on this ground.
Following notice of completion of construction, a cellular operator obtains an
initial license. Cellular licenses are issued generally for a 10-year term
beginning on the date of the grant of the Initial Operating Authority and are
renewable upon application to the FCC for periods of up to 10 years. The FCC may
revoke a license prior to the end of its term in extraordinary circumstances
(such as when serious violations of FCC rules have occurred).
Under FCC rules, the authorized service area of a cellular provider in each of
its markets is referred to as the "Cellular Geographic Service Area" ("CGSA").
The CGSA may be coincident with, or smaller than, the related FCC-designated MSA
or RSA. A cellular licensee has the exclusive right to expand its CGSA
boundaries within the licensee's MSA or RSA for a period of five years after
grant of the licensee's construction permit. At the end of the five-year period,
however, any entity may apply to serve portions of the MSA or RSA outside the
licensee's CGSA. The five-year exclusivity period has expired for some licensees
and parties have filed "unserved area" applications. The FCC has granted a
number of unserved area applications for areas within both MSA and RSA markets,
some filed by incumbent operators and others filed by new entrants.
Near the conclusion of the license term (the years 1997 to 2007, in the case of
the Company's current licenses), licensees must file applications for renewal of
licenses to obtain authority to operate for up to an additional 10-year term.
Applications for license renewal may be denied if the FCC determines that the
grant of an application would not serve the public interest. In addition, at
license renewal time, other parties may file competing applications for the
authorization. In the event that qualified competitors file applications for a
licensee's market, the FCC may be required to hold a hearing to determine
whether the incumbent or the competitor will receive the license. In 1993, the
FCC adopted specific standards to apply to cellular renewals, concluding that it
will award a renewal expectancy to a cellular licensee that meets certain
standards of past performance. If the existing licensee receives a renewal
expectancy, it is very likely that the existing licensee's cellular license will
be renewed without a full comparative hearing. To receive a renewal expectancy,
a licensee must show that it (i) has provided "substantial" service during its
past license term; and (ii) has substantially complied with applicable FCC rules
and policies and the Communications Act. "Substantial" service is defined as
service which is sound, favorable and substantially above a level of mediocre
service that might only minimally warrant renewal.
Cellular radio service providers also must satisfy a variety of FCC requirements
relating to technical and reporting matters. One such requirement is the
coordination of proposed frequency usage with adjacent cellular users,
permittees and licensees in order to avoid interference between adjacent
Systems. In addition, the height and power of base station transmitting
facilities and the type of signals they emit must fall within specified
parameters. The FCC also regulates cellular service resale practices and the
terms under which certain ancillary services may be provided through cellular
facilities. Cellular systems are subject to certain Federal Aviation
Administration regulations respecting the location, lighting and construction of
cellular transmitter towers and antennae and may be subject to regulation under
the National Environmental Policy Act and the environmental regulations of the
FCC. State or local zoning and land use regulations may also apply. The Company
uses common carrier point to point microwave facilities to connect cell sites
and to link them to the main switching office. These facilities are separately
licensed by the FCC and are subject to regulation as to technical parameters and
service.
In July 1994, the FCC issued a notice proposing to require that all cellular
carriers provide interexchange carriers with equal access. Currently, only
AT&T's cellular carriers and the cellular affiliates of the Regional Bell
Operating Companies ("RBOCs") are required to provide equal access. The FCC also
proposed requiring all CMRS providers to provide interconnection to other mobile
service providers. In April 1995, however, the FCC tentatively concluded that it
would be premature to adopt such a requirement.
Congress amended the Communications Act to preempt, as of August 10, 1994, state
or local regulation of the entry of, or the rates charged by, any commercial
mobile service or any private mobile service which includes cellular telephone
service.
Transfers and Assignments of Cellular Licenses
The Communications Act and FCC rules require the FCC's prior approval of the
assignment or transfer of control of a construction permit or license for a
cellular system. Subject to FCC approval, a license or permit granted to a
non-wireline entity may be transferred or assigned to a wireline entity and vice
versa. In most cases, noncontrolling interests in an entity that holds a
cellular license or cellular system generally may be bought or sold without
prior FCC approval. In the case of a sale proposed to occur before the
expiration of certain holding periods, the FCC may prohibit or impose
limitations on such a sale or require the seller to make certain representations
as a condition precedent to such a sale. For RSAs, the minimum holding period
generally expires upon completion of initial construction. The FCC has permitted
sales prior to completion of initial construction under certain circumstances.
Specifically, the seller must demonstrate that it did not file its application
for the purpose of speculating in cellular licenses. Any acquisition by the
Company of cellular interests may also require the prior approval of state or
local regulatory authorities having jurisdiction over the cellular telephone
industry.
In certain circumstances, the FCC's rules prohibit the alienation of cellular
interests. No ownership interest in an RSA application, or an entity holding
such an application, may be transferred or otherwise alienated prior to the
grant of a construction permit. For cellular unserved areas, no substantial
change in ownership may take place until after the FCC has granted both a
construction permit and a license and the licensee has provided service to the
public for at least one year. These restrictions prevent prospective purchasers,
including the Company, from entering into agreements for assignment or transfer
of unserved areas and RSA acquisitions prior to the lapse of the applicable
transfer restriction periods. These transfer restrictions should not have a
greater effect on the Company than on any other prospective buyer.
Character and Citizenship Requirements
Applications for FCC authority may be denied and, in extreme cases, licenses may
be revoked if the FCC finds that an entity lacks the requisite "character"
qualifications to be a licensee. In making that determination, the FCC considers
whether an applicant or licensee has been the subject of adverse findings in a
judicial or administrative proceeding involving felonies, the possession or sale
of unlawful drugs, fraud, antitrust violations or unfair competition, employment
discrimination, misrepresentations to the FCC or other government agencies, or
serious violations of the Communications Act or FCC regulations. The FCC also
requires licensees to comply with statutory restrictions on the direct or
indirect ownership or control of radio licenses by non-U.S. persons or entities.
The FCC has found the Company to be qualified to hold FCC licenses.
Other Restrictions
The Communications Act currently limits the interest of foreign governments and
non-U.S. corporations and citizens in radio licensees, which include cellular
licensees. This limitation will be relaxed with regard to certain foreign
investors pursuant to a World Trade Organization treaty and FCC actions,
implementing the treaty. The cellular industry is also subject to other rules
and policies of the FCC and state commissions.
Certain Terms
Interests in cellular markets that are licensed by the Federal Communications
Commission (the "FCC") are commonly measured on the basis of the population of
the market served, with each person in the market area referred to as a "Pop."
The number of Pops or Net Pops owned is not necessarily indicative of the number
of subscribers or potential subscribers. As used in this Form 10-K, unless
otherwise indicated, the term "Pops" means the estimate of the 1996 population
of a Metropolitan Statistical Area ("MSA") or Rural Service Area ("RSA"), as
derived from the 1996 Donnelley Market Information Service population estimates.
The term "Net Pops" means the estimated population with respect to a given
service area multiplied by the percentage interest that the Company owns in the
entity licensed in such service area. MSAs and RSAs are also referred to as
"markets." The term "wireline" license refers to the license for any market
initially awarded to a company or group that was affiliated with a local
landline telephone carrier in the market, and the term "non-wireline" license
refers to the license for any market that was initially awarded to a company,
individual or group not affiliated with any landline carrier. The term "System"
means an FCC-licensed cellular telephone system.
Item 2. Properties
The Company maintains its corporate headquarters in White Plains, N.Y. The
Company leases this space which is approximately 12,000 square feet. In addition
to its corporate headquarters, the Company's cellular operations lease sales and
administrative offices and lease and own locations for cell site and switching
equipment. The Company reviews these leases from time to time and may, in the
future, lease or acquire new facilities as needed. PriCellular does not
anticipate that it will encounter any material difficulties in meeting its
future needs for any leased space.
Item 3. Legal Proceedings
The Company is not currently involved in any pending legal proceedings that
individually, or in the aggregate are material to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None
Part II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters.
The Company's Class A Common Stock is listed on the American Stock Exchange
under the symbol "PC." The Company's Class A Common Stock is also traded on the
Chicago Stock Exchange under the symbol "PC.M" and on the Pacific Stock Exchange
under the symbol "PC.P." The table below sets forth, for the periods indicated,
the high and low sale prices of the Company's Class A Common Stock as reported
on the American Stock Exchange Composite Tape.
<TABLE>
Period High Low
- ------------------------------------------ ----------------- -----------------
<S> <C> <C>
1996:
First Quarter $ 10.70 $ 7.20
Second Quarter 11.60 9.40
Third Quarter 11.90 7.40
Fourth Quarter 12.75 10.63
1997:
First Quarter $ 11.38 $ 8.00
Second Quarter 9.25 7.31
Third Quarter 10.25 7.50
Fourth Quarter 12.13 9.13
1998:
First Quarter through March 18, 1998 $ 13.63 $ 10.25
</TABLE>
The above prices were adjusted for the 5 for 4 stock splits in October 1996 and
March 1996.
A recent last sales price for the shares of Class A Common Stock as reported on
the American Stock Exchange Composite Tape was $13.00 on March 18, 1998. On
March 18, 1998 the Company estimates there were approximately 4,000 holders of
Class A Common Stock of which 143 were of record.
There is no established public trading market for the Company's Class B Common
Stock. On March 6, 1998, there were 16 holders of Class B Common Stock of
record.
The Company anticipates that any income generated in the foreseeable future will
be retained for the development and expansion of its business and the servicing
and repayment of indebtedness and, therefore, does not anticipate paying cash
dividends on its Common Stock. The Company has not paid cash dividends since
inception.
Item 6. Selected Financial Data.
The Company acquired all of its existing Systems (excluding minority interests)
between April 1994 and January 1998. Many of the Systems at the time of
acquisition were relatively dormant or running at a minimum level of operating
efficiency. Accordingly, the following historical financial data is not
necessarily indicative of future results of operations. The selected financial
data set forth below for the Company for the years ended December 31, 1997, 1996
and 1995 and as of December 31, 1997 and 1996, is derived from, and qualified by
reference to, the audited consolidated financial statements included elsewhere
herein. The selected financial data set forth below for the Company for the
years ended December 31, 1994 and 1993 and as of December 31, 1995, 1994 and
1993 are derived from audited consolidated financial statements not included
elsewhere herein. The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
<TABLE>
Years ended December 31
1997 1996 1995 1994 1993 (3)
------------- ------------ -------------- ------------- -------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues $ 181,000 $112,616 $ 41,504 $5,209 $ 3,809
Cost of cellular service 48,691 29,571 10,694 1,892 835
Cost of equipment sold 12,841 10,073 4,951 814 255
------------- ------------ -------------- ------------- -------------
Gross margin 119,468 72,972 25,859 2,503 2,719
Selling, general and administrative 53,485 34,502 16,512 6,005 1,659
Depreciation and amortization 28,759 19,537 10,337 2,720 1,695
------------- ------------ -------------- ------------- -------------
Operating income (loss) 37,224 18,933 (990) (6,222) (635)
Gain (loss) on sale of investments
in cellular operations 8,423 (1,401) 11,598 6,819 11,986
Interest expense, net (62,528) (42,201) (18,839) (1,940) (271)
Other income (expense), net 3,250 1,626 520 (97) (439)
------------- ------------ -------------- ------------- -------------
Income (loss) before provision for
income taxes and extraordinary item (13,631) (23,043) (7,711) (1,440) 10,641
Provision for income taxes (172)
Gain on early extinguishment
of debt, net of tax 147
------------- ------------ -------------- ------------- -------------
Net income (loss) $ (13,631) $(23,043) $ (7,711) $ (1,440) $ 10,616
============= ============ ============== ============= =============
Net income (loss) after adjustment for
accrued preferred stock dividends $ (20,171) $(29,221) $ (7,711) $ (1,440) $ 10,616
============= ============ ============== ============= =============
Net income (loss) per common share (1) $ (0.55) $ (0.76) $ (0.24) $ (0.06) $ 1.05
============= ============ ============== ============= =============
Net income (loss) per common share-
assuming dilution (1) $ (0.55) $ (0.76) $ (0.24) $ (0.06) $ .45
============= ============ ============== ============= =============
Weighted average shares outstanding (2) 36,751 38,493 32,214 23,023 12,695
============= ============ ============== ============= =============
Adjusted weighted average shares for
assumed conversions (2) 36,751 38,493 32,214 23,023 23,725
============= ============ ============== ============= =============
</TABLE>
<TABLE>
As of December 31
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ 44,518 $ 89,749 $ 116,415 $ 26,488 $ (139)
Net fixed assets 104,854 73,327 52,041 26,144 389
Total assets 747,656 735,816 544,766 215,744 6,755
Long-term debt 568,323 524,517 315,216 113,683 4,000
Total liabilities 613,476 555,897 339,038 137,508 4,680
Stockholders' equity 134,180 179,919 205,728 78,236 2,075
</TABLE>
(1)--The earnings (loss) per share amounts prior to 1997 have been restated to
comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share. For further discussion of earnings per share and the impact of
Statement No. 128, see the notes to the consolidated financial
statements.
(2)--Weighted average shares outstanding for the year ended December 31, 1993
were computed based upon the number of shares of common stock outstanding
immediately prior to the closing of the Initial Public Offering. Adjusted
weighted average shares and assumed conversions for the year ended December 31,
1993 were computed based upon the number of shares of common stock outstanding
immediately prior to the closing of the Initial Public Offering (i) after giving
effect to the conversion of Series A and B Convertible Preferred Stock and the
exercise of all options and warrants outstanding (applying the treasury stock
method) as if such shares were outstanding on January 1, 1993 and (ii) after
giving retroactive effect for the October 1996, March 1996 and August 1995
5-for-4 Class A and Class B Common Stock Splits. Weighted average shares
outstanding for the year ended December 31, 1994 were computed by using the pro
forma shares outstanding as calculated above plus the weighted average shares
outstanding in connection with the Initial Public Offering after giving effect
for the October 1996, March 1996 and August 1995 5-for-4 Class A and Class B
Common Stock splits. Weighted average shares outstanding for the years ended
December 31, 1996 and 1995 were computed using the weighted average shares
outstanding during the period after giving effect for the October 1996, March
1996 and August 1995 5-for-4 Class A and Class B Common Stock splits.
(3)--For 1993 basic earnings before extraordinary item per common share and net
income before extraordinary item per common share, assuming dilutions, were
$1.04 and $0.44, respectively. The extraordinary item on a per share basis would
have been $0.01 for both basic earnings and net income per common share assuming
dilution.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
The results for the current year reflect the continued strong growth of the
Company's fiscal operations and subscriber additions. The Company continued its
policy of strategic acquisitions through the purchase in January 1997 of the
Kentucky Cluster with its 785,000 Pops and the WI-4 RSA with its 119,000 Pops
and in May 1997 with the acquisition of the WI-5 RSA with its 85,000 Pops. In
addition, the Company sold its stand-alone systems serving the Florence, AL MSA
and the AL-1B RSA with their combined 199,000 Pops. In January 1998, the Company
completed the acquisition of the TN-4 RSA which contains 264,000 Pops giving the
Company a total of 5.1 million Net Pops. The Company ended the year with 250,441
subscribers which represents an increase of over 100,000 subscribers from the
end of 1996. Approximately 86,000 of the increase resulted from internal growth.
The Company achieved a penetration rate of 5.2% at the end of 1997 compared to
3.8% at the end of 1996 which equates to an increase of 37.0%.
Historical Results of Operations
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Operating revenue increased from $112.6 million in 1996 (consisting of $105.2 of
cellular service, $3.4 of equipment sales and $4.0 of other) to $181.0 million
in 1997 (consisting of $168.4 million of cellular service, $5.4 million of
equipment sales and $7.2 million of other). The primary reason for the increase
in cellular service revenue and equipment sales is the addition of the Kentucky
cluster, the WI-4 RSA and the WI-5 RSA in 1997 and the fact that Poughkeepsie,
NY-6, and WV-3 markets were acquired over the course of 1996 and therefore
generated a full year of revenue in 1997 but were included for only part of the
year in 1996.
Total costs and expenses increased from $93.7 million in 1996 (consisting of
$29.6 million for cellular service, $10.1 million for cost of equipment sold,
$34.5 million for selling, general and administrative and $19.5 million for
depreciation and amortization) to $143.8 million in 1997 (consisting of $48.7
million for cellular service, $12.8 million for cost of equipment sold, $53.5
million for selling, general and administrative and $28.8 for depreciation and
amortization). The increases are principally a result of the markets added in
1996 and 1997 as stated above.
The increase in interest expense from $47.1 million in 1996 to $67.4 million in
1997 is a result of a full year's worth of interest on the $170.0 million 10
3/4% notes issued in November 1996 compared to only one and one-half months in
1996.
The gain on sale of investments in cellular operations resulted from the sale in
January 1997 of the Florence AL MSA and AL-1B RSA ("Florence License"). In 1996,
the net loss resulted from the sale of the AL-4 RSA ($1.6 million loss), the
sale of the MI-2 RSA ($1.6 million loss) offset by the sale of minority Pops
($1.8 million gain).
Other income increased to $3.3 million in 1997 from $1.6 million in 1996
principally due to the amortization of the covenant not to compete associated
with the sale of the Florence License in January 1997.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Operating revenues increased from $41.5 million in 1995 (consisting of cellular
revenues of $38.8 million, equipment sales of $1.7 million and other revenues of
$1.0 million) to $112.6 million in 1996 (consisting of cellular revenues of
$105.2 million, equipment sales of $3.4 million and other revenues of $4.0
million). The significant increase in cellular revenues and equipment sales
resulted from properties added in 1996 which were not present in 1995 including
the addition of the New York Cluster significant additions to the Mid-Atlantic
Cluster and Upper Midwest Cluster in the latter half of 1995 for which a full
year of revenue was earned in 1996. The increase in other revenue from $1.0
million in 1995 to $4.0 million in 1996 is principally a function of the
inclusion of the guaranteed preferential distributions from the Joint Venture
agreement with SBC Corporation for a full year in 1996 ($3.4 million) compared
to only one month in 1995 ($275,000) partially offset by the income recorded in
1995 from the management of the AL-4 RSA ($755,000) which is not present in
1996.
Total costs and expenses rose from $42.5 million for 1995 to $93.7 million for
1996. The increase is principally a result of the factors stated above: new
markets in 1996 for which no expenses were incurred in 1995 and the addition in
1995 toward the latter part of the year of a significant number of markets which
therefore have a full year of expenses for 1996 but less than six months of
expenses for 1995.
The result of these factors is an increase in the cost of cellular service to
$29.6 million in 1996 from $10.7 million in 1995, an increase to $10.1 million
in 1996 for the cost of equipment sold from $5.0 million in 1995 and an increase
in selling, general and administrative expenses to $34.5 million in 1996 from
$16.5 million in 1995. The Company's aggressive marketing and sales promotion
efforts are geared towards increasing subscribers. The addition of retail
locations combined with the increase in the number of markets also contributed
to this increase.
Depreciation and amortization increased to $19.5 million in 1996 from $10.3
million in 1995 because of the additional equipment and cellular licenses
associated with the acquisition of new markets in 1996 and a full year's
depreciation and amortization in 1996 for markets acquired during 1995.
The loss on sale of investments in cellular operations in 1996 of $1.4 million
is a result of the loss from the sale of the AL-4 RSA of $1.6 million and the
MI-2 RSA of $1.6 million partially offset by the gain on the sale of minority
Pops of $1.8 million. The gain in 1995 of $11.6 million is due to the
disposition of the Company's interest in the nonwireline system serving the
Abilene, TX MSA.
The increase in interest expense from $23.0 million in 1995 to $47.1 million in
1996 is a function of a full year of interest for the current year on the
12-1/4% Senior Subordinated Discount Notes issued in September 1995 compared
with only three months in the prior year, combined with additional interest
related to the issuance of the 10-3/4% Poughkeepsie Note in the amount of $19.0
million for approximately six and one-half months and the interest for one and
one-half months on the 10-3/4% Senior Notes, face amount of $170.0 million
issued in November 1996.
Other income for 1996 includes $625,000 related to the two year covenant not to
compete from the sale of the AL-4 RSA in July 1996, $1.0 million for the
covenant not to compete from the Lubbock/Minnesota exchange in July 1995 for
which one-half year or $500,000 is included for 1995.
The increase in interest income from $4.1 million in 1995 to $4.9 million in
1996 is a result of the increased cash flow for 1996 combined with the cash on
hand resulting from the proceeds of the $170.0 million 10-3/4% Senior Notes
received in November 1996.
Liquidity and Capital Resources
The cellular telephone business requires substantial capital to acquire,
construct and expand cellular telephone systems and to fund operating
requirements. The Company historically has financed its acquisitions and other
capital needs through the proceeds from the issuance of debt securities, the
sale of equity interests, borrowings, vendor credit facilities and more recently
internally generated cash flows. As of December 31, 1997, the Company had $61.4
million of cash and cash equivalents and $44.5 million of working capital. In
addition, the Company had $13.0 million segregated on the Balance Sheet at
December 31, 1997 as cash committed for the acquisition of the TN-4 RSA.
During 1997, the $49.0 million of cash provided by operations was the Company's
principal source of cash. In addition $22.4 million was generated from the sale
of the Florence License and $7.3 million was provided by the return of monies
placed in escrow as well as the return of a deposit. The Company's principal
uses of cash in 1997 were $53.9 million for the purchase and retirement of 2.2
million shares of the Company's Class A common stock and 4.0 million shares of
the Company's Class B common stock, the purchase of cellular equipment in the
amount of $25.7 million and $39.0 million for the acquisition of cellular
operations (including $13.0 million committed for an acquisition in 1998). In
January 1998, a wholly owned subsidiary of the Company entered into a $60.0
million credit agreement with Morgan Guaranty Trust Company of New York due
December 31, 2005. The proceeds were used to acquire substantially all of the
assets of the TN-4 RSA. Repayment of the loan will commence with the quarter
ending June 30, 2001. Interest is payable quarterly at the LIBOR rate plus a
premium ranging from 1.50% to 2.25% based on the ratio of total debt (as
defined) to annualized cash flow (as defined) for the most recent fiscal
quarter.
Even though EBITDA equaled $69.2 million only $49.0 million of cash was provided
by operations principally due to the payment of interest in 1997. Beginning in
1998, the Company has two instruments requiring cash interest payments; the
first is the 14.0%, $165.0 million face Senior Subordinated Discount Notes due
2001 issued by the Company's wholly owned subsidiary, PriCellular Wireless
Corporation ("Wireless"), requiring $23.1 million of cash interest payments. The
second issue requiring cash interest is the 10 3/4%, $170.0 million Notes
requiring $18.3 million of cash interest payments in 1998. Wireless' 12 1/4%
Senior Subordinated Discount Notes due 2003 and the Company's 10 3/4% Senior
Subordinated Convertible Discount Notes due 2004 were each issued with an
original issue discount and do not pay cash interest until April 1999 and
February 2001, respectively.
During 1996 EBITDA approximated cash flow from operations, the Company's
principal sources of cash were (i) the issuance by Wireless of $170.0 million
aggregate principal amount 10 3/4% Senior Notes due 2004, (ii) an aggregate of
$36.8 million of proceeds from the disposition of certain non-strategic Systems
(the Systems serving the AL-4 RSA and the MI-2 RSA and certain minority pops)
and (iii) $39.4 million of cash provided by operating activities. The Company's
principal uses of cash in 1996 were (i) $111.0 million to finance acquisitions
(the acquisitions of the Systems serving the PA-9 RSA, NY-6 RSA, Poughkeepsie,
NY MSA, WV-3 RSA, and WI-2 RSA) and (ii) $29.5 million of capital expenditures
related to the build-out and improvement of its Systems. In connection with the
acquisition of the Poughkeepsie, NY MSA, a subsidiary of the Company issued a
$19.0 million aggregate principal amount three-year note bearing interest at the
prime rate (the "Poughkeepsie Note"). The Poughkeepsie Note was repaid in
November 1996.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
amounted to $69.2 million compared to $40.1 million for 1996 or an increase of
72.6%. Management believes that EBITDA is an effective measure of operating
performance because it is industry practice to use a multiple of EBITDA as one
method of evaluating cellular properties. EBITDA does not represent cash flow
from operations as defined by GAAP, and is not necessarily indicative of cash
available to fund all cash flow needs and should not be considered as an
alternative to net income. The Company in fact expects to report losses for
accounting purposes for the foreseeable future due to interest and non-cash
charges such as depreciation and amortization.
Comparison of operating results may not be meaningful because of significant
acquisitions. However, a comparison can be made of those markets that were owned
by the Company throughout the 12 months of 1997 and 1996. The markets included
account for approximately 59% of the 1997 Net Pops and 63% of the 1996 Net Pops.
The following represents certain operating results (000's omitted except for
subscriber additions) for these markets:
Year ended December 31
1997 1996
------------- ------------
Total revenue $99,476 $74,202
Operating income 21,712 11,679
EBITDA 39,010 26,022
Net subscriber additions 56,477 48,582
Penetration 5.71% 3.75%
The above data reflects a 34.1% growth in revenue, an 85.9% growth in operating
income, a 49.9% growth in EBITDA, a 16.3% growth in subscriber additions and an
increase in penetration of 52.3%. These statistics demonstrate the Company's
ability to generate significant internal growth from operations aside from
acquisitions. There can be no assurance, however, that the Company will be able
to maintain these growth rates for these systems or achieve similar rates of
growth for its other systems.
As was previously mentioned, the cellular telephone industry requires
significant expenditures for capital additions. Certain of the Company's new
acquisitions will require substantial expenditures as the Company seeks to
better develop subscriber coverage and in general enhance the market's
performance as has been the Company's operating strategy. The Company continues
to expand its marketing efforts which include, but are not limited to, the
increase in funds for advertising, cellular telephone inventory purchases and
other expenditures relating to subscriber growth.
The Company has reviewed the possible effect of the Year 2000 on the operating
software currently in use including the software that is an integral part of the
switches and the related billing information. It does not believe that any
significant financial requirement is currently required to make any
modifications that may become necessary. The Company has obtained assurances
from its third party billing provider and its principal source of cellular
equipment that they have addressed the potential problems of the Year 2000.
The Company continually reviews plans for future growth through acquisitions
which may require additional financing. Although the Company has historically
been able to obtain such financing, there is no guarantee that such financing
will continue to be available.
Forward Looking Statements
The Company has made in this report, and from time to time may otherwise make,
statements which constitute forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers primarily with respect to the Company's operations
and financial performance. Investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in the
forward looking statements as a result of various factors. Some of these factors
may include (i) the Company's limited operating history and history of net
losses, (ii) the Company's high degree of leverage and the requirement for
significant and sustained growth in the Company's cash flow to meet its debt
service requirements, (iii) the status of any pending potential acquisitions or
dispositions of Systems and the risk that new Systems and Systems recently
acquired may not perform as expected, (iv) competition from the other cellular
operator in the Company's Clusters or from other technologies, (v) dependence on
corporate management, (vi) reliance on the CELLULARONE(R) trademark, (vii)
potential for adverse regulatory change and the need for renewal of cellular
licenses, (viii) fluctuations in market value of licenses, (ix) equipment
failure or natural disaster and (x) concerns about radio frequency emissions.
Fluctuations in Quarterly Results
The Company's revenues in the fourth quarter are historically lower than the
third quarter due to the fact that less cellular calls are made in the Company's
markets during the inclement weather. Losses increase in the forth quarter due
to the lower revenues coupled with higher sales and marketing costs incurred
during the holiday selling season.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 of Part II is incorporated herein by
reference to the Consolidated Financial Statements filed with this report; see
Item 14 of Part IV.
Quarterly Results of Operations
The following is a summary of the quarterly results of operations for the years
ended December 31, 1997 and 1996.
<TABLE>
Three months ended
March 31 June 30 September 30 December 31
--------------- --------------- --------------- ---------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
1997
Operating revenues (1) $35,566 $ 43,172 $ 52,498 $ 49,764
Operating income (1) 5,823 8,624 14,618 8,159
Net income (loss) (1) 390 (5,405) (997) (7,619)
Basic and diluted earnings (loss)
per common share (2) $(.03) $(.18) $(.07) $(.27)
1996
Operating revenues $21,262 $ 27,106 $ 32,847 $ 31,401
Operating income 2,005 5,192 8,157 3,579
Net income (loss) (6,948) (5,354) (941) (9,800)
Basic and diluted earnings (loss)
per common share (2) $(.22) $(.18) $(.07) $(.29)
</TABLE>
- ----------
(1)--The quarterly results of operations for 1997 include the acquisitions in
January of the Kentucky Cluster and the WI-4 RSA.
(2)--In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share exclude any dilutive
effects of options, warrants and convertible securities. All earnings (loss) per
share amounts for all periods have been presented and, where appropriate,
restated to conform to Statement 128 requirements. In computing dilutive
earnings (loss) per share for the years ended December 31, 1997, 1996 and 1995,
no effect has been given to options outstanding under the Company's 1994 Stock
Option Plan, outstanding warrants to purchase Class B Common Stock, the 12-3/4%
Senior Convertible Discount Notes or the Cumulative Convertible Preferred Stock,
since the exercise of any of these items would have an antidilutive effect on
net loss per share.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10 Directors and Officers of the Registrant.
Directors
Robert Price has been a Director since 1990. He served as
President and Assistant Treasurer of the Company from 1990 through May 1997.
Robert Price concurrently serves as the Chief Executive Officer and President
of Price Communications ("Price Communications") since 1979. Mr. Price, an
attorney, is a former General Partner of Lazard Freres & Co. He has served as
an Assistant United States Attorney, practiced law in New York and served as
Deputy Mayor of New York City. After leaving public office, Robert Price
became Executive Vice President of The Dreyfus Corporation and an Investment
Officer of The Dreyfus Fund. In 1972 he joined Lazard Freres & Co. Robert
Price has served as a Director of Holly Sugar Corporation, Atlantic States
Industries, The Dreyfus Corporation, Graphic Scanning Corp. and Lane Bryant,
Inc., and is currently a member of The Council on Foreign Relations. Robert
Price serves as the Representative of The Majority Leader and President Pro Tem
of the New York Senate and on the Board of Directors of the Municipal
Assistance Corporation for the City of New York. Robert Price also was
appointed by Governor George Pataki of New York to, and served, a seven year
term as a Member of the Board of Trustees of the City University of New York.
Robert Price is also a Director and President of TLM Corporation. Robert Price
was elected to the Company's Board of Directors as a nominee of the Price
family pursuant to a stockholders agreement among the principal stockholders
of the Company (the "Stockholders Agreement"). Robert Price is the father of
Steven Price.
Steven Price has been the Chief Executive Officer and President
of the Company since May 1997. He has served as Chief Operating Officer and
Executive Vice President of the Company since April 1997, and as a Director
since September 1996. Mr. Price has also been the Chief Executive Officer and
President of PriCellular Wireless Corporation, the Company's principal
operating subsidiary, since April 1997. From December 1994 to April 1997, he
was a Senior Vice President of the Company. Prior thereto, he was Director of
Business Development of the Company since April 1993. From 1990 to 1993, Mr.
Price was an attorney with Davis Polk & Wardwell. Prior thereto, Mr. Price was
appointed by President Bush to serve in the U.S. State Department as Special
Assistant to the Chief U.S. Nuclear Arms Negotiator and worked in the mergers
and acquisitions department of Goldman, Sachs & Co. Mr. Price graduated magna
cum laude from Brown University, where he was elected to Phi Beta Kappa, and
has a J.D. degree from Columbia University. Steven Price is the son of Robert
Price. Steven Price was elected to the Company's Board of Directors as a
nominee of the Price family pursuant to the Stockholders Agreement.
Kim I. Pressman has been an Executive Vice President of the
Company since April 1997, and a Director and Secretary since 1990. Ms.
Pressman served as a Vice President of the Company from 1990 to April 1997, and
as the Treasurer from 1990 until December 1994. Ms. Pressman is a certified
public accountant and is a graduate of Indiana University and holds an M.B.A.
from New York University. Since 1990, she has served as Executive Vice
President of Price Communications and is currently also a Director. Prior to
joining Price Communications in 1984, Ms. Pressman was employed for three
years by Peat, Marwick, Mitchell & Co., a national certified public accounting
firm, and for more than three years thereafter was Supervisor, Accounting
Policies for International Paper Company and then Manager, Accounting
Operations for Corinthian Broadcasting Division of Dun & Bradstreet Company, a
large group owner of broadcasting stations. Ms. Pressman is the Chairman and a
Vice President and Treasurer of TLM Corporation. Ms. Pressman was elected to
the Company's Board of Directors as a nominee of the Price family pursuant to
the Stockholders Agreement.
Brion B. Applegate has been a Director of the Company since
June 1994. He is a founder and general partner of Spectrum Equity Investors,
L.P. ("Spectrum"), a venture capital fund specializing in communications and
telecommunications investments. Prior thereto, he was a general partner of
funds managed by Burr, Egan, Deleage & Co. Mr. Applegate serves on the board
of several private communications entities. Mr. Applegate originally was
elected to the Company's Board of Directors as Spectrum's nominee pursuant to
the Stockholders Agreement. An affiliate of Spectrum, Spectrum Equity
Investors II, L.P., is one of the founding stockholders of American Cellular
Corporation ("ACC"); the Company has signed an Agreement and Plan of Merger
dated as of March 6, 1998 with ACC, pursuant to which ACC will merge with and
into the Company. See Item 13, "Certain Relationships and Related
Transactions--Merger with American Cellular Corporation."
Scott M. Sperling has been a Director of the Company since
February 1996. Mr. Sperling is a Managing Director of the Thomas H. Lee
Company and a General Partner of its affiliated Equity Funds. Prior to this
position, he served for ten years as the Managing Partner of the Aeneas Group
Inc., the affiliate of the Harvard Management Company, responsible for all
private capital market investments, including venture capital, company buyouts
and real estate. From 1981-1984, Mr. Sperling was a Senior Consultant with the
Boston Consulting Group, Inc. He holds an M.B.A. from Harvard Business School
and a B.S. from Purdue University. He is a Director of Beacon Properties,
Inc., Softkey International, KAI Inc., Livent, Inc. and several private
companies. Mr. Sperling is also a member of the corporation for the Brigham
and Womens Hospital and Medical Center and is the director of several
charitable organizations. Mr. Sperling was elected to the Company's Board of
Directors as a nominee of The Thomas H. Lee Company pursuant to the
Stockholders Agreement.
Scott I. Anderson has been a Director of the Company since
April 1997. Mr. Anderson served as Senior Vice President-Acquisitions and
Development of AT&T Wireless Services, Inc., formerly McCaw Cellular
Communications, Inc. ("AT&T Wireless/McCaw'") from 1991 to March 1997. Prior
thereto, he served as Vice President-Law of AT&T Wireless since 1988.
Previously, Mr. Anderson served on the Company's Board of Directors from April
1995 to August 1996 as AT&T Wireless/McCaw's nominee pursuant to the
Stockholders Agreement. Mr. Anderson served as an advisor to the Board of
Directors from August 1996 to April 1997.
Committees of the Board -- Board Meetings
The Board of Directors held seven meetings, the Audit Committee
held no meetings, the Compensation and Stock Option Committee held two
meetings and the Executive Committee held seven meetings in 1997. All of the
Directors attended at least 75% of the meetings of the Board and the
respective Committees of the Board of which they are members.
The Board of Directors has the following standing committees:
Audit Committee
The Audit Committee recommends the annual engagement of
auditors, with whom the Audit Committee will review the scope of audit and
non-audit assignments, related fees, the accounting principles used in
financial reporting, internal financial auditing procedures and the adequacy
of internal control procedures. The Company anticipates that additional
directors will be appointed to the Audit Committee as soon as practicable to
ensure that a majority of the Audit Committee members are independent
directors.
The members of the Audit Committee are Ms. Pressman and Messrs.
Applegate and Sperling.
Compensation and Stock Option Committee
The Compensation and Stock Option Committee reviews and
approves the remuneration arrangements for the officers and directors of the
Company and reviews and recommends new executive compensation or stock plans
in which the officers and/or directors are eligible to participate, including
the granting of stock options.
The members of the Compensation and Stock Option Committee are
Messrs. Anderson, Applegate and Sperling.
Executive Committee
The by-laws of the Company provide for the establishment of an
Executive Committee, which the Board of Directors has established. The by-laws
provide that the Executive Committee shall consist of three members, one of
which shall be designated by each of the Price family, AT&T Wireless/McCaw and
Thomas H. Lee Equity Fund III, L.P. (the "THL Equity Fund") except during any
period in which there is a significant overlap between the PCS licensed areas
directly or indirectly owned, operated or controlled by, or attributed to AT&T
Wireless/McCaw, or any affiliate of either and the cellular geographic service
areas directly or indirectly owned, operated or controlled by, or attributed
to, the Company or any affiliate thereof, in which case it shall consist of
two members, one of which shall be designated by each of the Price family and
THL Equity Fund.
The affirmative vote of the Executive Committee of the Company
with no members voting against will be required to designate any class or
series of Preferred Stock or incur any indebtedness other than trade
indebtedness incurred in the ordinary course of the Company's business and
other than indebtedness not in excess of $1,000,000. The right of AT&T
Wireless/McCaw and the THL Equity Fund to nominate a member to the Executive
Committee shall terminate (a) with respect to AT&T Wireless/McCaw on the
earlier to occur of (i) April 28, 2001 or (ii) such time as the number of
fully diluted shares held by AT&T Wireless/McCaw is less than 7% of the total
number of fully diluted shares then outstanding and (c) with respect to THL
Equity Fund at such time as the number of fully diluted shares held by THL
Equity Fund and the other purchasers of shares of Series A Cumulative
Convertible Preferred Stock, par value $.01 per share, of the Company is less
than 4,375,000 (without giving effect to certain reductions to the conversion
value provided in the certificate of designation to such shares and subject
to appropriate adjustment for subdivision, combination, consolidation or
reclassification of such shares into a greater or lesser number of shares).
The members of the Executive Committee are Messrs. Steven Price
and Sperling.
Compensation of Directors
Directors of the Company are not paid fees, other than Scott
Anderson, who receives $35,000 per annum.
Executive Officers
The following table sets forth certain information with respect
to the executive officers of the Company.
<TABLE>
Name Age Office
- ------------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Robert Price......................... 65 Director, Chairman
Steven Price......................... 36 Director, Chief Executive Officer and President
Stuart B. Rosenstein................. 37 Executive Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
Kim I. Pressman...................... 41 Director, Executive Vice President and Secretary
</TABLE>
Stuart B. Rosenstein has been an Executive Vice President of
the Company since April 1997 and Chief Financial Officer and Assistant
Secretary since December 1993. Mr. Rosenstein has also served as Treasurer of
the Company since December 1994. From September 1996 to April 1997, he was a
Senior Vice President of the Company. From 1990 to December 1993, he was the
Company's Controller and from 1990 to September 1996, he was a Vice President.
Prior to that time, Mr. Rosenstein, a certified public accountant, was a
senior manager with the accounting firm of Ernst & Young. Mr. Rosenstein has a
B.S. degree from SUNY at Buffalo, where he graduated magna cum laude.
Item 11 Compensation of Executive Officers
The following table sets forth the compensation earned in 1995,
1996, and 1997 by the Company's chief executive officer and each other
executive officer whose total annual salary and bonus exceeded $100,000 for the
year ended December 31, 1997.
Summary Compensation Table
<TABLE>
Long-Term
Compensation
Annual Compensation Awards
----------------------- ------------
Number of
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus(1) Options(2) Compensation
- --------------------------------------------- ---- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Robert Price, Chairman (3)................... 1997 $325,000 $325,000 0 0
1996 325,000 325,000 0 0
1995 237,500 325,000 180,664 0
Steven Price, Chief Executive Officer
and President................................ 1997 $200,000 $325,000 0 $ 0
1996 195,609 165,000 0 0
1995 160,000 135,000 153,320 0
Stuart B. Rosenstein, Executive Vice
President, Chief Financial Officer and
Treasurer.................................... 1997 $225,000 $225,000 0 $ 0
1996 201,218 165,000 43,750 0
1995 160,000 135,000 153,320 0
Kim Pressman, Executive Vice
President and Secretary...................... 1997 $98,333 $50,000 0 $2,100
1996 26,154 50,000 0 0
1995 20,000 10,000 0 0
</TABLE>
- ------------
(1) Bonuses for 1995 were paid in April 1996, bonuses for 1996 were paid in
February 1997, and bonuses for 1997 were paid in January 1998. See
"--Compensation Committee Report to Stockholders--Compensation of the Chief
Executive Officer."
(2) The stock options have been restated to give effect to all stock splits.
(3) Mr. Robert Price served as President of the Company until May, 1997.
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
Percent of
Total
Number of Options/ Potential Realizable
Securities SARs Value at
Underlying Granted to Assumed Annual
Options/ Employees Exercise or Rates of Stock
SARs in Fiscal Base Price Expiration Price Appreciation
Name Granted(#) 1997 ($/Share) Date For Option Term
- ----------------------- ---------- ---------- ----------- ----------- --------------------
5% 10%
---- -----
<S> <C> <C> <C> <C> <C> <C>
Robert Price............ 0 0% -- -- -- --
Steven Price............ 0 0% -- -- -- --
Stuart B. Rosenstein.... 0 0% -- -- -- --
__________________
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
<TABLE>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired at December 31, 1997 at December 31, 1997
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- ---------------------------- -------- --------- -------------------- --------------------
<S> <C> <C> <C> <C>
Robert Price................ 742,188 $4,702,347 0/0 0/0
Steven Price................ 0 0 248,697/51,107 $1,575,606/$294,887
Stuart B. Rosenstein........ 0 0 248,697/94,857 $1,575,606/$294,887
Kim I. Pressman............. 0 0 68,490/35,464 $297,282/$20,314
</TABLE>
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of Messrs. Anderson,
Applegate and Sperling.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), requires the Company's executive officers and
Directors, and beneficial owners of more than 10% of the Class A Common Stock
of the Company, to file initial reports of ownership and reports of changes in
ownership with the SEC. Executive officers and Directors are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
Directors, the Company noted that no individual who, at any time during 1997,
was a Director, officer or beneficial owner of more than 10% of the Class A
Common Stock of the Company failed to file the reports required by Section
16(a) of the 1934 Act on a timely basis.
Item 12 Security Ownership of Management and Principal Stockholders of
PriCellular
The following table provides information with respect to the
beneficial ownership of PriCellular's Common Stock by (i) each person known by
PriCellular to be the beneficial owner of more than 5% of any class of
PriCellular voting securities, (ii) each director, PriCellular's President and
Chief Executive Officer and the four most highly compensated other executive
officers and (iii) all directors and executive officers as a group. Except
as otherwise indicated, the address of each holder is the same as PriCellular.
Except as discussed in the notes hereto, each holder has sole voting and
investment power with respect to all shares of stock listed as owned by such
person. All Information is provided as of December 31, 1997 unless otherwise
indicated.
<TABLE>
<CAPTION>
Beneficial Ownership of
Class A and B Common Stock(1)
---------------------------------------------------------
Percentage of Percentage of
Combined Combined
Name of Beneficial Owner Shares Classes Voting
- ------------------------ ---------- ------------- -------------
<S> <C> <C> <C>
Directors and Officers
Robert Price(2).......................................... 6,725,788 12.36% 27.75%
Stuart B. Rosenstein(3).................................. 269,465 0.5 0.16
Kim I. Pressman(4)....................................... 71,144 0.13 0.06
Steven Price(5).......................................... 3,472,371 6.38 16.5
Brion B. Applegate(6).................................... 2,780,452 5.11 11.26
Scott M. Sperling(7)..................................... 7,244,640 13.31 3.83
All directors and officers as a group (6 persons)........ 20,563,860 37.78 59.56
Other 5% Stockholders
AT&T Wireless Services, Inc.(8).......................... 6,537,544 12.01 15.96
(formerly McCaw)
5400 Carillon Point
Kirkland, WA 98033
The Thomas H. Lee Company(9)............................. 7,244,640 13.31 3.83
75 State Street
Boston, MA 02109
Putnam Investments, Inc.(10)............................. 5,736,289 10.54 3.03
One Post Office Square
Boston, MA 02109
Eileen Farbman(11)....................................... 3,714,644 6.82 19.58
c/o Suite 3200
45 Rockefeller Plaza
NY, NY 10020
Janus Capital Corp.(12).................................. 3,914,449 7.19 2.07
100 Fillmore Street
Denver, CO 80206
Spectrum Equity Investors, L.P.(13)...................... 2,780,452 5.11 11.26
One International Place, 29th Floor
Boston, MA 02110
The Public School Employees' Retirement System(14)....... 3,622,320 6.65 1.92
5 North 5th Street, Box 125
Harrisburg, PA 17108
Price Communications Corporation(15)..................... 3,124,334 5.74 10.32
Suite 3200
45 Rockefeller Plaza
NY, NY 10020
Leo Farbman(16).......................................... 1,523,436 2.8 8.06
c/o Suite 3200
45 Rockefeller Plaza
NY, NY 10020
Alexandra Farbman(17).................................... 1,523,436 2.8 8.06
c/o Suite 3200
45 Rockefeller Plaza
NY, NY 10020
College Retirement Equities Fund(18)..................... 2,130,650 3.91 1.13
730 Third Avenue
NY, NY 10017
</TABLE>
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition
of any security. A person is deemed as of any date to have "beneficial
ownership" of any security that such person has a right to acquire within
60 days after such date. Any security that any person named above has the
right to acquire within 60 days is deemed to be outstanding for purposes of
calculating the ownership percentage of such person, but is not deemed to
be outstanding for purposes of calculating the ownership percentage of any
other person.
(2) Consists of 1,580,139 shares of Class B Common Stock and 106,588 shares of
Class A Common Stock owned directly by Robert Price, 14,000 shares of Class
A Common Stock held by Robert Price and Eileen Farbman, as joint tenants
(see also footnote 11), 1,304,750 shares of Class A Common Stock held by
Price Communications and warrants to purchase 1,819,584 shares of Class B
Common Stock held by Price Communications that are currently exercisable
(see also footnote 15) and 50,000 shares of Class A Common Stock and 50,000
shares Class B Common Stock held by Mr. Price as custodian for certain of
his grandchildren.
(3) Consists of 3,906 shares of Class B Common Stock owned directly by Mr.
Rosenstein and options to purchase 265,559 shares of Class A Common Stock
granted pursuant to the Company's 1994 Stock Option Plan that are currently
exercisable. Does not include options to purchase 95,495 shares of Class A
Common Stock granted pursuant to the Company's 1994 Stock Option Plan that
are not exercisable within 60 days.
(4) Consists of 3,906 shares of Class B Common Stock owned directly by Ms.
Pressman and options to purchase 67,238 shares of Class A Common Stock
granted pursuant to the Company's 1994 Stock Option Plan that are currently
exercisable. Does not include options to purchase 66,716 shares of Class A
Common Stock granted pursuant to the Company's 1994 Stock Option Plan that
are not exercisable within 60 days. Includes 25,000 options to purchase
shares of Class A Common Stock that are currently exercisable held in
custody for her children.
(5) Consists of 3,080,537 shares of Class B Common Stock owned directly by
Steven Price, 30,038 shares of Class A Common Stock owned directly by
Steven Price and options to purchase 250,976 shares of Class A Common Stock
granted pursuant to the Company's 1994 Stock Option Plan that are currently
exercisable. Includes 110,820 options to purchase shares of Class A Common
Stock held in custody for his daughter. Does not include options to
purchase 48,828 shares of Class A Common Stock granted pursuant to the
Company's 1994 Stock Option Plan that are not exercisable within 60 days.
(6) All of such shares are owned by Spectrum (see footnote 13). Pursuant to
the definition of beneficial ownership in footnote 1, Brion Applegate may
be deemed to have beneficial ownership of such shares as the general
partner of the partnership which is the general partner of Spectrum.
(7) All of such shares are owned by The Thomas H. Lee Company and attributed to
Scott M. Sperling, a Managing Director of The Thomas H. Lee Company,
pursuant to the definition of beneficial ownership provided in footnote 1.
(8) Consists of 2,625,781 shares of Class B Common Stock and 3,911,763 shares
of Class A Common Stock.
(9) Consists of 7,244,640 shares of Class A Common Stock currently issuable
(subject to adjustments) upon conversion of 54,728 shares of the Company's
Series A Preferred Stock held by Thomas H. Lee Equity Fund III L.P. and
5,272 shares of Series A Preferred Stock held by THL-CCI Investors Limited
Partnership.
(10) Consists of 4,589,804 shares of Class A Common Stock issuable upon
conversion of the Company's outstanding 10 3/4% Senior Subordinated
Convertible Discount Notes due 2004 and 1,146,485 shares of Class A
Common Stock. Information with respect to the shares of Class A Common
Stock held is based on a Schedule 13G dated February 8, 1995, which
reflects the collective beneficial ownership of Marsh & McLennan
Companies, Inc., Putnam Investments, Inc. and its two wholly owned
registered investment advisers (Putnam Investment Management, Inc. and
The Putnam Advisory Company, Inc.) and the Putnam New Opportunities Fund
(the "Fund") (collectively, the "Putnam Entities"). According to the
Schedule 13G, none of the Putnam Entities have the sole power to vote or
dispose of any such shares of Class A Common Stock nor (except the Fund
with respect to 506,250 of such shares) the shared power to vote any of
such shares and all of the Putnam Entities have the shared power to
dispose of such shares.
(11) Consists of 652,772 shares of Class B Common Stock and 1,000 shares of
Class A Common Stock owned directly by Ms. Farbman, 14,000 shares of
Class A Common Stock held by Robert Price and Eileen Farbman, as joint
tenants (see also footnote 2), 761,718 shares of Class B Common Stock
held by Eileen Farbman and Leo Farbman, as joint tenants, 761,718 shares
of Class B Common Stock held by Eileen Farbman and Alexandra Farbman, as
joint tenants and 761,718 shares of Class B Common Stock held by Eileen
Farbman as custodian for Leo Farbman UGTMA until age 21 and 761,718
shares of Class B Common Stock held by Eileen Farbman as custodian for
Alexandra Farbman UGTMA until age 21 (see also footnotes 16 and 17).
Eileen Farbman is the daughter of Robert Price.
(12) Consists of 3,914,449 shares of Class A Common Stock. Information with
respect to the shares of Class A Common Stock held is based on a
Schedule 13G dated February 13, 1998, which reflects the collective
beneficial ownership of Janus Capital Corporation, Janus Enterprise
Fund, and Thomas H. Bailey, President of Janus Capital (collectively,
the "Janus Reporting Persons"). According to the Schedule 13G, none of
the Janus Reporting Persons has either the sole power to vote or to
dispose of any such shares, and all of the Janus Reporting Persons have
the shared power to vote and dispose of all such shares (except that
Janus Enterprise Fund has shared power to vote and dispose of 1,077,025
shares only).
(13) Consists of 724,464 shares of Class A Common Stock currently issuable
upon conversion of 6,000 shares of the Series A Preferred Stock and
2,055,988 shares of Class B Common Stock. Information with respect to
the shares of Class B Common Stock and Series A Preferred Stock held is
based on a Schedule 13D dated March 16, 1998 filed by Spectrum Equity
Investors, L.P. ("SEI"), Spectrum Equity Associates, L.P. ("SEA"),
Spectrum Equity Investors II, L.P., Spectrum Equity Associates II, L.P.
and certain individual general partners of those partnerships including
Brion Applegate (collectively, the "Spectrum Reporting Persons").
According to the 13D, none of the Spectrum Reporting Persons has either
the sole power to vote or to dispose of any such shares; SEA, by virtue
of being the general partner of Spectrum, and William Collatos and Brion
Applegate, by virtue of being the general partners of SEA, may be deemed
to have the shared power to vote and dispose of all of such shares. The
above Schedule 13D was also filed by various entities and individuals
associated with Sandler Capital Management (the "Sandler Reporting
Persons"), who may be deemed to be a group with the Spectrum Reporting
Persons. According to the Schedule 13D, neither the Sandler Reporting
Persons nor the Spectrum Reporting Persons affirm the existence of such
a group.
(14) Consists of 3,622,320 shares of Class A Common Stock currently issuable
upon conversion of 30,000 shares of the Series A Preferred Stock.
(15) Consists of 1,304,750 shares of Class A Common Stock currently
outstanding and 1,819,584 shares of Class B Common Stock issuable
pursuant to warrants that are currently exercisable. See also footnote
2. The per share price at which shares may be purchased pursuant to the
warrants is $5.01 subject to adjustment.
(16) Consists of 761,718 shares of Class B Common Stock held by Eileen
Farbman and Leo Farbman, as joint tenants and 761,718 shares of Class B
Common Stock held by Eileen Farbman as custodian for Leo Farbman UGTMA
until age 21 (see also footnote 11). Leo Farbman is the son of Eileen
Farbman and grandson of Robert Price.
(17) Consists of 761,718 shares of Class B Common Stock held by Eileen
Farbman and Alexandra Farbman, as joint tenants and 761,718 shares of
Class B Common Stock held by Eileen Farbman as custodian for Alexandra
Farbman UGTMA until age 21 (see also footnote 11). Alexandra Farbman is
the daughter of Eileen Farbman and granddaughter of Robert Price.
(18) Consists of 2,130,650 shares of Class A Common Stock. Information with
respect to shares of Class A Common Stock held is based on a Schedule
13G dated February 2, 1998, which reflects the collective beneficial
ownership of College Retirement Equities Fund ("CREF") and its
Investment adviser, TIAA-CREF Investment Management, LLC ("TIAA-CREF").
According to the Schedule 13G, CREF has sole power to vote all of such
shares, and shares with TIAA-CREF the power to dispose of all of such
shares.
Several of the above shareholders are party to a voting agreement
with American Cellular Corporation ("ACC"), dated as of March 6, 1998, pursuant
to which such shareholders have agreed to vote in favor of the merger of ACC
with and into the Company. See Item 13, "Certain Relationships and Related
Transactions--Merger with American Cellular Corporation."
Item 13 Certain Relationships and Related Transactions
Merger with American Cellular Corporation
On March 6, 1998, the Company and American Cellular Corporation
("ACC") entered into an Agreement and Plan of Merger (the "Merger Agreement").
Pursuant to the Merger Agreement and subject to the terms and conditions set
forth therein, ACC will be merged with and into the Company, with the Company to
be the surviving corporation of such merger (the "Merger"). At the Effective
Time (as defined in the Merger Agreement) of the Merger, each issued and
outstanding share of Class A Common Stock, par value $0.01 per share of the
Company (the "Class A Shares") and Class B Common Stock, par value $0.01 per
share, of the Company will in each case be converted into the right to receive
$14.00 in cash, without interest (the "Merger Consideration"), and each issued
and outstanding share of Series A Cumulative Convertible Preferred Stock, par
value $0.01 per share (the "Series A Preferred Stock"), of the Company will be
converted into the right to receive the product of the Merger Consideration and
the number of Class A Shares into which each such share of Series A Preferred
Stock is convertible at such time in connection with a change of control. The
Merger Agreement permits the Company, under certain circumstances, to respond to
unsolicited third party acquisition proposals and, upon payment of certain fees
to ACC, to terminate the Merger Agreement.
Brion Applegate, one of the Company's directors, and Spectrum
Equity Investors, L.P. ("Spectrum"), one of its principal stockholders, are each
affiliated with ACC. Mr. Applegate is a general partner of Spectrum and an
affiliate of Spectrum, Spectrum Equity Investors II, L.P., is a founding
stockholder of ACC. In his capacity as a general partner of Spectrum, Mr.
Applegate led the investor group that made ACC's acquisition proposal relating
to the merger.
In connection with the execution of the Merger Agreement, AT&T
Wireless, Inc., The Thomas H. Lee Company, Steven Price and Eileen Farbman
(collectively, the "Principal Shareholders") entered into a voting agreement
(the "Voting Agreement") with ACC. Pursuant to the agreement, the Principal
Shareholders, the beneficial owners of approximately 39% of the outstanding
Common Stock and Preferred Stock of the Company (or 57% of the fully diluted
voting power of the Company), agreed to vote their shares in favor of the
approval and adoption of the Merger Agreement. The Voting Agreement terminates
upon termination of the Merger Agreement.
In connection with the execution of the Merger Agreement and the
Voting Agreement, each of Spectrum and the Public School Employees' Retirement
System ("PSERS") executed side letters agreeing not to exercise certain
redemption rights associated with the shares of Series A Preferred Stock owned
by them that may arise at such time as the Merger is approved by the Company's
stockholders.
Concurrently with the execution of the Merger Agreement, AT&T
Wireless Services, Inc. ("AT&T Wireless/McCaw"), a principal shareholder of
PriCellular, entered into a Consent and Waiver agreement with PriCellular.
Pursuant to the Consent and Waiver agreement, AT&T Wireless/McCaw agreed to
waive certain rights (including veto rights with respect to any merger between
PriCellular and any other corporation) arising under the AT&T Wireless/McCaw
Stockholders Agreement (see below) among PriCellular, AT&T Wireless/McCaw and
the other shareholders of PriCellular party thereto in connection with the
Merger. The Consent and Waiver agreement will only be effective if (i) pursuant
to the Merger all outstanding shares of Class A Common Stock and Class B Common
Stock of PriCellular are converted into the right to receive an amount in cash
equal to not less than $14.00 per share; (ii) there is no material change to the
Merger Agreement; and (iii) the beneficial owners of ACC's securities at the
closing of the Merger are Spectrum, ACC's management and other financial
institutions or investment entities.
AT&T Wireless/McCaw Registration Rights
AT&T Wireless/McCaw is a principal stockholder of the Company,
owning 2,625,781 shares of Class B Common Stock and 3,911,763 shares of Class A
Common Stock. As of February 9, 1996, the Company agreed, and Harvard Private
Capital, Spectrum, THL Equity Fund, THL-CCI Investors Limited Partnership
("THL-CCI"), PSERS and Dominion Cellular, Inc. ("Dominion") consented, to
provide AT&T Wireless/McCaw with certain registration rights (the "McCaw
Registration Rights"). The McCaw Registration Rights are substantially the same
as the Registration Rights described below, except that AT&T Wireless/McCaw will
be entitled to one demand registration and participation rights in registrations
proposed to be effected by the Company.
Other Registration Rights
On February 9, 1996, the Company, Aeneas Venture Corp., an
affiliate of Harvard Private Capital Group, Inc. ("Harvard"), Spectrum, THL
Equity Fund, THL-CCI, PSERS and Dominion entered into an Amended and Restated
Registration Rights Agreement (the "Registration Rights"), which superseded and
canceled the Amended and Restated Registration Rights Agreement dated as of
December 28, 1995 among the same parties. The agreement provided, subject to
certain limitations, that Spectrum will have the right to one demand
registration, Harvard Private Capital will have the right to two demand
registrations, THL Equity Fund (together with THL-CCI) will have the right to
two demand registrations and PSERS will have the right to two demand
registrations. The minimum amount of securities that must be registered pursuant
to these demand rights is, for each of Harvard, THL and PSERS, 20% of the
Harvard registrable securities, the THL registrable securities and the PSERS
registrable securities (or a lesser amount of shares whose aggregate offering
price is expected to be at least $10 million), respectively, or, for Spectrum,
40% of the Spectrum registrable securities. In each demand registration, holders
of registrable securities other than the holders initiating the registration may
include their securities in such registration, subject to certain notice
requirements. The Registration Rights further provide, subject to certain
limitations, that in the event the Company proposes to register any of its
equity securities in connection with a public offering, the Company will use its
best efforts to have such registration cover all of the registrable securities,
subject to certain notice requirements.
Harvard Share Repurchase
In July, 1997, the Company repurchased and retired, under
separate authorization of its Board of Directors, 3,994,945 shares of Class B
Common Stock from Harvard at $9.00 per share, which was the then current market
price at the date of the transaction. In addition, 56,275 warrants to purchase
shares of Class B Common Stock, also owned by Harvard, were redeemed at a net
cash expenditure of $3.83 per warrant ($9.00, the then current market price,
less the exercise price of %5.17).
AT&T Operating Agreement
During 1997, there remained in effect an Operating Agreement
between the Company and AT&T Wireless/McCaw dated as of April 28, 1994 (the
"1994 Operating Agreement"). The 1994 Operating Agreement provided that AT&T
Wireless/McCaw would (i) assist the Company and its subsidiaries in evaluating
potential acquisitions, (ii) make available to the Company its volume purchase
discounts on cellular system switches, cell site equipment and other equipment,
(iii) use its efforts to cause certain of its service vendors to provide
services to the Company on terms comparable to those provided to AT&T
Wireless/McCaw, (iv) assist the Company in negotiating favorable price terms
with vendors, (v) use reasonable efforts to help the Company secure financing
arrangements with vendors of cellular service equipment, (vi) assist the Company
in its capital financing efforts, (vii) along with the Company, use its best
efforts to design and construct adjacent cellular systems, and (viii) provide
the Company with access to information relating to sales and marketing,
technology, and cellular system operating techniques (subject to certain
restrictions). The 1994 Operating Agreement also provided that any of the
Company's adjacent systems had the right to enter into switch sharing and
roaming arrangements with AT&T Wireless/McCaw or certain of its affiliates.
During 1997, no fees were paid either to or by the Company pursuant to the 1994
Operating Agreement. During 1997 and 1998, the Company engaged in discussions
with AT&T Wireless/McCaw to enter into a new agreement to replace the 1994
Operating Agreement.
In addition, during 1997 the Company began a limited trial of
reselling AT&T Wireless/McCaw's cellular service in certain portions of the New
York City MSA. The arrangement was negotiated in the normal course of business
and the fees paid by the Company to AT&T Wireless/McCaw were consistent with
those paid by other resellers of AT&T Wireless/McCaw's cellular service. At
December 31, 1997, the Company had approximately 1300 customers serviced by the
reselling arrangement, which generated approximately $550,000 in revenue during
1997. The fees paid to AT&T Wireless/McCaw during 1997 totaled $367,000. The
arrangement was discontinued in May, 1998.
Stockholders Agreements
AT&T Wireless/McCaw Stockholders Agreement
On April 28, 1994, in connection with the sale of 1,625,000
shares of the Company's Class B Common Stock, the Company and AT&T
Wireless/McCaw entered into, among other agreements, a Stockholders Agreement
(the "AT&T Wireless/McCaw Stockholders Agreement"). The AT&T Wireless/McCaw
Stockholders Agreement (as amended through July 28, 1995) contains, among other
provisions, agreements with respect to (i) preemptive rights on sales of
additional stock, (ii) asset purchase rights, (iii) rights of first refusal in
sales of existing stock, (iv) co-sale rights to participate in sales by certain
stockholders and (v) rights concerning the election of directors of the Company.
The preemptive rights provide, subject to certain limitations, that in the event
the Company issues to a third party any stock, rights or instruments, as defined
in the agreement, AT&T Wireless/McCaw will have the right to purchase such
stock, rights or instruments on the same terms as the third party so as to
maintain the same proportional interest of the fully diluted equity securities
of the Company as was held by AT&T Wireless/McCaw prior to the issuance of such
stock, rights or instruments. The asset purchase rights provide, subject to
certain limitations, that in the event the Company offers to sell to a third
party any asset for a purchase price which exceeds five percent of the value of
the Company or $1.5 million, AT&T Wireless/McCaw shall have the right to
purchase such asset on the same terms as the third party. The rights of first
refusal provide, subject to certain limitations and modified in part by another
stockholders agreement to which the company is a party, that in any offer to
sell or otherwise dispose of shares of stock in the Company by a stockholder,
each of the Company and AT&T Wireless/McCaw shall have a right of first refusal
to acquire its pro rata portion of such stock. The co-sale rights provide that
prior to any public offering AT&T Wireless/McCaw shall have the right to share
on a pro rata basis, as described in the agreement, in any sale of stock of the
Company by a member of the Price family (with certain exceptions). With regard
to the composition of the board of directors of the Company, AT&T Wireless/McCaw
will be entitled to elect one director.
The AT&T Wireless/McCaw Stockholders Agreement also contains a
series of negative covenants whereby the Company, among other provisions, agrees
that without the written consent of AT&T Wireless/McCaw it will not acquire
through the purchase of stock or assets an interest in any business or other
entity the value of which exceeds 10% of the value of the Company unless AT&T
Wireless/McCaw has made a bona fide attempt to acquire such stock or assets.
Pursuant to the negative covenants, the Company further agrees that it will not
(i) enter into any business not related to wireless communications, (ii) amend
its organizing documents in a manner that would have a material adverse effect
on the rights and preferences of AT&T Wireless/McCaw as a stockholder and (iii)
bid on or apply for a license to construct or operate any non-wireline system if
such bid or application would preclude AT&T Wireless/McCaw from bidding,
applying or obtaining such license or permit.
Termination of the AT&T Wireless/McCaw Stockholders Agreement
occurs with respect to preemptive rights, asset purchase rights, rights of first
refusal and co-sale rights upon the earlier of the seventh anniversary of the
agreement or a reduction in AT&T Wireless/McCaw's ownership to 7% of the Company
on a fully diluted basis. With regard to the board election rights and the
negative covenants of the Company, the AT&T Wireless/McCaw Stockholders
Agreement will terminate on the earlier of the dates described in the previous
sentence or on the third anniversary of the agreement if the Company is unable
to acquire assets representing two million Pops due, in substantial part, to (x)
AT&T Wireless/McCaw's refusal to consent to acquisitions by the Company of
cellular systems or (y) AT&T Wireless/McCaw's acquisition of non-contiguous,
non-wireline cellular systems which the Company would otherwise have acquired.
Voting Agreement
Since December, 1995, the Company and several of its principal
shareholders (including AT&T Wireless/McCaw, The Thomas H. Lee Company, Spectrum
and certain members of the Price family) have been parties to a Voting Agreement
(the "1995 Voting Agreement") pursuant to which certain shareholders were given
the right to designate nominees to the Company's Board, for which all other
parties to the Agreement would vote. Under the Agreement, each of Harvard, AT&T
Wireless/McCaw, Spectrum and The Thomas H. Lee Company were given the right to
designate one nominee for the Board (subject to certain limitations), and the
Price family was given the right to designate such number of nominees as would
constitute a majority of the Board. Each stockholder further agreed not to vote
to remove any member of the Board designated by one of the above parties unless
such designating party also voted to remove such director. The 1995 Voting
Agreement terminates (A) with respect to AT&T Wireless/McCaw, on the earlier to
occur of (i) April 28, 2001 or (ii) such time as the number of fully-diluted
shares (as defined therein) held by AT&T Wireless/McCaw is less than 7% of the
total number of fully diluted shares then outstanding and (B) with respect to
The Thomas H. Lee Company, at such time as the number of fully-diluted shares
held by affiliates of The Thomas H. Lee Company plus those held by PSERS is less
than 2,800,000 (subject to adjustment). The 1995 Voting Agreement has already
terminated with respect to Harvard and Spectrum.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. The Consolidated Financial Statements of PriCellular Corporation
(see index to financial statements at F-1).
2. Financial Statement Schedules:
Schedules not included with this. Additional financial data has been
omitted because it is not applicable or the required information is
shown in the Consolidated Financial Statements or Notes thereto.
3. Exhibits:
Exhibit Index
2.1 Contribution Agreement by and among Texas/Illinois Cellular
Limited Partnership, a Delaware limited partnership,
Southwestern Bell Mobile Systems, Inc., a Delaware and Virginia
corporation, the Company, Cellular Information Systems of
Laredo, Inc., a Texas corporation, dated as of April 10, 1995
(certain schedules have been omitted but will be furnished
supplementally to the Commission upon request) (1)
2.2 Asset Acquisition Agreement dated as of October 15, 1996 among
the Company, Cellular Information Systems of Florence, Inc. and
Horizon Cellular Telephone Company of Central Kentucky, L.P.
(2)
3.1 Amended and Restated Certificate of Incorporation of the Company
(3)
3.2 Certificate of Amendment of the Amended and Restated Certificate
of Incorporation dated April 25, 1994 (3)
3.3 Certificate of Correction of the Amended and Restated
Certificate of Incorporation dated August 9, 1994 (3)
3.4 Certificate of Amendment of the Amended and Restated Certificate
of Incorporation dated October 25, 1994 (3)
3.5 Certificate of Amendment of the Amended and Restated Certificate
of Incorporation of the Company dated November 16, 1994 (3)
3.6 Certificate of Amendment of Restated Certificate of
Incorporation of the Company dated November 22, 1994 (3)
3.7 Certificate of Designation of Series A Cumulative Convertible
Preferred Stock (4)
3.8 By-Laws of the Company (3)
3.9 Amendment to By-Laws of the Company (3)
3.10 Second Amendment to By-Laws of the Company (4)
4.1 Indenture to 14% Senior Subordinated Discount Notes due 2001
among the Company, PriCellular Wireless Corporation and Bank of
Montreal Trust Company, as Trustee (including form of Note) (3)
4.2 Indenture of 12 1/4% Senior Subordinated Notes due 2003 among
the Company, PriCellular Wireless Corporation and Bank of
Montreal Trust Company, Trustee (including form of Note) (5)
4.3 Indenture to 10 3/4% Senior Subordinated Convertible Discount
Notes due 2004 between the Company and Bank of Montreal Trust
Company, as Trustee (including form of Note) (5)
4.4 Indenture to 10 3/4% Senior Notes due 2004 between PriCellular
Wireless Corporation and Bank of Montreal Trust Company, as
Trustee (including form of Note) (6)
10.1 1994 Stock Option Plan (3)
10.2 Stockholders' Agreement, dated as of April 28, 1994 by and
between the Company and McCaw (3)
10.3 Amended and Restated Registration Rights Agreement, dated as of
December 28, 1995, by and among the Company and the parties
named therein (4)
10.4 Voting Agreement, dated as of December 28, 1995, by and among
the Company and the parties named therein (4)
10.5 Operating Agreement, dated as of April 28, 1994, by and between
the Company and McCaw (3)
10.6 Contribution Agreement by and among Texas/Illinois Cellular
Limited Partnership, a Delaware limited partnership,
Southwestern Bell Mobile Systems, Inc., a Delaware and Virginia
corporation, the Company, Cellular Information Systems of
Laredo, Inc., a Texas corporation, dated as of April 10, 1995
(certain schedules have been omitted but will be furnished
supplementally to the Commission upon request) (see Exhibit 2.2)
10.7 Asset Acquisition Agreement dated as of October 15, 1996 among
the Company, Cellular Information Systems of Florence, Inc. and
Horizon Cellular Telephone Company of Central Kentucky, L.P.
(see Exhibit 2.2)
10.8 Warrant Agreement between the Company and Price Communications
Corporation (2)
10.9 Employment Agreement, dated as of December 28, 1995, by and
between the Company and Robert Price (4)
21.1 Subsidiaries of the Registrant*
23.1 Consent of Ernst & Young LLP*
27.1 Financial Data Schedule (included in electronic version only)*
- ------------
* Previously filed.
(1) Incorporated herein by reference to PriCellular Wireless Corporation's
Registration Statement on Form S-1, No. 33-95834.
(2) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
(3) Incorporated herein by reference to the Company's Registration Statement
on Form S-1, No. 33-85678.
(4) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
(5) Incorporated herein by reference to the Company's Registration Statement
on Form S-1, No. 33-98156.
(6) Incorporated herein by reference to PriCellular Wireless Corporation's
Registration Statement on Form S-4, No. 333-17067.
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 or amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of New York, State of New York, on the 22rd day of May 1998.
PriCellular Corporation
By /s/Steven Price
---------------------------
Steven Price
President
Form 10-K--Item 14(a)(1) and (2)
PriCellular Corporation and Subsidiaries
Index to Consolidated Financial Statements
<TABLE>
The following consolidated financial statements of PriCellular Corporation and
subsidiaries are included in Item 8:
<S> <C>
Report of Independent Auditors................................................................... F/F-2
Consolidated Balance Sheets--December 31, 1997 and 1996.......................................... F/F-3
Consolidated Statements of Operations--Years Ended
December 31, 1997, 1996 and 1995............................................................... F/F-5
Consolidated Statements of Stockholders' Equity--Years Ended
December 31, 1997, 1996 and 1995............................................................... F/F-6
Consolidated Statements of Cash Flows--Years Ended
December 31, 1997, 1996 and 1995............................................................... F/F-7
Notes to Consolidated Financial Statements....................................................... F/F-9
The following consolidated financial statement schedules of PriCellular
Corporation are included in Item 14(a):
Schedule I--Condensed Financial Information of Registrant......................................... F/F-26
Schedule II--Valuation and Qualifying Accounts.................................................... F/F-27
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
</TABLE>
Report of Independent Auditors
Board of Directors
PriCellular Corporation
We have audited the consolidated balance sheets of PriCellular Corporation and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
PriCellular Corporation and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
New York, New York
January 22, 1998, except for the third
paragraph of Note 13 as to which
the date is March 10, 1998
PriCellular Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
<TABLE>
December 31
1997 1996
------ ------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 61,357 $100,364
Accounts receivable (less allowance of $1,686 in 1997 and $1,767 in 1996) 19,465 13,429
Inventory 2,232 2,096
Other current assets 1,797 3,484
-------- --------
Total current assets 84,851 119,373
Fixed assets--at cost:
Cellular facilities and equipment 123,935 71,813
Furniture and equipment 10,221 5,142
Deposits on cellular equipment - 10,100
-------- --------
134,156 87,055
Less accumulated depreciation (29,302) (13,728)
-------- --------
Net fixed assets 104,854 73,327
Investment in cellular operations 37,017 39,641
Cellular licenses (less accumulated amortization of $23,119 in 1997 and $10,415 in 493,315 377,808
1996)
Cellular license held for sale - 13,721
Deferred financing costs (less accumulated amortization of $5,191 in 1997 and 13,352 15,266
$2,761 in 1996)
Cash committed for the acquisition of cellular operations 13,000 91,400
Other assets 1,267 5,280
======== ========
Total assets $747,656 $735,816
Liabilities and stockholders' equity Current liabilities:
Accounts payable and accrued expenses $33,966 $ 22,317
Deferred revenue 4,242 2,531
Other current liabilities 2,125 4,776
-------- --------
Total current liabilities 40,333 29,624
Long-term debt 568,323 524,517
Deferred taxes 3,797 -
Other long-term liabilities 1,023 1,756
Commitments and contingent liabilities
Stockholders' equity:
Preferred Stock, $0.01 par:
Series A, cumulative convertible: authorized 10,000,000 shares; issued and
outstanding 96,000 shares 1 1
Common Stock, $0.01 par:
Class A: Authorized 100,000,000 shares; issued and outstanding
21,824,566 shares (1997) and 18,902,101 shares (1996) 218 189
Class B: Authorized 50,000,000 shares (1997) and 20,000,000 shares (1996);
issued and outstanding 13,134,275 shares (1997) and 19,510,736 shares (1996) 131 195
Additional paid-in capital 180,704 212,777
Accumulated deficit (46,874) (33,243)
-------- --------
Total stockholders' equity 134,180 179,919
-------- --------
Total liabilities and stockholders' equity $747,656 $735,816
======== ========
</TABLE>
See notes to consolidated financial statements.
PriCellular Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
<TABLE>
Year ended December 31
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues
Cellular service $ 168,394 $ 105,188 $ 38,757
Equipment sales 5,364 3,430 1,717
Other 7,242 3,998 1,030
------------ ------------ -----------
181,000 112,616 41,504
Costs and expenses
Cost of cellular service 48,691 29,571 10,694
Cost of equipment sold 12,841 10,073 4,951
Selling, general and administrative 53,485 34,502 16,512
Depreciation and amortization 28,759 19,537 10,337
------------ ------------ -----------
143,776 93,683 42,494
------------ ------------ -----------
Operating income (loss) 37,224 18,933 (990)
Other income (expense)
Gain (loss) on sale of investments in
cellular operations 8,423 (1,401) 11,598
Interest expense (67,392) (47,076) (22,953)
Interest income 4,864 4,875 4,114
Other income, net 3,250 1,626 520
------------ ------------ -----------
(50,855) (41,976) (6,721)
------------ ------------ -----------
Net income (loss) $ (13,631) $ (23,043) $ (7,711)
============ ============ ===========
Net income (loss) after adjustment for accrued preferred
stock dividend $ (20,171) $ (29,221) $ (7,711)
============ ============ ===========
Basic and diluted earnings (loss) per common share $(0.55) $(0.76) $(0.24)
============ ============ ===========
Weighted average number of common shares
used in computation of basic and diluted
earnings (loss) per share 36,751,000 38,493,000 32,214,000
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
PriCellular Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
Series A Class A Class B
Preferred Stock Common Stock Common Stock
-------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount
-------------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance--December 31, 1994 5,000 $ 50 14,626 $ 146
Additional shares issued in connection with the initial 375 4
public offering
Purchase and retirement of treasury stock (127) (1)
Shares issued in connection with exercise of Harvard
and Spectrum options 828 8
Common stock issued for cash 2,000 20
Conversion of Class B common stock to Class A
common stock 810 8 (810) (8)
Shares issued in connection with acquisition of
Parkersburg, WV/Marietta, OH MSA cellular system 797 8
Shares issued in connection with acquisition of AL-4
RSA cellular system 1,175 12
Preferred stock issued for cash 96 $ 1
Net loss for the year ended December 31, 1995
----------------------------------------------------------------
Balance--December 31, 1995 96 1 10,858 109 13,816 138
Purchase and retirement of common stock (150) (1)
Conversion of Class B common stock to Class A
common stock 1,688 17 (1,688) (17)
Shares issued as a result of common stock splits 6,498 64 7,383 74
Costs incurred in connection with common and
preferred stock offerings
Exercise of employee stock options 8 -
Net loss for the year ended December 31, 1996
----------------------------------------------------------------
Balance--December 31, 1996 96 1 18,902 189 19,511 195
Purchase and retirement of common stock (2,157) (21) (3,995) (40)
Conversion of Class B common stock to Class A common stock 2,382 24 (2,382) (24)
Costs incurred in connection with common and
preferred stock offerings
Shares issued in connection with the Kentucky Cluster acquisition 1,948 19
Exercise of employee stock options 750 7
Net loss for the year ended December 31, 1997
----------------------------------------------------------------
Balance--December 31, 1997 96 $ 1 21,825 $ 218 13,134 $ 131
================================================================
</TABLE>
<TABLE>
Additional
Paid-in Accumulated Stockholders'
Capital Deficit Equity
---------- ----------- -------------
<S> <C> <C> <C>
Balance--December 31, 1994 $ 80,529 $ (2,489) $ 78,236
Additional shares issued in connection with the initial public 2,563 2,567
offering
Purchase and retirement of treasury stock (769) (770)
Shares issued in connection with exercise of Harvard
and Spectrum options 4,992 5,000
Common stock issued for cash 24,046 24,066
Conversion of Class B common stock to Class A
common stock -
Shares issued in connection with acquisition of
Parkersburg, WV/Marietta, OH MSA cellular system 9,751 9,759
Shares issued in connection with acquisition of AL-4
RSA cellular system 14,970 14,982
Preferred stock issued for cash 79,598 79,599
Net loss for the year ended December 31, 1995 (7,711) (7,711)
----------------------------------------------------
Balance--December 31, 1995 215,680 (10,200) 205,728
Purchase and retirement of common stock (1,449) (1,450)
Conversion of Class B common stock to Class A
common stock -
Shares issued as a result of common stock splits (138) -
Costs incurred in connection with common and
preferred stock offerings (1,364) (1,364)
Exercise of employee stock options 48 48
Net loss for the year ended December 31, 1996 (23,043) (23,043)
----------------------------------------------------
Balance--December 31, 1996 212,777 (33,243) 179,919
Purchase and retirement of common stock (53,800) (53,861)
Conversion of Class B common stock to Class A common stock
Costs incurred in connection with common and
preferred stock offerings (206) (206)
Shares issued in connection with the Kentucky Cluster acquisition 19,106 19,125
Exercise of employee stock options 2,827 2,834
Net loss for the year ended December 31, 1997 (13,631) (13,631)
----------------------------------------------------
Balance--December 31, 1997 $ 180,704 $ (46,874) $ 134,180
====================================================
</TABLE>
See notes to consolidated financial statements.
PriCellular Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
Year ended December 31
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Operating activities
Net income (loss) $(13,631) $(23,043) $ (7,711)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 28,759 19,537 10,337
Interest on Senior Subordinated and Convertible Discount Notes 46,236 43,174 22,212
(Gain) loss on sale of investment in cellular operations (8,423) 1,401 (11,598)
Loss from equity investments, net of distributions - - (275)
Amortization of covenant not to compete (3,250) (1,625) (500)
Provision for losses on accounts receivable 2,331 2,079 936
Proceeds from covenant not to compete 2,000 2,500 3,000
Changes in operating assets and liabilities:
Accounts receivable (7,543) (9,098) (4,529)
Inventory 103 (369) (891)
Other current assets (737) (347) (193)
Other assets (410) (210) -
Accounts payable and accrued expenses 2,804 4,457 94
Deferred revenue 600 1,151 600
Income taxes payable - (448) (2,553)
Other current liabilities - (250) (4,490)
Other long-term liabilities 187 410 (388)
Other, net - 52 59
-------- -------- --------
Net cash provided by operating activities 49,026 39,371 4,110
-------- -------- --------
Investing activities
Redemption of short-term investments - - 991
Purchase of cellular equipment (25,717) (29,470) (6,794)
Amounts refunded from (deposited in) escrow to acquire cellular
properties (net) 7,337 (5,000) -
Deposit required for Personal Communications Service auction (net) - 1,640 (4,140)
Distributions to affiliate - - (36)
Proceeds from sale of cellular operations, net of cash 22,396 31,500 19,478
Proceeds from sale of investment in cellular operations 1,255 2,813 -
Acquisition of cellular operations, net of cash (26,032) (110,977) (213,686)
Investment in cellular operations (2,523) (75) (166)
Cash committed for the acquisition of cellular operations (13,000) (91,400) -
-------- -------- --------
Net cash used in investing activities (36,284) (200,969) (204,353)
-------- -------- --------
Financing activities
Purchase and retirement of common stock (53,860) (1,450) (770)
Proceeds from sale of common stock - - 31,633
Proceeds from exercise of stock options 2,834 48 -
Proceeds from sale of preferred stock - - 79,599
Repayments of notes payable and due to stockholders - (23,104) (3,499)
Payments for deferred financing costs (516) (5,612) (7,601)
Proceeds from issuance of long-term debt - 170,000 178,914
Costs incurred in connection with common and preferred stock (207) (1,364) -
offerings
-------- -------- --------
Net cash provided by (used in) financing activities (51,749) 138,518 278,276
-------- -------- --------
Increase (decrease) in cash and cash equivalents (39,007) (23,080) 78,033
Cash and cash equivalents at beginning of year 100,364 123,444 45,411
======== ======== ========
Cash and cash equivalents at end of year $ 61,357 $100,364 $123,444
======== ======== ========
</TABLE>
PriCellular Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
<TABLE>
Year ended December 31
Year ended December 31
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $18,275 $ 1,110 $ 874
Income taxes 424 448 2,803
Supplemental schedule of noncash investing and financing activities
Shares (1997) and (1995) and debt (1996) issued in connection with
the acquisition of cellular systems 19,125 19,429 24,741
Conversion of Class B common stock to Class A common stock - - 8
Contribution of net assets into joint venture - - 35,516
See notes to consolidated financial statements.
</TABLE>
PriCellular Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. Organization
PriCellular Corporation and Subsidiaries, including its wholly-owned subsidiary,
PriCellular Wireless Corporation ("Wireless") (collectively, the "Company"), is
principally engaged in the ownership and operation of cellular telephone
systems.
2. Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in the consolidated financial statements.
Use of Estimates
The preparation of the financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or market.
Inventory consists primarily of cellular telephones and accessories.
Other Current Assets
In August 1996, the Company filed applications to participate in the auction for
10 MHz broadband Personal Communications Service ("PCS") licenses conducted by
the Federal Communications Commission (the "FCC") and deposited $2.5 million
with the FCC. In January 1997, $2.3 million of the deposit was returned with an
additional $653,000 being paid to the FCC. For 1996, the deposit with the FCC is
included in other current assets and for 1997 such amount is included in
Cellular licenses.
Investments in Cellular Operations
Investments in cellular operations in which the Company's interest is 20% or
more are accounted for under the equity method. Interest in investments that are
less than 20% are accounted for under the cost method.
On November 30, 1995 the Company entered into a Joint Venture with SBC
Communications, Inc. ("SBC"), formerly Southwestern Bell, in which the Company
contributed its system serving the Laredo, TX MSA (approximately 176,000 Pops)
and SBC contributed cellular properties in the Illinois-4 and -6 RSAs. The
Company owns 44.5% of the combined 594,000 Pops or approximately 264,000 Net
Pops. Under the terms of the Joint Venture agreement, the Company receives
preferential distributions in the first four years of the Joint Venture rising
from $3.3 million in the first year to $5.8 million in the final year. Such
preferential distributions are guaranteed by SBC. The Company also has an option
to put its Joint Venture interest to SBC at prices beginning at $28.5 million
and escalating to $39.0 million at the end of the four year period. SBC has
operating control of the properties and has certain rights to purchase the
Company's interests on the day prior to the fourth anniversary. The Company's
guaranteed preferential distribution from the Joint Venture for 1997, 1996 and
the month of December 1995 amounted to $4.3 million, $3.4 million and $275,000,
respectively, which are included in other revenue.
Cellular Licenses
The Company primarily uses a 40 year life to amortize cellular licenses
acquired. Amortization expense for the years ended December 31, 1997, 1996 and
1995 was $12.7 million, $9.5 million and $4.3 million, respectively.
The Company periodically reviews the carrying value of licenses to determine
whether such amounts are recoverable based on undiscounted future cash flows of
the market to which the license relates, and by comparing the cellular licenses
to the estimated market value of the cellular systems, in order to determine
whether a reduction to fair value is necessary. The Company has determined that
no such reductions were necessary through December 31, 1997.
Income Recognition
Revenues are recognized during the period service is provided or when equipment
is delivered.
Expense Recognition
Marketing costs relating to new subscribers are expensed in the period that they
are incurred. Advertising expense amounted to $3.7 million, $2.3 million and
$1.5 million for the years ended December 31, 1997, 1996 and 1995, respectively.
Fixed Assets
Fixed assets are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful life of the asset of three to
seven years.
Deferred Financing Costs
Deferred financing costs primarily represent underwriting discounts and related
fees incurred in connection with the issuance of the Company's long-term debt.
These costs are being amortized over the terms of the related debt and are
included in interest expense.
Common Stock Splits
On July 17, 1995, February 29, 1996 and October 1, 1996, the Company authorized
5-for-4 stock splits in the form of 25% stock dividends of Class A and Class B
common stock payable August 4, 1995, March 11, 1996 and October 21, 1996,
respectively. All footnote disclosures and applicable per share data have been
retroactively restated to reflect these splits.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") and, accordingly, as
option grants are at fair market value, recognizes no compensation expense for
these grants (see Note 9--Commitments and Contingencies).
Net Income (Loss) per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. All earnings (loss) per
share amounts for all periods have been presented and, where appropriate,
restated to conform to Statement 128 requirements. In computing dilutive
earnings (loss) per share for the years ended December 31, 1997, 1996 and 1995,
no effect has been given to options outstanding under the Company's 1994 Stock
Option Plan, outstanding warrants to purchase Class B common stock, the 12-3/4%
Senior Convertible Discount Notes or the Cumulative Convertible Preferred Stock,
since the exercise of any of these items would have an antidilutive effect on
net loss per share.
Reclassification
Certain items have been reclassified in the consolidated balance sheets and the
consolidated statements of cash flows to conform to the current presentation.
3. Acquisition of Cellular Operations
All acquisitions were accounted for utilizing the purchase method of accounting.
The allocation of purchase price for certain acquisitions described below is
subject to adjustments.
During the year ended December 31, 1997, the Company established its fourth
operating cluster by consummating the acquisition of four RSAs in Kentucky from
a subsidiary of Horizon Cellular Telephone Company, L.P. ("Horizon"). The
785,000 Pop cluster was acquired for approximately $96.4 million in cash and
1,948,052 shares of the Company's Class A common stock. On February 4, 1997, the
Company repurchased and retired the 1,948,052 shares from Horizon for $15.3
million. In addition, the Company strengthened its Upper Midwest cluster through
the acquisition of the WI-4 RSA, consisting of approximately 119,000 Pops on
January 7, 1997 from a subsidiary of BellSouth Corporation for approximately
$6.3 million in cash, and the acquisition of three counties in the WI-5 RSA
consisting of approximately 81,000 Pops on May 29, 1997 from United States
Cellular Corporation for approximately $10.6 million in cash and the
contribution of approximately 18,000 minority Pops.
The following acquisitions were completed during 1997 and 1996:
<TABLE>
Acquisition Purchase Net Pops
System Market Date Price Acquired
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Kentucky Cluster KY-4, KY-5, KY-6 and
KY-8 RSAs January 7, 1997 $115,500,000 (A) 785,000
--------------
785,000
Upper Midwest Cluster WI-4 RSA January 7,1997 6,300,000 119,000
WI-5 RSA May 29, 1997 10,600,000 81,000
--------------
200,000
--------------
Total for 1997 985,000
==============
1996
Upper Midwest Cluster WI-2 RSA November 18, 1996 4,300,000 85,645
--------------
85,645
Mid-Atlantic Cluster PA-9 RSA February 2, 1996 26,100,000 188,096
WV-3 RSA July 23, 1996 35,000,000 269,709
--------------
457,805
--------------
New York Cluster NY-6 RSA April 23, 1996 19,800,000 (B) 111,373
Poughkeepsie, NY MSA April 23, 1996 38,900,000 (B) (C) 218,890
Orange County, NY MSA October 17, 1996 (C) 327,053
--------------
657,316
--------------
Various Various October 17, 1996 (C) 70,740
--------------
Total for 1996 1,271,506
==============
</TABLE>
(A) The Company acquired from a subsidiary of Horizon the system serving
four RSAs in Kentucky for approximately $96.4 million in cash and
1,948,052 shares of the Company's Class A common stock valued at
approximately $19.1 million.
(B) The Company acquired from a subsidiary of United States Cellular
Corporation the system serving the NY-6 RSA for approximately $19.8
million and 83% of the stock of the system serving the Poughkeepsie, NY
MSA for approximately $38.9 million, with one-half paid in cash and the
balance in a three-year note (subsequently repaid in November 1996, see
Note 4--Long-Term Debt.)
(C) The Company exchanged with Vanguard Cellular Systems, Inc. its OH-9 RSA,
the majority of its OH-10 RSA and its Parkersburg, WV/Marietta, OH MSA for
the Orange County, NY MSA, an additional 11.1% of the Poughkeepsie, NY
MSA, 12.2% of the Janesville, WI MSA and 28,509 additional Pops, including
small interests in the Eau Claire, WI and Wausau, WI MSAs (in each of
which the Company currently has a majority interest).
The pro forma unaudited condensed consolidated results of operations for the
years ended December 31, 1996 and 1995, assuming the transactions were
consummated as of January 1, 1995, are as follows:
December 31
1996 1995
------------ ------------
Revenue $135,248,000 $ 82,109,000
============ ============
Net loss $(32,536,000) $(53,038,000)
============ ============
Basic and diluted loss per common share $ (.89) $ (1.65)
============ ============
No pro forma effect was given for 1997, 1996 and 1995 for the WI-4 or WI-5
acquisitions as their results are not significant nor is the pro forma effect
presented for one week in 1997 for the Kentucky Cluster acquisition as this is
also not significant.
4. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
December 31
1997 1996
---------------- ---------------
<S> <C> <C>
14% Senior Subordinated Discount Notes due 2001 $ 165,000,000 $ 146,783,000
10-3/4% Senior Subordinated Convertible Discount Notes
due 2004 45,623,000 41,087,000
12-1/4% Senior Subordinated Discount Notes due 2003 187,700,000 166,647,000
10-3/4% Senior Notes due 2004 170,000,000 170,000,000
--------------- ---------------
$ 568,323,000 $ 524,517,000
=============== ===============
</TABLE>
On November 23, 1994, Wireless issued approximately $165.0 million aggregate
principal amount of 14% Senior Subordinated Discount Notes due 2001 (the "14%
Notes") primarily to finance the acquisition of Cellular Information Systems,
Inc. ("CIS"). The 14% Notes were issued at a price of 66.834% or $110.3 million.
The original issue discount on the 14% Notes accreted at a rate of 14%,
compounded semiannually, to an aggregate principal amount of approximately
$165.0 million. Interest is now accruing at the rate of 14% per annum, payable
semiannually in cash beginning May 15, 1998.
On August 21, 1995, the Company issued approximately $60.0 million aggregate
principal amount of 10-3/4% Senior Subordinated Convertible Discount Notes due
2004 (the "10-3/4% Notes"). The 10-3/4% Notes were issued at a price of 59.345%
or $35.6 million. The original issue discount on the 10-3/4% Notes accretes at a
rate of 10-3/4%, compounded semiannually, to an aggregate principal amount of
approximately $60.0 million by August 15, 2000. Interest will thereafter accrue
at 10-3/4% per annum, payable semiannually, in cash beginning February 15, 2001.
The 10-3/4% Notes are convertible into the Company's Class A common stock at a
conversion price of $9.94 per share. The Company can force conversion of the
10-3/4% Notes under certain circumstances if the Company's Class A common stock
trades at $13.91 per share for ten out of fifteen consecutive trading days.
On September 27, 1995, Wireless issued approximately $205.0 million aggregate
principal amount of 12-1/4% Senior Subordinated Discount Notes due 2003 (the
"12-1/4% Notes") to finance the acquisition of the OH-7 RSA, OH-9 RSA, OH-10
RSA, Parkersburg, WV/Marietta, OH MSA, WV-2 RSA, AL-4 RSA, PA-9 RSA and NY-5 RSA
cellular systems. The 12-1/4% Notes were issued at a price of 69.906% or $143.3
million. The original issue discount on the 12-1/4% Notes accretes at a rate of
12-1/4% compounded semiannually to an aggregate principal amount of
approximately $205.0 million by October 1, 1998. Interest will thereafter accrue
at 12-1/4% per annum payable semiannually in cash beginning April 1, 1999.
On November 6, 1996, Wireless issued $170.0 million principal amount of 10-3/4%
Senior Notes due 2004, primarily to finance the acquisition in January 1997 of
the Kentucky cluster for $115.5 million consisting of approximately $96.4
million in cash and $19.1 million in the Company's Class A common stock.
Approximately $19.0 million of the proceeds was used to repay the note issued in
connection with the purchase on April 23, 1996 of the Poughkeepsie, NY MSA.
Interest is payable semiannually on each May 1 and November 1.
The Company's long-term debt includes restrictions on Wireless' incurrence of
additional debt, the payment of dividends, the incurrence of liens, and on
payments and transfer of net assets from Wireless to the Company. Restricted net
assets of the Company as of December 31, 1997 approximated $177.8 million.
The maturities of the Company's long-term debt for each of the five years
subsequent to December 31, 1997 are as follows:
1998 $ -
1999 -
2000 -
2001 165,000,000
2002 -
Thereafter 403,323,000
------------
Total $568,323,000
============
5. Income Taxes
The significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
December 31
1997 1996
------------------ ----------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ (9,652,000) $ (4,340,000)
Amortization (11,407,000) (5,957,000)
License basis difference (3,797,000) -
Other (4,385,000) -
Deferred tax assets:
Net operating loss carryforwards 6,915,000 3,715,000
Amortization of original issue discount 33,726,000 19,745,000
State and local deferred taxes 2,280,000 2,017,000
Accruals 2,049,000 2,658,000
Other 2,504,000 1,805,000
--------------- --------------
Net deferred tax assets 18,233,000 19,643,000
Valuation allowance (22,030,000) (19,643,000)
--------------- ---------------
Net deferred tax liability $ (3,797,000) $ -
=============== ===============
</TABLE>
At December 31, 1997, the Company had tax net operating loss carryforwards
("NOLs") of approximately $20.3 million, which are available to offset future
taxable income. NOLs begin expiring in the year 2007 through 2012 as follows:
2007--$1.3 million, 2009--$2.9 million, 2010--$1.7 million, 2011--$5.6 million
and 2012--$8.8 million.
As a result of the acquisition of certain markets wherein the book and tax basis
of the Cellular licenses are different, the Company recorded a deferred tax
liability and an increase to the book basis of the licenses related to these
acquisitions.
6. Common Stock
On December 22, 1994, the Company closed on its Initial Public Offering ("IPO")
of 7,812,500 shares of Class A common stock resulting in proceeds of $34.7
million after deducting expenses related to the offering. Concurrent with the
closing of the IPO, certain shareholders converted their Series A and B
Convertible Preferred Stock into an aggregate of 10,157,955 shares of Class B
common stock.
In connection with the overallotment agreement with the underwriters of the IPO,
during January 1995, the Company sold an additional 585,938 shares of Class A
common stock, which resulted in net proceeds of approximately $2.6 million.
During 1995, the Company's Board of Directors authorized the Company to purchase
up to 750,000 shares of its Class A common stock in the open market or in
private transactions from time to time. During 1995, 1996 and 1997, the Company
purchased and retired 127,250 shares, not effected for the 1996 splits, 149,600
shares and 10,000 shares at prices ranging from $5.40 to $8.30 per share, $9.00
to $12.00 per share and $10.37 per share, respectively. To date, the Company has
repurchased and retired approximately 287,000 shares of its Class A common
stock.
On July 14, 1995, Harvard Private Capital Group, Inc. and Spectrum Equity
Investors L.P. exercised an option to purchase a total of 1,293,461 shares of
the Company's Class A common stock. The proceeds to the Company totaled $5.0
million.
During October 1995, the Company filed a $200.0 million shelf registration with
the SEC, to be used for acquisition purposes only. The shelf registration covers
$100.0 million of debt securities (including convertible debt securities), $75.0
million of preferred stock (including convertible preferred stock) and $25.0
million of Class A common stock to be issued upon approval of the Board of
Directors.
On November 22, 1995, the Company sold 3,125,000 shares of Class A common stock
to an institutional investor, realizing net proceeds of $24.1 million.
In January 1996, Price Communications, an affiliate of the Company, acquired
warrants which are now convertible directly into 1,820,000 shares of Class B
common stock from former executives of an acquired company. The effective
exercise price is $5.02 per share of Class B common stock and escalates to
$6.32.
On February 4, 1997, the Company purchased and retired, under separate
authorization of its Board of Directors, 1,948,052 shares of its Class A common
stock from Horizon, which Horizon received in connection with the Kentucky
Cluster acquisition.
In July 1997, the Company repurchased and retired 3,994,945 shares of its Class
B common stock from Aeneas Venture Corp., an affiliate of Harvard Private
Capital Group, Inc. ("Harvard") at $9.00 per share, which was the current market
price at the date of the transaction. In addition, 56,275 warrants to purchase
Class B common stock, also owned by Harvard, were redeemed at a net cash
expenditure of $3.83 per warrant ($9.00 current market price less the exercise
price of $5.17).
In November 1997, Robert Price, Chairman of the Board of the Company, exercised
options for 742,188 shares of the Company's Class A common stock. Subsequently,
the Company purchased from Robert Price 200,000 of the 742,188 shares issued at
market ($11.25 per share), and simultaneously retired the same shares.
Shares of Class A common stock reserved for issuance are as follows:
December 31
1997 1996
---------- ----------
Options issued to employees 1,477,000 2,048,000
Options reserved for issuance 401,000 588,000
Warrants 1,820,000 1,876,000
Shares reserved for convertible securities 32,856,000 39,239,000
========== ==========
36,554,000 43,751,000
========== ==========
7. Preferred Stock
During December 1995, the Company issued 96,000 shares of Series A Cumulative
Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock") for gross proceeds of $80.0 million. The preferred stock accrues
dividends at the rate of 6.25% per annum compounded quarterly. Such dividends
will not be paid in cash but will accrue and be calculated on the face value of
$1,000 per share. The number of shares of Class A common stock into which the
Series A Preferred Stock is convertible is equal to the quotient obtained by
dividing the conversion value (initially $83.2 million and increasing to $96.0
million by the third anniversary of the original date of issuance or earlier
upon the occurrence of certain contingencies, plus, in each case, accrued
dividends through the date of conversion or, upon the occurrence of certain
contingencies, through the fifth anniversary of the date of issuance) by the
conversion price ($8.83 per share subject to adjustment). The Company can
effectively force the conversion of the cumulative convertible shares at such
time as the Company's Class A common stock trades at or above $14.72 per share
for 10 out of 15 trading days. The holder of each share of Series A Preferred
Stock is entitled to the number of votes equal to the number of shares of Class
A common stock the holder would receive upon conversion.
8. Sale of Cellular Operations
The Company made the following dispositions of cellular properties and
interests:
<TABLE>
<CAPTION>
Date Description Sales Price Gain (Loss)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997
January Florence, AL MSA and AL-1B RSA, sale of license $ 22,396,000 $ 8,451,000
April Sale of Minority Pops 1,255,000 (28,000)
===============
$ 8,423,000
===============
1996
July AL-4 RSA, sale of license $ 25,000,000 $ (1,640,000)
September Sale of Minority Pops 2,813,000 1,817,000
November MI-2 RSA, sale of license 6,500,000 (1,578,000)
===============
$ (1,401,000)
===============
1995
January Abilene, TX MSA, sale of assets $ 15,928,000 $ 11,598,000
March MN-6 MSA, sale of a portion of the license
representing 31,000 Pops 3,550,000 --
===============
$ 11,598,000
===============
</TABLE>
9. Commitments and Contingencies
Stock Option Plan
Under the Company's 1994 Stock Option Plan (the "Plan"), the Board of Directors
can grant options to purchase up to 2,636,000 shares of Class A common stock to
certain eligible employees and directors (Class A shares are entitled to one
vote per share). During 1996, the Company registered approximately 2,636,000
shares of Class A common stock reserved for issuance under the Plan. The Plan
provides that the option price cannot be less than the fair market value of the
stock on the date of grant and, accordingly, no compensation expense is
recognized. All options granted subsequent to January 1, 1995 have a 10 year
term and vest and become fully exercisable at the end of three years of
continued employment. The Company has elected to follow APB 25 and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
No. 123, Accounting for Stock-Based Compensation, requires use of option
valuation models that were not developed for use in valuing employee stock
options and are highly subjective.
Pro forma information regarding net income (loss) and basic and diluted earnings
(loss) per common share is required by Statement No. 123, and has been
determined as if the Company has accounted for its employee stock options under
the fair value method of that statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1995, 1996 and 1997 risk free interest rate of 6.25%; dividend
yield 0%; .480 for 1995 and 1996 and .323 for 1997 volatility factors of the
expected market price of the Company's Class A common stock; and a
weighted-average expected life of option of four years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
9. Commitments and Contingencies (continued)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands):
<TABLE>
<CAPTION>
December 31
1997 1996
<S> -------------------------
Net income (loss): <C> <C>
As reported $(20,171) $(23,043)
Pro forma $(21,318) $(23,818)
Basic and diluted earnings (loss) per common share:
As reported $(0.55) $(0.76)
Pro forma $(0.58) $(0.78)
</TABLE>
Since compensation expense associated with option grants is recognized over the
vesting period, the initial impact of applying FAS 123 on pro forma net income
(loss) is not representative of the potential impact on pro forma net income
(loss) in future years when the effect of recognition of a portion of
compensation expense from multiple awards would be reflected.
A summary of the Company's stock option activity, and related information is as
follows:
Number of
Shares Under Price Per
Options Share
------------------------------------
Balance at December 31, 1994 1,040,039 $3.71
Options granted 770,117 $4.54 to $8.72
Options returned for future issuance (41,016) $4.54 to $4.67
-----------
Balance at December 31, 1995 1,769,140 $3.71 to $8.72
Options granted 343,125 $10.80 to $10.90
Options exercised (8,329) $4.54 to $4.67
Options returned for future issuance (55,704) $4.54 to $10.90
-----------
Balance at December 31, 1996 2,048,232 $3.71 to $10.90
Options granted 217,500 $8.88
Options exercised (750,649) $3.71 to $8.72
Options returned for future issuance (38,102) $4.55 to $10.90
===========
Balance at December 31, 1997 1,476,981 $3.71 to $10.90
===========
9. Commitments and Contingencies (continued)
The weighted average grant date fair value of options granted in 1997 and 1996
were $3.38 and $4.84, respectively.
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------------------------------- ------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at December Contractual Exercise at December Exercise
Prices 31, 1997 Life Price 31, 1997 Price
- -------------------- ---------------- ----------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
$3.71 to $4.67 848,957 7 years $ 4.29 676,821 $ 4.20
$8.72 to $8.88 314,899 8.8 years $ 8.83 64,965 $ 8.72
$10.80 to $11.40 313,125 8.6 years $ 10.88 104,271 $ 10.88
</TABLE>
Lease Commitments
Total rent expense amounted to approximately $3,416,000, $2,378,000 and $877,000
for the years ended December 31, 1997, 1996 and 1995, respectively, of which
$47,000, $137,000 and $60,000 was paid to an affiliate during 1997, 1996 and
1995, respectively. At December 31, 1997, the Company is committed under the
following noncancellable operating leases:
Year
1998 $ 3,513,000
1999 3,040,000
2000 2,382,000
2001 1,708,000
2002 1,063,000
Thereafter 2,946,000
------------
$ 14,652,000
============
10. Related Party Transactions
The Company and AT&T Wireless Services Inc. are parties to an operating
agreement dated April 28, 1994, which provides for, among other services, switch
sharing agreements with AT&T's adjacent systems, assistance in obtaining
cellular system service and equipment discounts, assistance in evaluating
potential acquisitions and in securing financing.
11. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the consolidated
balance sheets approximate fair value.
Long-term debt: The fair value of the Senior Subordinated Notes and Senior
Subordinated Discount Notes is based on the quoted market price. The carrying
amount of the Senior Convertible Discount Notes approximates their fair
value.
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1997 are as follows:
Carrying Fair
Amount Value
---------------------------------
Cash and cash equivalents $ 61,357,000 $ 61,357,000
Long-term debt:
14% Senior Subordinated Discount Notes 165,000,000 182,738,000
10-3/4% Senior Convertible Discount Notes 45,623,000 45,623,000
12-1/4% Senior Subordinated Discount Notes 187,700,000 193,801,000
10-3/4% Senior Notes 170,000,000 187,000,000
12. Accounts Payable, Accrued Expenses and Other Current Liabilities
Accounts payable and accrued expenses consist of the following:
December 31
1997 1996
-----------------------------
Accounts payable $ 9,404,000 $ 4,592,000
Interest payable 5,920,000 2,792,000
Accrued operating expenses 12,467,000 3,819,000
Income and other taxes payable 1,847,000 2,597,000
Other 4,328,000 8,517,000
-----------------------------
$33,966,000 $22,317,000
=============================
Other current liabilities consist of the following:
December 31
1997 1996
--------------------------------
Amount due for untendered CIS shares $ -- $ 2,523,000
Unearned covenant not to compete 2,125,000 2,250,000
Other -- 3,000
--------------------------------
$ 2,125,000 $ 4,776,000
================================
13. Subsequent Events
Tennessee Acquisition
In January 1998, Kyle Cellular, a wholly owned subsidiary of the Company,
acquired, subject to FCC approval, the TN-4 RSA with approximately 264,000 Pops
from Bachtel Liquidity, L.P., an affiliate of Bachow & Associates, Inc. for
approximately $73.0 million in cash. The RSA, adjacent to three MSAs including
Knoxville, TN, is located south of the Company's Kentucky Cluster and features
such tourist attractions as the towns of Gatlinburg and Pigeon Forge, Dollywood
and the entrance to the Great Smoky Mountains National Park. $13.0 million will
be funded through available cash with the balance being provided by a $60.0
million Senior Secured Reducing Revolver (the "Borrowing") with J.P. Morgan
Securities Inc. The Borrowing matures eight years from the closing date with
repayment commencing in the year 2001 with final payment in the year 2005 in
amounts ranging from 10.0% to 25.0%. Interest will be charged at the LIBOR rate
plus a premium ranging from 1.500% to 2.250% depending on the ratio of debt to
cash flow as defined. The Borrowing requires the attainment of certain financial
ratios in order to maintain the permitted indebtedness. Violation of such ratios
requires the permanent prepayment of an amount to cure the deficiency. The
Borrowing is secured by the assets of Kyle Cellular.
Pursuant to the agreement the Company is required to enter into an interest rate
swap which effectively converts a portion of the interest on the outstanding
indebtedness from a variable rate basis to a fixed rate. The notional amount
required to be hedged is 50% of the aggregate outstanding principal amount.
Merger Agreement
On March 6, 1998, the Company and American Cellular Corporation, a Delaware
corporation ("ACC"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"). Pursuant to the Merger Agreement and subject to the terms and
conditions set forth therein, ACC will merge with and into the Company, with ACC
to be the surviving corporation of the merger (the "Merger"). At the effective
time, as defined in the Merger Agreement, each issued and outstanding share of
Class A common stock, par value $0.01 per share, of the Company (the "Class A
Shares") and Class B common stock, par value $0.01 per share, of the Company
will have the right to receive $14.00 in cash, without interest (the "Merger
Consideration"), and each issued and outstanding share of Series A Preferred
Stock of the Company will be converted into the right to receive the product of
the Merger Consideration and the number of Class A Shares into which each such
share of Series A Preferred Stock is convertible at such time in connection with
a change of control. The Merger Agreement permits the Company, under certain
circumstances, to respond to unsolicited third party acquisition proposals and,
upon payment of certain fees to ACC, to terminate the Merger Agreement.
In connection with the execution of the Merger Agreement, the Principal
Shareholders of the Company entered into a Voting Agreement with ACC. Pursuant
to the agreement, the Principal Shareholders, the beneficial owners of
approximately 39% of the outstanding Common Stock and Preferred Stock of the
Company (or 57% of the fully diluted voting power of the Company), agreed to
vote their shares in favor of the approval and adoption of the Merger Agreement.
The Voting Agreement terminates upon termination of the Merger Agreement. The
transaction is subject to, among other things, regulatory approvals.
PriCellular Corporation
Schedule I--Condensed Financial Information of Registrant
Condensed Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31
1997 1996
---------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,795 $ 33,032
Other current assets 1,088 7,650
-----------------------
Total current assets 2,883 40,682
Investment in and advances to subsidiaries 177,779 180,012
Other assets 1,071 1,235
-----------------------
Total assets $ 181,733 $ 221,929
=======================
Liabilities and stockholders' equity Current liabilities:
Accounts payable, accrued expenses and other
current liabilities $ 1,930 $ 923
Long-term debt 45,623 41,087
Stockholders' equity 134,180 179,919
-----------------------
Total liabilities and stockholders' equity $ 181,733 $ 221,929
=======================
</TABLE>
See accompanying notes.
PriCellular Corporation
Schedule I--Condensed Financial Information of Registrant (continued)
Condensed Statements of Operations
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Revenue
Other $ -- $ 237 $ --
Costs and expenses
General and administrative 558 384 293
---------------------------------------------
Operating loss (558) (147) (293)
Other income (expense)
Interest expense, net (3,714) (644) (324)
---------------------------------------------
Loss before equity in net income (loss)
of subsidiaries (4,272) (791) (617)
Equity in net income (loss) of subsidiaries (9,359) (22,252) (7,094)
---------------------------------------------
Net income (loss) $ (13,631) $ (23,043) $ (7,711)
=============================================
</TABLE>
See accompanying notes.
PriCellular Corporation
Schedule I--Condensed Financial Information of Registrant (continued)
Condensed Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
------------------------------------
<S> <C> <C> <C>
Net cash provided by operating activities $ 1,434 $ 2,762 $ 721
Investing activities:
Repayments from and (advances to) subsidiaries 4,062 (65,380) (31,149)
Amounts deposited in escrow to bid in PCS auction, net 2,500 1,640 (4,140)
Dividend received from subsidiary 12,000 -- --
Junior Subordinated Note receivable from subsidiary -- -- (20,000)
------------------------------------
Net cash provided by (used in) investing activities 18,562 (63,740) (55,289)
------------------------------------
Financing activities:
Proceeds from sale of common stock -- -- 31,633
Proceeds from issuance of Senior Subordinated Convertible
Discount Notes -- -- 35,607
Proceeds from issuance of preferred stock -- -- 79,599
Payments for deferred financing costs -- -- (1,455)
Exercise of employee stock options 2,834 48 --
Purchase and retirement of common stock (53,860) (1,450) (770)
Costs incurred in connection with common and preferred
stock offerings (207) (1,364) --
------------------------------------
Net cash (used in) provided by financing activities (51,233) (2,766) 144,614
------------------------------------
(Decrease) increase in cash and cash equivalents (31,237) (63,744) 90,046
Cash and cash equivalents at beginning of year 33,032 96,776 6,730
------------------------------------
Cash and cash equivalents at end of year $ 1,795 $ 33,032 $ 96,776
====================================
Supplemental schedule of noncash financing activities
Conversion of Class B common stock to Class A
common stock 24 17 8
Shares issued in connection with the acquisition of
cellular systems 19,125 -- 24,741
</TABLE>
See accompanying notes.
PriCellular Corporation
Schedule I--Condensed Financial Information of Registrant (continued)
Notes to Condensed Financial Statements
December 31, 1997
1. Basis of Presentation
In the parent company-only financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The Company's share of net income or
(loss) of its unconsolidated subsidiaries is included in consolidated income or
(loss) using the equity method. The parent company-only financial statements
should be read in conjunction with the Company's consolidated financial
statements.
2. Long-Term Debt
On August 21, 1995, the Company issued approximately $60.0 million aggregate
principal amount of 10-3/4% Senior Subordinated Convertible Discount Notes due
2004. The notes were issued at a price of 59.345% or $35.6 million. The original
issue discount on the notes accretes at a rate of 10-3/4%, compounded
semiannually, to an aggregate principal amount of approximately $60.0 million by
August 15, 2000. Interest will thereafter accrue at 10-3/4% per annum, payable
semiannually beginning February 15, 2001. The notes are convertible into the
Company's Class A common stock at a conversion price of $9.94. The Company can
force conversion of the notes under certain circumstances if the Company's Class
A common stock trades at $13.91 per share for ten out of fifteen consecutive
trading days.
There are no maturities of long-term debt until 2004 at which time the entire
note becomes due.
3. Other
On September 30, 1996, the Company forgave the Junior Subordinated Note due from
its subsidiary, PriCellular Wireless Corporation, which amounted to $21.6
million.
PriCellular Corporation
Schedule II--Valuation and Qualifying Accounts
(Dollars in thousands)
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Charged to Balance
Beginning Cost and Other at End
Description of Year Expenses Accounts Deductions of Year
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts $ 735 $ 936 $1,982 (A) $(1,577) $ 2,076
============================================================================
Valuation allowance for deferred
income taxes $ 1,538 $ 7,151 $ - $ - $ 8,689
============================================================================
Year ended December 31, 1996
Allowance for doubtful accounts $ 2,076 $ 2,079 $ 58 (A) $ (2,446) $ 1,767
============================================================================
Valuation allowance for deferred
income taxes $ 8,689 $ 10,954 $ - $ - $19,643
============================================================================
Year ended December 31, 1997
Allowance for doubtful accounts $ 1,767 $ 2,331 $ 513 (A) $ (2,925) $ 1,686
============================================================================
Valuation allowance for deferred
income taxes $19,643 $ 2,387 $ - $ - $22,030
============================================================================
(A) Results principally from the acquisition of cellular systems.
</TABLE>
APPENDIX G
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the period ended March 31, 1998
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 1-13526
-------
PRICELLULAR CORPORATION
(Exact name of the registrant as specified in its charter)
Delaware 22-3043811
- ----------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
711 Westchester Avenue
White Plains, New York 10604
- ----------------------------------- --------------------------------------
(Address of principal executive (Zip Code)
offices)
(914) 422-0800
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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 periods 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class A Common Stock, $0.01 Par Value - 21,987,847 shares as of May 10, 1998
Class B Common Stock, $0.01 Par Value - 12,970,994 shares as of May 10, 1998
- --------------------------------------------------------------------------------
PriCellular Corporation and Subsidiaries
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--March 31, 1998
and December 31, 1997............................................. G-3
Condensed Consolidated Statements of Operations--Three
Months Ended March 31, 1998 and 1997............................. G-4
Condensed Consolidated Statements of Cash Flows--Three Months Ended
March 31, 1998 and 1997........................................... G-5
Notes to Condensed Consolidated Financial Statements............... G-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... G-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. G-12
Item 2. Changes in Securities......................................... G-12
Item 3. Defaults upon Senior Securities............................... G-12
Item 4. Submission of Matters to a Vote of Security Holders........... G-12
Item 5. Other Information............................................. G-12
Item 6. Exhibits and Reports on Form 8-K.............................. G-12
Signature............................................................. G-13
1
Part I. Financial Information
Item 1. Financial Statements
PriCellular Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands, except share data)
March 31, December 31,
1998 1997
-----------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 60,884 $ 61,357
Accounts receivable (less allowance of $1,636 in
1998 and $1,686 in 1997) 22,981 19,465
Inventory 1,553 2,232
Other current assets 1,468 1,797
---------------------
Total current assets 86,886 84,851
Fixed assets--at cost:
Cellular facilities, equipment and other 147,337 134,156
Less accumulated depreciation (34,147) (29,302)
---------------------
Net fixed assets 113,190 104,854
Investment in cellular operations 37,007 37,017
Cellular licenses (less accumulated amortization of
$26,779 in 1998 and $23,119 in 1997) 560,706 493,315
Deferred financing costs (less accumulated
amortization of $5,839 in 1998
and $5,191 in 1997) 13,939 13,352
Cash committed for the acquisition of cellular
operations 13,000
Other assets 1,242 1,268
---------------------
Total assets $ 812,970 $ 747,656
=====================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 44,938 $ 38,208
Other current liabilities 1,313 2,125
---------------------
Total current liabilities 46,251 40,333
Long-term debt 635,016 568,323
Deferred taxes 3,797 3,797
Other long-term liabilities 1,055 1,023
Stockholders' equity:
Preferred Stock, $0.01 par:
Series A, cumulative convertible: authorized
10,000,000 shares; issued and
outstanding 96,000 shares
Common Stock, $0.01 par: 1 1
Class A: Authorized 100,000,000 shares; issued and
outstanding 21,987,847 shares 220 218
Class B: Authorized 50,000,000 shares;
issued and outstanding 12,970,994 shares 129 131
Additional paid-in capital 180,704 180,704
Accumulated deficit (54,203) (46,874)
---------------------
Total stockholders' equity 126,851 134,180
---------------------
Total liabilities and stockholders' equity $ 812,970 $ 747,656
=====================
See notes to condensed consolidated financial statements.
2
PriCellular Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, except share data)
Three Months Ended
March 31
1998 1997
---------------------------
Revenues
Cellular service $ 48,000 $ 32,679
Equipment sales 1,341 1,140
Other 2,162 1,747
---------------------------
51,503 35,566
Costs and expenses
Cost of cellular service 13,460 9,274
Cost of equipment sold 2,630 2,467
Selling, general and
administrative 14,779 11,278
Non-recurring charges 2,389 --
Depreciation and amortization 8,532 6,724
---------------------------
41,790 29,743
---------------------------
Operating income (loss) 9,713 5,823
Other income (expense)
Gain on sale of investment
in cellular operations -- 8,451
Interest expense, net (17,854) (14,696)
Other income, net 812 812
---------------------------
(17,042) (5,433)
---------------------------
Net income (loss) $ (7,329) $ 390
===========================
Net income (loss) after
adjustment for accrued
preferred stock dividend $ (9,028) $ (1,209)
===========================
Basic and diluted earnings
(loss) per common share $ (.26) $ (.03)
===========================
Weighted average number of
common shares used in
computation of net income
(loss) per common share 34,959,000 39,058,000
See notes to condensed consolidated financial statements.
3
PriCellular Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
Three months ended
March 31
1998 1997
---------------------
Net cash provided by operating activities $ 12,703 $ 5,911
---------------------
Investing activities
Purchase of cellular equipment (11,459) (6,494)
Proceeds from sale of cellular operations -- 24,396
Acquisition of cellular operations (481) (12,754)
Investment in cellular operations -- (2,523)
Refund of escrow and deposit for Personal
Communications Service auction -- 7,000
---------------------
Net cash provided by (used in)
investing activities (11,940) 9,625
---------------------
Financing activities
Costs incurred in connection with the issuance of
preferred
and common stock -- (205)
Payments for deferred financing costs (1,236) (292)
Proceeds from exercise of stock option -- 15
Purchase and retirement of common stock -- (15,440)
---------------------
Net cash used in financing activities (1,236) (15,922)
---------------------
Decrease in cash and cash equivalents (473) (386)
Cash and cash equivalents at beginning of period 61,357 100,364
---------------------
Cash and cash equivalents at end of period $ 60,884 $ 99,978
=====================
4
PriCellular Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)
(Dollars in Thousands)
Three months ended
March 31
1998 1997
------------------
Supplemental disclosure of cash flow
information
Cash paid during the period for:
Interest $ 96 $ --
Income taxes 78 1,307
Supplemental schedule of noncash investing
activities
Common stock issued in connection with acquisition
of cellular operation -- 19,125
Utilization of cash committed for the acquisition
of cellular operations 13,000 91,400
Debt issued in connection with acquisition of
cellular license 60,000 19,429
Supplemental schedule of noncash financing
activities
Conversion of Class B Common Stock to Class A
Common Stock 2 3
See notes to condensed consolidated financial statements.
5
PriCellular Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
PriCellular Corporation and its subsidiaries (the "Company"). All significant
intercompany items and transactions have been eliminated.
The condensed consolidated financial statements have been prepared by the
Company without audit, in accordance with rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the statements
reflect all adjustments necessary for a fair presentation of the results for the
interim period. The results of operations for the interim period are not
necessarily indicative of the results for a full year. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1997 Annual
Report on Form 10-K.
Net Income (Loss) per Share
All earnings (loss) per share amounts for all periods have been presented and,
where appropriate restated to conform to Financial Accounting Standards Board
Statement No. 128 issued in 1997. For the periods ending March 31 1998 and 1997,
no effect has been given to options outstanding under the Company's 1994 Stock
Option Plan, outstanding warrants to purchase Class B common stock, the 12-3/4%
Senior Convertible Discount Notes or the Cumulative Convertible Preferred Stock,
since the exercise of any of these items would have an antidilutive effect on
net loss per share.
3. Sale of the Company
On March 6, 1998 the Company and American Cellular Corporation ("ACC") entered
into an Agreement and Plan of Merger ("Merger Agreement") pursuant to which ACC
will merge into the Company, with ACC to be the surviving corporation. At the
effective time each issued and outstanding share of Class A and Class B common
stock and the outstanding Series A Convertible Preferred stock will be redeemed
at $14.00 per share payable in cash.
In connection with the Merger Agreement, the Principal Shareholders of the
Company entered into a voting agreement with ACC. Pursuant to the agreement, the
Principal Shareholders, the beneficial owners of approximately 39% of the
outstanding common stock and preferred stock of the Company (or 57% of the fully
diluted voting power of the Company), agreed to vote
6
PriCellular Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
their shares in favor of the adoption of the Merger Agreement. The transaction
is subject to, among other things, regulatory approvals.
As a result of this transaction, the Company has incurred approximately $2.4
million in fees and expenses which amounts are shown as non-recurring charges on
the Condensed Consolidated Statement of Operations.
4. Acquisition of Cellular Operation
On January 15, 1998, Kyle Cellular, a wholly owned subsidiary of the Company,
acquired the TN-4 RSA with approximately 264,000 Pops from Bachtel Liquidity,
L.P., an affiliate of Bachow & Associates, Inc. for approximately $73.0 million
in cash. The RSA , adjacent to three MSAs including Knoxville TN, is located
south of the Company's Kentucky Cluster and features such tourist attractions as
the towns of Gatlinburg and Pigeon Forge , Dollywood and the entrance to the
Great Smoky Mountains National Park. Of the total purchase price, $13.0 million
was funded through cash committed for the acquisition at December 31, 1997 with
the balance provided by a $60.0 million Senior Secured Reducing Revolver due in
the year 2005.
7
PriCellular Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
4. Acquisition of Cellular Operations (continued)
The above acquisition is accounted for on the purchase method and is included in
the results of operations from the date of acquisition.
Pro forma consolidated results of operations for the period ended March 31,
1997, assuming the acquisition was consummated as of January 1, 1997, is as
follows:
March 31,
1997
--------
Revenue $ 39,065
========
Net loss $ (1,218)
========
Net loss per common share $ (.03)
========
5. Long-Term Debt
In January 1998, the Company, through its wholly owned subsidiary Kyle Cellular,
entered into a $60.0 million Senior Secured Reducing Revolver (the "Borrowing")
with J.P. Morgan Securities Inc. The Borrowing matures eight years from the
closing date with repayment commencing in the year 2001 and final payment in the
year 2005 with payments ranging from 10.0% to 25.0% of the then outstanding
balance. Interst is currently charged at the LIBOR rate plus a premium ranging
from 1.500% to 2.2500% depending on the ratio of debt to cash flow as defined.
The Borrowing requires the attainment of certain financial ratios in order to
maintain the permitted level of indebtedness. Violation of such ratios requires
the permanent prepayment of an amount to cure the deficiency. The Borrowing is
secured by the assets of Kyle Cellular.
Pursuant to the agreement the Company has entered into an interest rate swap
which effectively converts a portion of the interest on the outstanding
indebtedness from a variable rate basis to a fixed rate basis. The notional
amount required to be hedged is 50% of the aggregate outstanding principal
amount.For the period commencing January 21, 1998 and ending July 21, 1998 the
Company has "locked in" an effective annual rate of 7.64% on the total
outstanding indebtedeness of $60.0 million.
6. Legal Proceedings
On March 24, 1998, a purported class action lawsuit was filed in the Supreme
Court of the State of New York, County of Westchester, allegedly on behalf of
the stockholders of the Company, against the Company (as nominal defendant) and
certain of the Company's directors (the "eIndividual Defendants"), Doyle v.
Price et. al., Index No. 98-04050. The complaint alleges breach of fiduciary
duties to the stockholders of the Company and that the proposed acquisition of
the Company by ACC (the "Transaction") involves unfair dealing and an unfair and
inadequate price. The complaint also alleges, among other things, that certain
of the terms of the proposed Transaction, including the break-up fee, are
improper, and that ACC is controlled by at least one of the Company's directors.
The complaint seeks to enjoin the contemplated Transaction, recission if the
Transaction is consummated, and unspecified compensatory or recissionary
damages, and costs, including attorneys' fees and experts' fees. The Company
believes that the complaint is without merit and that the Individual Defendants
deny all allegations or wrongdoing set forth in the complaint.
8
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
The current three month period ending March 31, 1998 reflects the continuing
financial growth of the Company's operations. Net subscriber additions
approximated 25,000 for the current quarter of which approximately 14,400 were
from internal growth, which is comparable to last year's first quarter. The
Company ended the current period with approximately 275,000 subscribers
resulting in penetration of 5.4% compared to approximately 179,000 subscribers
and a penetration rate of 3.8% at March 31, 1997. Churn for the Company
continued its improvement ending the current quarter at a rate of 1.4% compared
to 1.6% for last year's three month period.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
amounted to $19.1 million for the first quarter of 1998 compared to $13.4
million for the same period in 1997 or an increase of 43%. Management believes
that EBITDA is an effective measure of operating performance because it is
industry practice to use a multiple of EBITDA as one method of evaluating
cellular properties. EBITDA does not represent cash flow from operations as
defined by GAAP, and is not necessarily indicative of cash available to fund all
cash flow needs and should not be considered as an alternative to net income.
The Company in fact expects to incur net accounting losses for the foreseeable
future due to interest and non-cash charges such as depreciation and
amortization.
Except for the acquisition of the TN-4 RSA in January 1998, the financial
results of the Company are substantially comparable. The following is
principally a function of operations and not a result of acquisitions.
Historical Results of Operations
Three months ended March 31, 1998 compared with three months ended March 31,
1997.
Revenues for the quarter ended March 31, 1998 increased to $51.5 million
(consisting of cellular service revenues of $48.0 million, equipment sales
revenues of $1.3 million and other revenues of $2.2 million) from $35.6 million
(consisting of cellular service revenues of $32.7 million, equipment sales
revenues of $1.1 million and other revenue of $1.8 million). The significant
increase in the subscriber base which generates additional monthly revenue and
increased air time revenue is the primary reason for the increase. In addition
the Company's commitment to improving coverage in the markets through capital
additions has resulted in increased roaming revenue.
9
Total expenses for the quarter ended March 31, 1998 increased to $41.8 million
(consisting of cost of cellular service of $13.5 million, cost of equipment sold
of $2.6 million, selling, general and administrative expenses of $14.8 million,
non-recurring charges related to the sale of the Company of $2.4 million and
depreciation and amortization of $8.5 million) from $29.7 million of operating
expenses for the quarter ended March 31, 1997 (consisting of cost of cellular
service of $9.3 million, cost of equipment sold of $2.4 million, selling,
general and administrative expenses of $11.3 million and depreciation and
amortization of $6.7 million).
The primary factor contributing to the increase in expenses is the increase in
the volume of revenue due to the growth of the business. On a percentage basis
the cost of cellular service represents 28% of cellular revenue both for the
current and prior three month periods. Operating expenses consisting of the cost
of cellular servive, the cost of equipment and selling, general and
administrative expenses increased by $7.9 million, but as a percentage of total
revenue decreased from 65% for the quarter ending March 31, 1997 to 60% for the
current quarter.
The gain on sale of investment in cellular operations resulted from the sale in
January 1997 of the Florence AL MSA and AL-1B RSA.
Interest expense, net increased to $17.9 million from $14.7 million due to the
Company's issuance of $60.0 million of a Senior Secured Reducing Revolver at an
effective rate of approximately 7.7% per annum in January 1998, a reduction in
the amount of interest earned resulting from the lower cash balances for the
current three months and higher interest expense for the discounted indebtedness
outstanding as their balances approach the face value of the Notes.
Liquidity and Capital Resources
The cellular telephone business requires substantial capital to acquire,
construct and expand cellular telephone systems and to fund operating
requirements. The Company historically has financed its acquisitions and other
capital needs through the proceeds received from the issuance of debt
securities, the sale of equity interests, borrowings, vendor credit facilities
and, more recently, operating cash flow. As of March 31, 1998, the Company had
$60.9 million of cash and cash equivalents and $40.6 million of working capital.
During the first three months of 1998, the Company's principal source of cash
was $12.7 million from operations. The principal use of cash was $11.5 million
for the acquisition of cellular equipment The acquisition of the TN-4 RSA for
approximately $73.0 million was financed through the issuance of $60.0 million
of debt and the utilization of $13.0 million of cash previously reflected as
cash committed for the acquisition of cellular operations on the balance sheet
of the Company at the end of 1997, and not included in the opening cash balance
of $61.4 million.
10
he cellular telephone industry requires significant capital expenditures when
acquiring new markets or upgrading existing markets. The Company continues to
make a commitment to enhance its market's performance, particularly those
acquired during 1996 and 1997, as well as expand its marketing effects which
include, but are not limited to an increase in funds for advertising, cellular
telephone inventory purchase and other expenditures relating to subscriber
growth.
During the second quarter of 1998, the Company will pay approximately $22.0
million in interest and approximately $44.0 million for the remainder of the
year on their fully accreted Notes
11
Part II. Other Information
Item 1. Legal Proceedings
On March 24, 1998, a purported class action lawsuit was filed in the
Supreme Court of the State of New York, County of Westchester, allegedly
on behalf of the stockholders of the Company, against the Company (as
nominal defendant) and certain of the Company's directors (the "Individual
Defendants"), Doyle v. Price et. al., Index No. 98-04050. The complaint
alleges breach of fiduciary duties to the stockholders of the Company and
that the proposed acquisition of the Company by ACC (the "Transaction")
involves unfair dealing and an unfair and inadequate price. The complaint
also alleges, among other things, that certain of the terms of the
proposed Transaction, including the break-up fee, are improper, and that
ACC is controlled by at least one of the Company's directors. The
complaint seeks to enjoin the contemplated Transaction, recission if the
Transaction is consummated, and unspecified compensatory or recissionary
damages, and costs, including attorneys' fees and experts' fees. The
Company believes that the complaint is without merit and that the
Individual Defendants deny all allegations or wrongdoing set forth in the
complaint.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
12
tem 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
13
SIGNATURE
Pursuant to the requirements 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.
PRICELLULAR CORPORATION
By: /s/ Steven Price
---------------------------------
Name: Steven Price
Title: President
By: /s/ Stuart Rosenstein
---------------------------------
Name: Stuart Rosenstein
Title: Executive Vice President/
Chief Financial Officer
Date: May 15, 1998
14
